Q1 2020 Kroger Co Earnings Call
[music].
Good morning, and welcome to the Kroger Company first quarter 2020 earnings Conference call.
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After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
Please note this event is being recorded.
Now I'd like to turn the conference over to Rebecca managing director of Investor Relations. Please go ahead.
Thank you Gary good morning, and thank you for joining us.
I'm joined by Rodney Mcmullen, Chairman, and Chief Executive Officer, and Gary Miller, Chet Chief Financial Officer, and they will be providing an update on that business and disgusting first quarter results.
Yes, it's obviously, an unprecedented time and we're taking the additional that providing more detail on current business trends. This quarter. So our prepared remarks may provide a little longer than normal.
But before we began I want to remind you that today's discussion will include forward looking statement.
We want to caution you that such statements are predictions and actual events or results could differ materially.
A detailed discussion of the many factors that we believe they have a material back on our business on an ongoing basis is contained in our FCC filings. The Kroger assumes no obligation to update that information.
Both our first quarter press release and are prepared remark from this conference call will be available on our website at <unk> IR Dot Karger Dot com.
After our prepared remarks, we look forward to taking your question.
In order to cover a broad range of topics from as many of you as we can we ask that you. Please limit yourself to one question and one follow up question if necessary.
I'll now turn the call over to Rodney Mcmullen.
Thank you Rebecca and good morning, everyone.
A lot has happened in our world since the last earnings call.
We've got to adapt quickly to a new way of life.
The cobot 19 pandemic and the most recent instances of racial and justice.
I've changed our country unmistakable ways.
Most proud profoundly the devastating loss of life been livelihood that is affected so many Americans.
During the crisis Kroger has been guided by our purpose and our values I.
I am proud of our associates, who stepped up when we were called to be there for our customers communities and each other.
We are proud of their her ROIC and dedicated associates.
We're on the front lines, serving our customers when they need us most.
<unk> America enters the next phase of the pandemic. We know that are associates will continue to rise to the challenge.
Delivering fresh for everyone and helping our customers communities and America emerge even stronger.
I am proud of the measures that we've taken across our business to safeguard and support associates customers in our communities.
During the pandemic our priority has been to provide a safe environment for our associates and customers with open stores.
Ecommerce solutions and efficiently operating supply chain, so that our communities have access to fresh.
Affordable food and essential.
Since March.
The company has invested more than $830 million to do just that.
This includes the $150 million. Thank you pay for our frontline grocery.
Supply chain manufacturing pharmacy and call Center associates.
You are providing which we are providing to acknowledge their hard work dedication to maintain safe clean and stock stores.
We're pleased that our associates will share in the company's success with today's second installment of thank you pay.
We continue to invest in shipboard and protect our associates.
We are providing an emergency leave two associates, we are offering free cobot 19 testing to our associates.
We've increased the contribution to our help enhance fund the $15 million to provide additional financial support to associates experiencing hardship due to the virus.
Our work to safeguard associates will continue as long as the pandemic threats exists.
And we are proud that Kroger was named and Forbes magazine.
As leading one of the top 10 employer responses to the pandemic.
As part of Kroger's commitment to help America reopen safely our Kroger help team stepped up to help expand access to testing.
As a partner in the U.S. Department of health and human services public private testing partnership.
Through this initiative, we have tested more than 82000 patients in 15 states.
We also offered free check cashing for stimulus unemployment and social security checks.
Since launching this service weve cash more than 229000, chuck's totaling $244 million.
[noise] Kroger has learned and continued to learn a lot while keeping our stores and supply chain open.
And serving America during the pandemic.
The company's total covert 19 incident rate is tracking meaningfully below the markets, where we operate.
And our overall accident rate is the lowest we've ever recorded.
I'm incredibly proud of how our associates have worked together to practice, creating a safer environment for our customers communities and each other.
We've been able to share or learnings with other businesses and communities to help as they have begun to safely reopen through a resource guide we created.
Called sharing what we've learned a blueprint for businesses.
Our blueprint includes actionable recommendations and learnings that we've applied as well as what we've learned through regular interaction with governments health departments and with business leaders and other countries, including Italy, Singapore and China All of which were ahead of the you asked in terms of the pandemic cycling.
Through their countries.
Under restock Kroger, we've made significant strategic choices over the last several years to transform our business model.
And to redefine the customer shopping experience partner for customer value develop talent and live our purpose.
We've invested aggressively and technology to establish a seamless digital ecosystem and we've made incremental investments and fresh.
Our brands can personalization.
These investments in our competitive moats helped kroger billed business momentum in the second half of 2015.
Which continued through the start of our first quarter, even before the first phase of the pandemic began and our operating markets Ernest in March.
The benefits of the change changes that we've been making to our business model were accelerated by Covidien 18.
For example, our heavy investments in technology enabled us to reliably sustain the incredible almost overnight increase in demand for our pickup and delivery services.
There are other examples of how the pandemic accelerated kroger's transformation.
As you know we introduced Kroger's brand transformation campaign fresh for every one late in 2019.
We believe that no matter, who you are.
Where you're from how you shop or what you like to eat everyone deserves to have access to fresh affordable food.
This is proven to be even more important during these times.
In the initial startup phase of the pandemic customers purchase a lot of paper cleaning products and center store non perishable items to fill their pantries.
As the first new normal phase began to set in marked by preparing for extended time at home and often with children are fresh departments took an ever even greater relevance as more and more customers turn to fresh produce and proteins as staples of home cooked meals.
Fresh will continue to be an important driver of cells for Kroger as demonstrated by our fresh departments, including meat seafood and produce generating strong identical sales in the quarter.
Our brands had a great quarter as well and grew 21.1% driven by significant growth across our three largest brands.
Having identified plant based foods as a key trend well before 2019.
The simple truth plant based platform continues to deliver strong growth.
Rolling over 32% in the first quarter.
In this way by consistently delivering both value and innovation our brands will remain one of our most powerful competitive advantages.
Because of the continued economic anxiety, we are still offering our customers value through personalization and promotions.
Leveraging our mailers mobile App website and weekly ads.
We continue to offer promotions throughout the quarter with a focus on single item purchases.
Kroger began investing in digital several years ago to build a seamless ecosystem.
That would deliver anything anytime anywhere.
As a result, we have over 2000 pick up locations and 2400 delivery locations, reaching 97% of our customers with a seamless customer experience that combines the best of our physical stores with digital.
These investments were especially timely as cost customer adoption of pickup and delivery grew significantly during the pandemic.
