Q2 2023 The Kroger Co Earnings Call
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Good morning, and welcome to eat quite a good second quarter 2023 earnings conference call.
He's night. This event is being recorded I would now like to turn the conference over to Rob Class Senior Director of Investor Relations. Please go ahead.
Good morning, Thank you for joining us for Kroger's second quarter 2023 earnings call.
I'm joined today by Kroger's, Chairman and Chief Executive Officer, Rodney Mcmullin, and Chief Financial Officer, Gary Miller Chip.
I want to remind you that today's discussions will include forward looking statements.
I want to caution you that such statements are predictions and actual events or results can differ materially a.
A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger company assumes no obligation to update that information.
After our prepared remarks, we look forward to taking your questions.
The breadth of information that will be covered on the call and our divestiture announcement earlier. This morning, we will extend our Q&A session if needed.
To ensure that we can cover a broad range of topics from as many of you as we can we still ask that you. Please limit yourself to one question and one follow up question if necessary I will now turn the call over to Rodney.
Thank you Rob good morning, everyone and thank you for joining us today.
Before we begin I'd like to take a moment to outline the framework for our discussion this morning.
Given that we have several important topics to cover I will begin by covering the consumer environment and how the strength of our value creation model is supporting earnings growth and generating strong free cash flow.
Then Gary will cover our financial results and highlights as well as provide an update on our net national nationwide opioid settlement framework.
Finally, I will conclude with some brief comments on the divestiture plan press release, we issued earlier this morning.
We are excited about sharing our plans for this important milestone and we look forward to taking your questions. During the Q&A segment of today's call.
Now turning to our second quarter.
Kroger continues to effectively navigate a challenged environment.
And delivered another quarter of consistent results.
As economic uncertainty persists the strength of our model is enabling us to deliver value for our customers.
Continue invest in our associates and deliver consistent shareholder return.
That remains top of mind for many of our customers as they are balancing several factors that are impacting their food at home spending.
The effect is sustained inflation.
<unk> government benefits, including snap and higher interest rates have pressured customer spending.
Especially for those on a tight budget.
To support our customers, we are delivering increased value through our robust our brands' portfolio.
Personalized digital offers fuel rewards and loyalty discounts, including Wakely weekly specials and yellow tag promotions.
Economic instability continues to impact customer segments differently.
We are seeing this in their shopping behaviors.
Higher income households continue to engage more deeply with us.
Enjoying our customer experience with zero compromise on convenience quality and value.
These customers are especially valuable to our mix as they purchase bigger pack sizes.
Shop, more fresh categories and trade up to more premium our brands products.
On the other hand budget conscious households are facing external spending pressures.
These customers are buying smaller pack sizes and at times prioritizing the lowest shelf price.
These customers are building smaller baskets and switching to lower priced items to stretch their budgets.
There are also exhibiting spending patterns that ebb and flow with payroll periods and snap benefit distributions.
We expect these broader economic headwinds to continue pressuring customer spending in the second half of the year.
While the environment is difficult.
We are never satisfied with cells and we are focused on driving more units in the back half of the year.
Our teams are sharpening store execution.
Identifying basket add ons.
And adapting to customers evolving needs.
We saw an improvement in our budget conscious household trends since last quarter as we expanded our assortment of everyday staples at lower price points.
And then as an example, we introduced new in store displays where every item is below $3.
Additionally, we continue to improve price position relative to key competitors.
Demonstrating our long term commitment to provide customers with exceptional value.
We are creating more engagement with customers through personalization.
Offering more targeted and effective promotions.
Our seamless ecosystem is resonating with customer needs.
Allows us to drive increased loyalty and.
And customers are rewarding us for this work.
The second quarter represented our ninth consecutive quarter of total household growth.
And now I'll provide more detail on how our go to market strategy is delivering for our customers.
We are re imagining our offerings throughout our portfolio of our brands.
With more than 13000 products available.
Customers can enjoy a wide range of high quality alternatives.
The fee to eat set each customer's budget.
Additionally, we are improving the profitability of our brands.
Through our brand architect work, we are ensuring each brand plays a unique role on the shelf.