And because of our existing ecosystem, we were able to respond quickly to further expand and enhance our ecommerce services.
We were able to quickly offer and promote end demand no contact delivery and low contacts pickup services.
We expanded and improved contact free payment solutions like scan bag and go and Kroger pay.
We took several steps to support the higher volume of pickup orders, including hiring additional ecommerce associates.
Adding more order pickup slots.
And increasing the frequency of communications with customers.
We also began testing a grocery pickup only location in Cincinnati.
All of this contributed to a 92% sales growth and digital channels in the first quarter.
In April and May the sales grew in the tough triple digit.
We continue to invest in and constantly improve our ecommerce capabilities.
Our partnership with Ocado remains an essential part of our revolving seamless ecosystem.
Our customer fulfillment centers will accelerate our ability to serve customers seamlessly.
And in a more cost effective way.
Earlier in June we identified three new regions, the great Lakes, the Pacific Northwest and the West for placement of our high Tech sheds.
When operationally these facilities will collectively create more than 1000, new jobs with the potential for hundreds of additional career opportunities.
Ed as we've shared previously we believe ocado its value as a partner is not just its current capabilities, but also in how quickly the company is able to innovate and rapidly serve rapidly changing consumer markets.
We're designing a flexible distribution network, combining this disk aggregated demand and proximity of our stores.
Medium size facilities and large sized facilities.
You can see this strategy, taking shape and the new automated cfcs, which will rate span a range of sizes.
The new facility in the West will measure 300000 square feet.
The new facility in the Pacific Northwest will measure 200000 square feet.
And the facility in the Great Lakes region will measure 150000 square feet.
The varying sizes demonstrate the flexibility of they have kotto E fulfillment ecosystem to best serve the respective markets.
Our network will flex is demand matures and the Optionality will allow us to fulfill same day or next day delivery or pick up and customer or store replenishment.
Kroger has been investing in to write raise wages for our frontline associates for the last several years.
As part of Restock Kroger announced in 2017.
Kroger is increasing associate wages incrementally by approximately $800 million per year through the end of 2020.
And this is more $300 million more than the original plan.
As a result of this continuing investment Kroger has increased its average hourly rate to over $15 per hour.
And with comprehensive benefits factored in our average hourly rate is over $20 per hour.
Benefits that many of our competitors don't offer.
Because of these investments are us and our established human capital management processes.
We were able to expedia, our hiring processes in early March to shorten the time between application and employment.
Onboarding, new hires and an average of 72 hours and focusing on boarding on culture and safety.
We were able to not only gener generally protect associate jobs in the face of record unemployment.
We also created new jobs, and new career opportunities for more than 100000 workers nationwide.
Our expedia aided hiring and Onboarding processes also enabled us to focus on associate and customer safety.
We were able to direct immediate support to the expansion of Kroger pickup availability.
As well as an enhanced cleaning and sanitation practices and our stores and facilities.
Where we needed to help the most.
Many of those new roles were bridge jobs.
Providing laying off workers with a stable job opportunity, while furloughed from their previous jobs.
Many of whom are now returning starting to return.
Additionally, I'm pleased to note an extension of our human capital commitments, we contributed an additional.
$236 million to multi employer pension plans in the first quarter.
This investment will help stabilize future associate benefits.
We work extremely hard to ensure that we have the right talent teams and structure in the right focus areas in our core supermarket businesses.
And our alternative profit businesses.
Our focus is on developing training promoting internal talent.
While same at simultaneously hiring season food industry executives to drive our retail supermarket business.
[noise] Kroger remains committed to diversity equity and inclusion with our workforce.
We are creating more opportunities for our associates to openly share their thoughts feelings and experiences with discrimination and for our company and leaders to more deeply and deliberately listen.
We will continue to educate and show our leaders and associates, how to be more empathetic supportive and aware of our own unconscious biases. So that together, we can build a better and more inclusive kroger.
[noise] Cobot 19 also accelerated our commitment to integrated BSG or sustainability practices.
What we're seeing in our communities during the pandemic confirms that are zero hunger zero waste Ms mission is more relevant than ever.
During the pandemic more than 80 million people in the U.S. lost their jobs.
And applied for unemployment benefits and or food assistance.
Many more families are struggling to put food on the table today.
Kroger is using our philanthropic dollars and foundations to support our food banks and other key partners.
Additionally, we are now accepting snap.
Benefits as payment for our pickup service, allowing more customers to access fresh affordable food through E Commerce.
We also implemented a dairy rescue support program for farmers.
Many farmers and producers did not have a market for their products as foodservice hospitality and restaurants remained closed.
We operate 17 dairies around the corner country.
And our uniquely positioned to offer processing capabilities.
Manufacturing and dairy procurement teams rapidly scaled a program to rescue surplus milk.
Donated by Kroger's dairy co-operative suppliers and process by Kroger operated dairies.
And directed to food banks and families and need.
Kroger is a trusted brand and our number one priority is to be there for our customers associates in communities.
We understand the transit transitioned to a new normal will not happen uniformly across the country.
As America enters the next phase, we're using our own customer insights and monitoring the impact of effected global markets to help us continue meet customer needs.
And now I'll turn it over to Gary for more detail into the quarter financials Gary.
Thanks, Rodney and good morning, everyone.
Before discussing results for the quarter I also want to thank our associates for their dedication and all they are doing to save our customers and communities. During this time.
The pandemic Berlin unprecedented challenges and I'm extremely proud of how our teams responded as America relied on Kroger as a trusted results for that food and essential needs.
As a result at the pandemic, we've seen elevated demand across our physical stores on digital channels.
I think your insights show customers continue to value the convenience of at physical locations on the ease of asking this ecosystem.
As many of you know we outlined our restock Craig a transformation plan in 2017 and as part of that plan, we made the strategic decision to invest in digital.
These investments allowed us to quickly add much needed capacity to serve our customers by scaling the foundational capabilities, we have built and continue to develop.
The outcome at these efforts has been a meaningful uplifting sales across all digital modalities procon pickup delivery and shit.
We made significant investments at more than $850 million in the quarter to reward associates and safeguard associates customers and communities during the pandemic.
We also contribute to $236 million to multiemployer pension plans to help stabilize future associate benefits.
Even with the significant investments and accelerated digital growth. We were pleased to achieve an improvement in FIFO operating margin, excluding fuel and adjustment items.
We firmly believe that our ongoing investments will help Craig a much stronger and it's clear from our recent customer data insights for that competitive moats fresh abrons personalization on a seamless ecosystem are even more important as a new normal begins to emerge in food retail.
Now I'd like to discuss our quarterly results in more detail.
We delivered an adjusted EPS of one dollar and 22 cents per diluted share.
Craig reporting identical sales without fuel at 19% during the first quarter.
Unprecedented demand for products across grocery and fresh departments led to these strong results.
Sales were broadly based across all retail divisions and remained heightened throughout the quarter as customers customers adjusted to the new restrictions and started preparing and eating more meals at home.
Leading into the pandemic our sales were strong building a mental momentum from the second half of 2019.
Three identical supermarket sales without fuel were ahead of our internal expectations.
During the last few days of February we started to see a shifting customer behavior as shutterstock is stockpiling I'm not trying to accelerate it into March with identical sales of approximately 30%.
Sales remained elevated in April and May bags of approximately 20% as customers continue to eat more time.
In the first few weeks of the second quarter, we are starting to see some changes in demand with sales growth, becoming more balanced across the store a state restrictions have started to lease.
Customers remain focused on health and safety and I'll still stocking up but to a lesser degree than during the shutdowns.
We're also starting to see a return to some splurge and impulse buying.
Customers are still cooking more time, even with the easing restrictions and identical sales so far in the second quarter are trending in the mid teens.
We do expect sales to continue to tape out at the quarter progresses.
Digital sales grew 92% and contributed slightly gave a 3% two identical sales without fuel.
New customer engagement with our pickup and delivery services spike significantly during the quarter and we have been encouraged by early customer repeat usage.
Digital sales in the second quarter remain elevated upped triple digits in the first three weeks.
We continue to invest in digital and off at a fee free pickup formation to provide more value for our customers in ways that are most relevant at this time.
We were also excited to announce several new enhancements to our digital customer experience, including the launch of our checking on arrival option for pickup customers on the launch of contactless doorstep delivery.
Adjusted FIFO operating profit for the first quarter was $1.45 billion compared to $957 million in the first quarter of 2019.
Gross margin was 24.3% of sales for the first quarter.
The FIFO gross margin rate, excluding fuel increased 44 basis points due to sales leverage related to shrink transportation warehousing and advertising costs.
Our associates continues through an impressive job managing shrink which saw a significant improvements in the first quarter compared to last year.
The energy in a rate increased 51 basis points, excluding fuel adjustment Tysons.
No adjustment was made to this known about the kind of at 19 related costs.
As previously mentioned during the quarter Kroger made the decision to countries, an incremental $236 million to multi employer pension plans.
Excluding the incremental pension contribution fuel and adjustment items, the OGE DNA rates improved 10 basis points.
Rent and depreciation excluding fuel decreased 37 basis points due to sales leverage.
We do expect some kind of related cost to continue beyond the first quarter as we continue to invest in associates and customers safety as well as support fights and digital demand.
We also made the decision to delay certain restock, Craig a cost saving initiatives to allow our associates to focus on our most important priorities safety and stocking shelves.
We have now started to reintroduce the tonight initiatives, while also maintaining our commitment to associate and customer safety.
We still expect to achieve the vast majority of the talk exceed $1 billion of savings and Twentytwenty.
Fuel remains an important part of our strategy to drive customer loyalty, we saw a significant decline in gallonage during the quarter as with the national trend.
We remain well positioned within our markets due to our fuel procure procurement practices and market leading reward program.
The average retail price of fuel was 2013 cents this quarter versus $2.62 in the same quarter last year.
Our sense pick out on fuel margin in the first quarter was 48 cents compared to 23 cents in the same quarter last year and as a result fuel profitability was a major tailwind in the quarter.
For the remainder of Twentytwenty, we expect fuel profitability to be a headwind compared to prior year as we cycle margins from 2019, and callings continued to be impacted by cubic 19.
Craig This alternative profit model is bill from a platform of leveraging supermarket traffic and data and is expected to achieve profit growth and twentytwenty.
During the first quarter, Craig a personal finance experienced lower transactions as customers purchase less gift cards, many services on luxury.
Customer activity has started to improve since April of states of reopened and while we would expect this trend to continue KPN profit is expected to be lower than our original expectations that twentytwenty.
Media experienced a slowdown in late March and April as campaigns were opposed to refocus messaging on store and employee safety on certain install programs were impacted by stay a time orders.
Our media business rebounded strongly in may and the strength of our digital sales Kartik has created significant momentum momentum for Craig of precision marketing, which is now on track to achieve 50% growth in twentytwenty.
We remain confident in the significant potential alternative profits, especially given the continued growth in traffic across our store and digital ecosystem.
Despite short term headwinds due to coated 19, we continue to expect alternative profit to be a major accelerator model in the future.
As Randy mentioned, we continue to invest in our associates as a key part of restock Kroger in a variety of ways, including investments in wages training and development.
We ratified new labor agreements with the U.S. CW covering associates in food for less, California, and South Carolina during the first quarter.
We are currently negotiating with the U.S. CW for contracts covering store associates in Las Vegas, ROIC, Little rock and Houston as well as Dallas meet clocks.
Looking ahead, we have several major negotiations later in the year, including contracts with the U.S. CW historic stations in Charleston, West, Virginia, and Fries associates in Arizona.
Our objective in every negotiation is to find a fair and reasonable balance between competitive costs and compensation packages that provide solid wages, good quality affordable health care and retirement benefits for our associates.
We strive to make our overall benefit package relevant to today's associates.
Our financial results continued to be pressured by health care and pension costs, which some of our competitors do not face.
We continue to communicate with our local unions and the international unions, which represent many of our associates on the importance of growing our business in a profitable way, which will help create more jobs on create opportunities and enhance job security for our associates.
Chris Financial model has proven to be resilient throughout the economic cycle.
We continue to generate strong free cash flow I maintain strong liquidity.
We are committed to investing in the business to drive profitable growth maintaining at current investment grade debt rating on returning excess free cash to investors by share repurchases and growing dividends over time.
We are being disciplined in how we deploy capital and all aspects of our capital plan being evaluated to make sure that are invested our investments position Kroger. The long term success based Capex 19.
We still expect total capital expenditure of between 3.2 and 3.4 billion in Twentytwenty.
Kroger's net total debt to adjusted EBITDA ratio is 1.81 compared to 2.5 for a year ago.
This is below our target range of 2.3 to 2.5.
Craig how temporary cash investments of approximately $2.3 billion as of the ended the quarter, reflecting improvements in operating performance and significant improvements in working capital.
We expect working capital to improve for the year, although not to then I have an experienced in the first quarter, which was inflated by the extraordinary sales growth due to cobot 19.
Given the uncertainties that remain related to kind of at 19 on the outlook for the remainder Twentytwenty. We believe it's prudent to maintain financial flexibility in the short term.
We remain committed to add dividends and share repurchase program and in the coming months. We will also be evaluating the optimal use of any excess free cash flow consistently that previously stated capital allocation strategy.
Turning now to guidance to Twentytwenty, the kind of a pandemic has dramatically changed the outlook for food retail and we continue to monitor evaluate and adjust our plans to address the impact to our business.
There are still many unnamed factors rights to the long term impact of kind of at 19 that could influence our financial results for the remainder of Twentytwenty such has continued investments to help our customers and associates.
Uncertainty surrounding consumer behavior restrictions and what will be the new normal.
On potential long term shifting customers 18, more food at home.
In recognition of these factors, it's difficult to predict specific outcomes and as such Kroger is not reaffirming all providing new twentytwenty guidance, while we do expect to exceed the outlook shed in our April. The first this is update for identical sales without fuel adjusted FIFO operating profit adjusted EPS and adjusted free cash flow.
The company is not able to forecast the extent of such upside for the reasons mentioned.
As we continue to proactively adjust our plans in response to the pandemic. We rank we remain committed to investing to ensure a safe environment for our associates and customers and we will also continue to use our customer insights to invest in delivering greater value for customers in ways they value most and the build loyalty.
Chris Financial model has proven to be resilient throughout the economic cycle, we remain confident in our business model as well as our boats to generate strong free cash flow and digi achieve sustainable and attractive total shareholder returns.
And the second quarter, we expect identical sales excluding fuel tick to continue at elevated levels, although tapering from the trends we've experienced so far in the quarter.
We expect EPS growth in the second quarter to be in the mid to high single digit range with Tailwinds and supermarket sales, partially offset by continued investments on fuel headwinds.
As the longer term impact of kind of at 19 becomes clearer we are committed to providing more clarity on our expectations for the remainder of the year.
I'll now turn you back to Rodney.
Thanks, Gary I'm, so proud and deeply grateful for half a million associates, whose step forward to be there for our customers and communities when they need us the most.
True Kroger spirit, they've risen to the occasion to each challenge presented with a strong spirit of agility determination and service to meet the needs of our customers.
And these are the exact skills that will ensure the company will mean relevant to our customers in the future.
As I shared when we first began the call. This call we quickly had to adapt to a new way of life.
We continue to make progress on the underlying business, even with the recent customer demand tailwinds.
We are confident that restock Kroger has allowed us to reposition our business and to create value for all our stakeholders prior to and during the covert 19 pandemic.
Now we look forward to your questions.
Okay.
We will now begin to question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
Our first question comes from Rupesh Parikh with Oppenheimer. Please go ahead.
Good morning, Thank you for taking my question and congrats on the quarter.
Okay. All right. Good we weren't as Gary just wanted to go back to your I guess, your where you decide about Q2 EPS growth mid to high single digit I think you said mid to high single digit escrow.
To help us understand more as some of the headwinds there I'm getting to that level growth.
Yeah, I think the biggest factor refresh would be that I mentioned, it earlier, but just to maybe to get a bit more more color on NAV fuel for quarter, one and how we see quota to potentially shaping up because that would be the I think the biggest factoring the numbers overall as I mentioned earlier, when we think about the supermarket business. We're expecting continued strong sales momentum on.
We feel good about the ability to manage the m. the margin in the investments that will continue to make as a result to kind of at 19 I think the biggest factoring the difference between the two quarters as we look at the guidance for the second quarter in the first quarter fuel as being a significant tailwind for us overall, despite the fact that gallons were with significant.
Through targeted as we start to look at Q2 and will be cycling.
Margins from Q2 last year, and even though the fuel trending gallons has continued to gradually get better every week, we're still seeing a a declining year over year gallons in the current trend would be in this sort of mid teens range of negative growth in gallons, which is consistent with what is being seen in the market. So as we look at the the fuel performance in Q2 and.
What we see today, we thinking that could be a headwind of anywhere between $50 million to $100 million. So it would be important to think about Nigel as you're thinking about the guidance that we share the Q2, because that would be the I think the primary factor that would despite the continued growth and improvement in performance that we'd expect over the original budget in the supermarket business.
After the outbreak and then.
Okay. That's really helpful. Just one follow up question should we just on E. Commerce. So do you guys look at you know obviously you have the partnership with the Kotto how does what you've seen recently changed your I guess your ecommerce man's or investments going forward.
Yes.
I Love the question and if you look at the strategic decisions we've made over the last several years.
Highlighted those decisions really paid off in the current environment.
Our our digital AD delivery and pick up business.
In the last.
Two months grew triple digits and continues to grow with that.
And to have the ability to grow at that kind of level back quickly just so proud of the whole team in terms of the foundations that were already in place, but also the stores and all the other parts and supply chain on being able to supply and hire people and support that so we.
We fundamentally believe that long term trend will continue where people will continually depend more on E commerce.
We certainly have seen that being accelerated.
We don't think it will stay at the accelerate at a higher level, where it is today permanently but.
But we do think that fundamentally the growth has been accelerated and will be higher than where it started before cobot 19, and then grow from there.
One of the things, it's incredibly important because all the pieces tied together and including Ocado.
I will allow us to continue to grow and prove our profitability of that part of the business.
As as you know.
When a customer first switches to online.
Typically takes three or four years before that cuffs customers profitability is the same as when they shop in the store.
What we find is we get a significantly higher share of that customers total households.
And there isn't anything that we've seen that wouldn't cause us to believes that the news.
Ecommerce shopper.
It doesn't feel that way in a lot of those customers are telling us they intend to continue to shop more ecommerce than before and we would expect to get a higher share of their business. We've also seen a lot of customers new the Kroger.
And use our delivery and pick up business and we're seeing nice repeat purchases from those customers. So all those things caused us to feel good about the things we have in place and feel even better about ocado and the other pieces that we're working on going forward.
Great. Thank you. Thanks, Thanks Rupesh.
The next question is from Simeon Gutman with Morgan Stanley. Please go ahead.
Thanks, Good morning, that's going to have something different but I'm. Good morning, I wanted to ask you Rodney just made the comment that takes about three to four years to achieve the same profit do you mean that on an ongoing basis or is that lifetime value because over three to four years I purchased enough through the digital channel and therefore the the.
I guess, the profit becomes equal or on a go forward basis after.
Your three or four the variable cost or the actual basket economics of each become even.
Yes, it's each customer's household.
So if you look obviously when they first switched to E. Commerce, we're spending the labor to pick their order where before that the customer spent that labor.
What we find is overtime, we continue to get more efficient with our picking operations on picking in order and the customer spends more money with us so their total spend increases.
So what we find is.
Every it's you'd have to look at every single customer separately. So the customers at first started shopping ecommerce three years ago, there to the point now where their profitability is the same as before they went to E commerce, but we're getting a higher percentage of their spend and looking forward. We believe we'll be able to continue to reduce the cost.
Cost to serve that customer a new customer starts day, one so you have that.
Headwind until we are able to earn more of their total household spend and what we find is we're able to do that.
Okay. That's helpful and my follow up is on the 92% growth in the for in the first quarter did you say the mix or are you surprised by anything about the mix between delivery and pick up and then anything you can share on how it impacted gross margins for margins broadly it sounded like if you picked up a lot of new customers. It would be and you know a pretty delay.
Position for that lifetime of the customer, but anything you can share on it. Please.
If you look delivery was a higher growth all then pick up or.
Especially during the peak of the Cobot cases.
As a areas of reopened and that accompanies of reopened their offices and things like that.
Growth are starting to get a more similar.
Hi, Gary on the gross I'll, let you answer the gross in the changes there sure yeah. Thanks for the question I would say that the ways that we see the digital customer behavior flight driven the pay and now it's not a meaningfully different mix intensive overall a pass through in gross margin rate Romney's point Telia generally we see customers increased.
Spend the basket size increases on them that mix is pretty consistent the area that would have impacted gross margin would it be more in that the fact that we run the fee waiver promotions. So that would have certainly been a headwind in the gross margin category really where we see the bigger impact on digital as Rodney said earlier response around that the incremental labor that's involved in picking.
The order so if you think about.
The pass through rate that we might see on a traditional sale through the store, which we've talked about historically being the you know the 15% plus range it would be significantly lower than that on that on the on the equivalent basis, because you've got the incremental labor associated with those sales. So it would it would be more of an impact in the near Junaid rate than it would be in gross margin. When you think about the core.
Okay.
Okay. Thanks.
Thanks.
The next question is from Edward Kelly with Wells Fargo. Please go ahead.
Yes, hi, guys good morning.
Just first first a follow up and then and then a real question as we think about Q2 could you just help us out what are you assuming for I.D.'s in the quarter. What are you thinking about from a a continued cobot cost perspective, and how do we think about gross margin relative to what we just saw in Q1.
Yeah. Thanks for the question that I like this couple of file so that obviously I think in terms of sales as we shed in Iran and have a brief prepared comments on sales were obviously watching the trends very closely part of the challenge is it's very hard to now obviously exactly how we expect the the customer behavior.
Two returned back to whatever a new normal becomes we certainly expect as states of reopened to start to see a gradual returned to some level of lower food eaten at home and but we do think that's going to be more gradual than a specific stair step down we're starting to see some changing.
Q2, as we mentioned during the prepared comments and.
But it but it's not really sort of specific stepped down when states of refund is much more of a gradual process as you start to see customers returning to some level of normal behavior. I would also say, it's not very consistent it's not as though states that reopen first I'll seeing the biggest stepped down it's relatively.
More tied to when asked nice first experienced a major outbreak of kind of it from what we can see and also.
I I, depending on how aggressive the spike in sales learned not market. When the outbreak first happened that's tending to more correlate with the the gradual change in shopping behavior. So we're watching it very closely we are starting to see visit frequency pick up a bit we're seeing more the.
The departments that might be more splurge, and I mentioned earlier growing like deli bakery, and specialty cheese and floral but it really is a gradual process and I think we still sites too early at the moment only a few weeks in Tonight. So we're expecting it to be a a gradual stepped down from from where we ended Q1 and on the trend that we shed so far in Q2, and obviously, we're watching it very closely.
Maintaining flexibility to make sure we're winning every dollar from a customer perspective around how we make sure we continuing to gain gray market share and grow share of wallet.
From a at a.
Gross margin perspective, obviously, we haven't gone into specific guidance around what we would expect to see that we continue to invest in promotions as Rodney shad, and we certainly expect that to become more and more normal as we go through the NAV in the supply chain starting to I to normalize, but there are still going to be some areas why it'll be more difficult to permit.
There's still some overhangs a supply issues in certain categories.
On the Capex related costs.
It really maybe if you think about breaking down the total Oh DNA expense in Q1, 23 buckets I would kind of to categorize it into the first would be the Kobe specific costs around $830 million that we talked about obviously in the press release in the prepared comments.
The majority of that was around rewarding our associates and making sure that they shared in the success of the quota and then there were also some costs associated with.
Incremental labor cleaning NPP equipment, we'd certainly be expecting some of those cost to continue as we go through the with safety being the top priority.
We're also obviously investing labor in supporting our digital growth and we'd expect that Tim that lay but to continue as we continue to win that customer and make sure that winning never April loyalty and with a major cost synergy and obviously with the pension contribution, which we wouldn't be expecting to repeat so I think it's really an energy in any of the cost that would flow through I going to be.
The safety and cleaning costs that we expect to continue to be investing on the incremental labor associated with supporting digital growth going forward.
One other.
That comment Ed on the first part of your question and it's hard to assign specific numbers and specific numbers, just a second quarter versus third quarter fourth quarter, and even 2021, but when we when we talk to customers we are.
Our customer still tell us they plan to eat world meals at home than before.
When talking to customers about when they.
Children returned to schools.
We still have a significantly higher percentage of families telling us they plan to make breakfast for the kids to take the school and watch for the kids to take the school all of those things.
In terms of what customers are telling us we would expect they'll be more meals.
Eaten at home or prepared at home.
That obviously will help support growth as well.
I understand the reluctance to really give I'd guidance, but at the only thing that I would say is that it does matter. If it's mid to high single digit EPS growth on a double digit I'd versus a single digit I'd from an investment perspective so.
You know to the extent that you can output out with that that I think what mattered. How people are looking at your story.
The other thing that I that I needed to ask about as the pension contribution because I think people are getting kind of hung up here.
The 200 plus million dollar contribution that you made this quarter I believe that relates to that group of four met plans that you essentially kind of control and taken houses is that right.
That's right so think of it as it's a green status plants over 80% funded so there's not an obligation for us to make that payment, but obviously, it's something that we committed to making sure that longtime where securing that.
Future liquidity at the plant and especially during times like this when this market volatility sometimes that can be pressure on those plans to have to liquidate assets to be automate contributions and we wanted to make sure that the plans, we're not putting not risk. So we decided to to basically invest those dollars now to protect the future and obviously over time that will de risk the need for staff to invest but it was.
And a requirement to make those maintenance.
Okay. So it sounds like Thats pretty funded at this point, so maybe we don't see that type of contribution going forward.
The other plant that you have as you have a you know you're obviously in the traditional map right with other grocers, which is negotiated and there's no real reason for you to make one off contributions like this.
Into those planned isn't that right.
Correct, yes, the only way that we would approach those examples would be if we identified an opportunity to be able to.
Pulled away from the Multiemployer Panam bring them into the same way that we run that U.S. CW plan. If there was that if it made sense for us to do that from an investor and associate perspective, because we could de risk the the future liabilities and be able to take more control it that that potential exposure in the future, but we have no obligation on those.
Lastly, with it may take that action like we did with the planned he described earlier.
And your defined benefit plan to corporate one is frozen now right that's right exactly yes, not fully finding.
Great. Thank you.
Thanks, Ed.
The next question is from Karen short with Barclays. Please go ahead.
Hi, just following up on that thanks for taking my question. So the actual can you give us an update on what the actual liability is on the multi employer pension in dollars pretax and then with this contribution that you just made.
Is there do we adjust and I know you haven't given the annual piano and cash impact and the multiemployer pension.
Contribution for many years, but but are we think like when we think about modeling it beginning to key does that actually expense dollar amount come down based on the contribution you made and then I had it totally separate question.
Yes, so it depends on which piece of that plan just to clarify currently talking about so as Ed mentioned, a moment ago, we have a multi employer plans that we separated and we now manage internally and as I mentioned earlier they would be in the the green status. So this would be no obligation for us to be making those payments, but we're obviously looking to get them over time.
And to a fully funded status and to minimize the risk of associates I think about not as its minimizing if returns went way they needed to be it minimizes the risk because of those having to make contributions in the future on didn't show up those pension plans are in the strong position for our associates. The at the multi employer plans that were.
Where a participant in but we don't have a current publication to fund beyond the annual contributions that we're making.
Through a negotiated contracts with the unions that would be an exposure at the end of last year and as reported in the 10-K $2.3 billion oil or 1.8 after tax on them that they have long as where over time, we would certainly look at if there are options to add to figure out a different ways to structure.
Our arrangements so that we can address those liabilities, but they would be very specific if you find the ring fenced transactions that we would obviously share publicly in the future if were to to decide that was the right thing to do.
But as we think about the actual expense on the pan out beginning into Q.
I know you've gotten you don't guide that anymore, but how should we think about that.
Expense related to what I'm, sorry comments from.
One of them altogether.
Yes, so as I as I've mentioned, we would have to pension expense related to a multi employer pension plans that we pay into as part of the negotiated contracts with the unions and obviously, we know where where we need to continue to fund. The plan. This internal we'll make those contributions when we need to but but we don't.
I see that back and that can vary significantly, but most of the most of that pole.
Michael that pull forward, maybe a potential liability in the future what it doesn't relate to what we were doing twentytwenty.
Okay got it thanks, and then just looking at digital in terms of your overall digital we do you would just be able to give us what your actual percent sales.
<unk> was in one Q and then what the split was between I guess click and collect and third party, which I would say is it mostly instacart and then the SEC last question I have let's just on your cash balance.
Billion just thoughts on that.
Well, if if you look in terms of over all.
Digital would have done at a probably six after 7% of total company.
It would have been predominantly pickup versus delivery.
In terms of the mix, but the percentage growth was higher on delivery.
So and if you look at.
Yes.
The other thing on delivery a lot as delivered directly to people's homes, either through Fedex or you P. us.
And that's basically is a similar number is what is delivered via Instacart and other services.
On the other piece of Gary I'll, let you answer kerins other.
Yes, Thanks, Rodney I'm, sorry, we were all looking to get the digital in them before you that can can you repeat the second part of the question.
Oh, just on a cash balance I mean, I haven't had it sounds like that for a while so.
Where you're at <unk> in terms of deployment of that.
Yeah, So as I mentioned, a little bit in the prepared remarks, we certainly we're thrilled with the cash balance that we generated during the quarter part of that does reflect improved operating performance part of it was a significant improvements in working capital we want to make sure that obviously, we we maintain maximum flexibility in the short term just with some of the onset.
And to the still exists in the market and we also want to make sure we understand.
How much of the working capital if any if it will continue because we do believe we've made strong progress on working capital over the last ready 12 months 18 months as we continue to look at ways to free up cash flow, but some elements of that will be inflated just because at the high sales in the first quarter and the the way I working capital cycle works and somebody's also related.
To that the Kazakhs why there's a delay in certain tax payments as part of the way to attack. The Kazakhs was structured so we wouldn't expect that as a result of all of that still to generate incremental free cash flow. This year as we go through the next couple of months, we'd really going to focus on what do we think is the optimal way to use that cash flow consistent with that.
Our overall capital allocation strategy that we shared with you.
In our Investor day in November So think about is we'll look at other opportunities where we could continue to invest in the business to drive longer term growth I will certainly be looking at other any reason to restructure any if the and the pension future and ETP liabilities that would allow us to take that.
Potential liability and risk off the table longer time, and then of course Whittles I'd be looking at how might we redeploy that cash to our shareholders consistent with our strategy is.
Continuing to drive dividends over time, but also looking at buybacks to shareholders as well.
Great. Thanks payment.
Good there are the next question is from Judah Frommer with credit Suisse. Please go ahead.
Hi, Thanks for taking my question, one a little bit more long term you know you guys probably have some of the best data analytics on your customer base in the industry. So so when Rami mentioned kind of the habits of newer customers and specifically new E com customers right, how could you see the opportunity to further.
Monetize or kind of gain for their loyalty from new and existing customers coming beyond that pandemic right. If you assume that people are going to eat a little bit more at home and that you have the ability to kind of incentivized to your customers, who do a little bit more than that how does maybe next year look for you relative to where you may have thought it would be before.
The pandemic.
Yes.
We love the question and it's something that were.
Spending a ton of resources you know, we had as many new customers come to us in a.
A couple of weeks says, we what we did all of last year and we continue to have a lot of new customers. So we're using all the things that we would normally do on welcoming new customers and but doing it at a much more aggressive way obviously one of the things that we want to make sure as they have a great experience. So if you look at our supply chain team.
Working with our merchants were getting the stores inventories back up to pre covered level. So the in stock position improves.
The continued focus on fresh and continuing to even.
Fresh was a priority already but making sure that the products that customers get states fresh and then with a friendly for smile or an incredibly easy digital experience. So your question, we love it's the opportunity that.
We have in front of us.
So far we've been able to gain good market share during the pandemic and obviously, we're going to continue to focus on making sure we take care of those customers and.
Keep them and continue to build their basket in terms of what they spend with us versus other places.
Due to the anything I would add is that we to your point around data. We spent a lot of time looking at the the data that we have I don't say the data that's available in the marketplace and the last 20 years from whether its government data more broad market data along with our own shopping information and really looking at one of the scenarios around where we see the customer going.
I have a to your point not ready the next sort of month or two but the rest of the even into next year and maybe even further out and we do feel on from everything that we see that we're putting ourselves in a strong position basis based on the investments that we're making as part of restock Kroger to come out the other side of this in a stronger place and everything that we.
See while this obviously no one knows and it's hard to predict what size. It based on the less around maybe the pandemic, but just on generally when customers are into more of an economically challenged situation on combining that with these restrictions. We do think there'll be some level of I wouldn't call. It a permanent shift, but but in multiple years shift to food Eaton app.
Times versus food away from home and that's been very much the case anat data and the external data when you look at the last couple of recessions. So our focus is very much on how do we make show away using our personalization and tools and our strategy around creating value to really make sure that as we look out 12 18 months, we come out.
This in a in a stronger position both in customers can see me more food at home, but also Craig its market share so that it allows us to accelerate our overall.
Long term model around restart Kroger, but also delivering shareholder value and we feel very positive about the the way in which we believe we can deliver that over the longer tail I think it's easier to look at a longer term in some way, but it is probably for the next six months and how exactly the trends will play out.
Okay. That's helpful and if I can follow up on kind of two items and then maybe we can clean up a little bit just first on the pension in terms of could go forward you know expense that's hitting the income statement that hasn't changed at all just what's running through the income statement is what you're required to contribute.
To those external met plans is that right and then and then second for the gross margin in Q2 ease there's still a headwind from alternative profits being a little bit slower than they would be and is there also some benefit from promotions not being fully back to where.
You'd expect him to be.
So on the pension so yes, I would say that the payment that we make it in Q2 is a discrete payment that we deliberately sorry in Q1, I'm sorry that we deliberately.
Took when decision as we were in a strong position from a performance perspective on a cash flow perspective, we have no obligation to make that payment. It doesn't it doesn't cause us to have to make payments later in the year old, but we are obligated to some additional commitments later in the it was very much a decision that we may to take advantage of the strong performance.
Sand essentially protect that future risk and make sure that associates pension plans are in a strong position. So it's very much more of a a forward looking view of saying, let's make sure we're putting ourselves on putting our associates in a position where we're protecting the future when we have the opportunity to do so.
From a gross margin perspective.
Yes, certainly I think on the alternative profit side I mentioned earlier on the the media business, we're seeing add tremendous pickup in growth. So I wouldn't believe that we would see any headwinds from media about continuing to bounce back very strongly from a very temporary delay that we experienced in the first quarter ready joined the lock down period and as.
Things will reset Craig a personal finance is the biggest element of alternative profit from a profit contribution perspective and that is sort of more.
Yes dependent on some of the broader recovery in the market. When you think about attack gift card sales restaurants are an important part of that category and when you think about credit card spend those those elements are old tie to continued improvement in the in the economic situation. So while we're still able to tap into opportunity in Cape yet because we isolate penetrate.
One of our customer base, we would expect that to continue to be a headwind.
In terms of impacting gross margin and performance for the year, but media certainly we wouldn't be wouldn't how 'bout same view that.
And we would expect to continue to do promotions and one other things when you look at the details behind first quarter.
Almost basically all of the gross margin improvement was driven by Leverages and marketing expense from the higher sells a warehouse and transportation and shrink.
We are team had incredible strong quarter on shrink so it's really those leverage and we would expect continue to have some of those leverage benefits at the higher sales that were expecting.
Got it. Thank you. Thanks you.
Your next question is from Michael Lasser with you Yes. Please go ahead.
Good morning, Thanks, a lot for taking my question recognizing that it takes several years or digital customer to become as profitable and the need for customer what would be the margin impact over the next three you years, if you were digital penetration.
Remains where it is today.
Yeah.
It's a great question and I can tell you, but before covert 19.
Our digital business has become a tailwind in terms of.
The incremental improvement from where it was before and as we look forward.
We would expect a as customers mature that that would still be the case.
And that's going to be a combination of customer spending more and I'm talking about in total not just the new customers by themselves.
In total.
As that customer continues to give us more of their total share of spend for household.
And as our teams continue to.
Take costs out in terms of serving that customer and as our Kotto sheds began to take come online and some of the other.
Facilities to supply our customers.
We would expect.
That that.
Digital will be a tailwind.
For us as we move forward and it's really just the fact that the business basically doubled overnight.
You mentioned that you're building all different types of book, how should we closed one on long island in different parts of the country what had little learnings from this experience.
Influence how does that influence the said that you're going to create moving forward.
Yeah, It's it's really if you look.
As we as we've been working on it in total and Accordo has done a lot of work to be able to get the economics viable for smaller shed overtime that will allow us to go into smaller markets.
With those with sheds as well so it's.
Part of the overall supply chain design and a you know it's playing out as we expected and oak auto is continuing to up their brain.
As well so it's really the experience we're looking forward to.
Condos sheds opening up in Canada and France.
And that will provide additional set of learnings as well.
If I could add one last one.
I know, it's hard to tease out from the data you have a lot a really good information what have you been able to discern about different you locations that are now being you.
Yeah at home so as consumers returned to work more of their yield at restaurants around where the work to what degree is back in the result in a slowdown in the idea that you're experiencing.
Similarly.
Well.
Maybe you can tease out how that will do doing versus something like you did either.
Good good also slow as we go right to use anymore.
The overall, we're still seeing people shop that fewer stores.
And as Gary mentioned, a large spend per basket.
That if you look at the Department Thats, probably the easiest directly to talk about is our Deli Department and our Deli Department the trends over the last four or five weeks of it significantly improved from where it was in the height of.
The lockdowns.
We would expect a lot of those meals are things where people are preparing at home and taking the work.
Our customers tell us they are still minimizing the different places they go and minimizing.
Their exposure so.
That's something that we want to make sure that were there for the customer.
Hey, Congrats and good luck.
Thank you appreciate it.
The next question is from Greg that is came in with Wolfe Research. Please go ahead.
Good morning, Mrs sensor on for Greg I understand the situation still remains pretty fluid, but can you just provide some additional color on what you think the new normal looks like for food retail and do you think cobalt has accelerated a structural shifts towards sort of eating at home channel.
Yes the.
First of all if you look at things that we think for sure is.
The digital channel and people eating via that.
Accelerated the trends that were already on a if you look at like our home chef business.
At an incredible quarter.
Picking up new customers as well.
The.
The thing that I get most.
Hopeful about is when we talk to customers customers like tell us they like eating at home as a family and eating together and having meals together at home.
And.
One of our responsibilities to help them keep it fresh and and innovative new ideas and we continue to work on that but.
Everything that we can.
See the customer likes that and they like learning how to Cook and Cook is a family.
So that trend.
It's something that we focus on a lot and try to make sure we're supportive of it.
That's helpful. And then we see promotions took down across the industry. Throughout this crisis has got to change your philosophy on price investments at all and then would you accept the acceleration in promotions in the back half of the year.
Yes, one of the things that I'm Super proud of our teams as we've had an AD and promoted every week during that pandemic to try to help our customers budget go.
As far as possible.
The only change that we made was we stopped doing that.
Yes by 10 for tens and things like that that incentify multiple purchases on items that.
We're in short supply because we wanted to.
Support as many customers as possible getting those.
We would continue to use our data to understand what's important to the customer on and.
Some customers are in different financial situations, whether they lost their jobs or they were able to work from home and we're supporting both of those customer segments.
With promotions loyalty mailings.
And other offers that are one to one in addition to what you can see an AD and we think thats an important component to continue to support.
In any of the thing I would add Rodney as we mentioned earlier around the pickup fee being an investment in price with the promotion that but also we have we did adapt our plan around making sure we were getting value to customers where product was more available in say the team did a really nice job and promoting on HPC and general merchandise products and while it's very.
True to say that grocery and a fresh led the way we saw a significant double digit growth in both of those categories and would have seen some lower gross margin in those two categories. Because we were more promotional in making sure that as being a a business that was opened through the pandemic that we were delivering value for customers I think that's been a at the team.
It really nice job of making sure we were creating value then delivering value that.
Great. Thank you so much thank you.
The next question is from Ken Goldman with JP Morgan. Please go ahead.
Hi, I'll just ask one because I know we're late.
You talked about some of the trends in states that reopen first maybe too early but what are you seeing in states, where there are headlines about a second wave.
Or cases, increasing have you seen any upticks there.
We're again, it's just too early to say for sure.
It's I think it's too early to tell for sure.
And.
Those were states, where people are more comfortable going out but anyway, even during lockdowns.
So it's really early.
And but we're really not massive shift changes.
Thank you thanks again.
One last question.
And that question comes from.
Michael Montani with Evercore ISI. Please go ahead.
And the question is from Michael Montani with Evercore ISI. Please go ahead.
Hello.
Yeah, just wanted to see can you hear me yes.
Okay, great sorry about that.
So the question I have is two parts on the first was on traffic and ticket I know you don't typically disclose that but if you could give some incremental color around you know the 19% I'd sales on that line and then secondly related to that was just.
As a sense of what percentages that comp is being generated by existing loyal household versus the new households, Obviously, you had mentioned Rodney there was some strong growth in new customer acquisition.
If you look at and Oh that ticket growth, we had a significant double digit increases in the average.
Basket size.
And we're fighting that customers are going into the store less frequently.
And so you know over well over 100% of their growth is driven by basket size.
If you look at a new customers an existing customers.
It's.
It's a meaningful number but it's stuff you know maybe a fourth or a third of the total when you look at all the pieces as we also have a lot of new customers to pick up and where we've launched where customers can pay.
The snap at pick up and things like that new customers there as well.
Okay, and then I guess the other one I had was a lot of the questions I've been getting relate to how you all would be position cycles. This kind of calm and a year from now and so I was just wondering if you could provide some incremental.
Color around Hokkaido partnership and I guess in particular.
As it relates to some of the C store fulfillment and also like center store.
10 show efficiencies that you could game and reinvest back into competitive positioning.
Yeah the <unk>.
They that's a question obviously, we're spending a lot of time internally us talking through and trying to understand as well.
The the thing that Gary talked about it a little bit, but if you looked at.
We would expect 21 to be better than what the trend would have been for 21 before cove it.
And Gary mentioned that briefly and answering one of the other questions. So.
Everything that we can see we believe there are certainly a meaningful shifts and the way people eat.
I won't say permanent, but certainly multi year and that we would expect 21 to be better than what 21. It would have been before cobot.
Hi.
To give more specifics and that I think it's hard to say Oh, you know as we get to next year. One of the things that we would expect is certainly and stock positions will be better which will be helpful.
But people will be going back to normal life more so as well.
So.
We're going to do everything we can.
To make sure we're taking care of the customers, we have and getting more of their share in the new customers.
And you know the easiest comp.
Point of context is just we would expect 21 to be better than what 21 would have been pretty coated.
Okay. Thanks, Michael I appreciate it.
I think the last question was a great question to end on.
If you look at restock Kroger and the work from restock Kroger, certainly position the Kroger well to drill deal and we had good growth before covet and co would certainly accelerated the infrastructure and foundations, we had in place and as we look to 2021, we would expect that to be better than what it.
Was before co, but the other comment that I want to make as as you know.
We always like to share a few final comments directed toward our associates and how we live our purpose every day.
Senseless, killing killings of George Floyd Amod, Avery Briana Taylor and so many more.
Too many more across our country.
Have shaken me to the core.
We share in everyone's feelings of sadness and outrage for the victims and their families.
I am compelled to use kroger's voice to express that were against racism and the injustice towards the black community.
The become a greater part of the solution.
We believe the most important next step is to listen.
Recently I was proud to be invited by Dr. Bernice King of the King center to listen learn and participate and open dialogue.
About how companies like ours can drive real talent tangible change.
We also held the first of several listening sessions to hear directly from our associates.
About how we can see better support them.
Informed by deliberate listening, we intend to take more action.
As the first step our company is establishing a 5 billion dollar fun to support the unfair advancement of racial equality and justice.
This new investment will be earmarked within the Kroger foundation for improving diversity equity and inclusion.
We know there's more work to be done and we will continue to share our progress.
Thank you for all you have done and will do for each other and our customers and communities and to all on the call. Thank you for joining our call today. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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