Last year's introduction of our opening price point brand Smart way.
A great option for those prioritizing the lowest price at the shelf.
And it is resonating with our customers.
Turning to seamless strong growth in our pickup and delivery businesses led to another excellent quarter in digital.
This growth was underscored by a rise in both households and traffic.
Our digital teams relentless pursuit of improving the customer's experience of the customers experience <unk> experience.
Our digital team relentless pursuit of improving the customer experience is driving our success.
We scaled our hands free technology across the company to improve speed and expanded pickup options with automated pods and lockers improve.
Improving productivity and providing customers with more flexibility.
Our in store Associates are also playing a critical role in our success.
This quarter they read they reduced wait time lowered cost to serve and improved fill rates.
Pick up has had a positive incremental contribution for some time.
In multiple divisions now our pickup business today is now profitable on a fully loaded basis.
And by continuing to scale, our operations, we have a clear path to sustainable profitability and pick up.
Next on personalization.
Personalization enables us to meet our customers' unique needs and deliver value beyond a product shelf price.
Our best in class data science work powered by our loyalty data is driving strong digital engagement.
So far this year customers have clipped more than 2 billion digital offers to me. That's just an amazing number when you think about $2 billion.
We've also increased our digitally engaged households by $1 2 million compared to last year.
This growth is important to our model as digitally engaged households are more loyal spend nearly three times more with us.
And help grow our alternative profit businesses like Kroger precision marketing.
Now I'd like to share more about how our diversified business model continued to support earnings growth this quarter and gives us confidence in our abilities to navigate the environment ahead.
Starting with our alternative profit businesses.
Alternative profits had an impressive second quarter led by strong growth in our retail media business.
Rover precision marketing.
Our seamless ecosystem continues to drive traffic data and traffic, which benefits this business.
K P. M applies these insights and data science to build custom audiences and precisely measure return on AD spend delivering significant value to clients.
This quarter K P M announced a new in house advertising platform, which allows greater flexibility to serve clients and improve outcomes for brands.
Broker health is another important component of our business that allows us to help customers live better lives and strengthen our model.
The terminated agreement with ESI has freed up some capacity in our pharmacies and our Kroger help teams are doing a great job of utilizing that capacity.
Our pharmacists are dedicating more time to patient care and delivering better patient experiences.
We are also simplifying work for our teams and lowering cost by expanding our use of automation.
We are improving patient communications through modernized tools, which is driving driving better patient adherence to care plans and supporting growth.
We are encouraged by the momentum in our health and wellness business and.
I believe this is an opportunity for further profitable growth.
Over the next several years.
Our amazing associates are providing customers a full fresh and friendly experience every day.
We remain committed to supporting our associates through investment in wages and over the last five years, we have raised wages by 30%.
We are also committed to supporting our associates development.
I, often say that our focus is to make Kroger, a place where associates can come for a job and discover a career.
Kroger has made significant investments to support this culture.
And our teams have done a tremendous job, creating training programs to help develop our future leaders.
Their work was recently recognized with eight awards from the Brandon Hall Group, a leading human capital management firm.
We are so proud of the work you are doing to help make kroger and employer of choice.
I'm inspired every day to see how our associates bring our purpose to feed the human spirit.
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Our zero hunger <unk> zero waste impact plan is a vital part of how we live our purpose and the communities we serve.
Upon launching the plan in 2017, Kroger committed to donate 3 billion meals by 2025.
We are so excited to share that we reached this ambitious target in the first quarter of this year.
More than two years ahead of our goal.
This quarter, we announced plans to accelerate our commitment to hunger relief.
Upon completion of the merger with Albertsons. The combined company will donate 10 billion meals by 2030.
To feed people struggling with hunger.
To put that in perspective, it is enough food to feed every person in the cities of Seattle, Denver, Chicago, and Boston every meal every day for nearly two years.
This is one of many ways that this proposed merger will benefit the communities we serve.
With that now I'll turn it over to Gary to take you through our financial results Gary.
Thank you Rodney and good morning, everyone.
Kroger's second quarter results demonstrate the resiliency of our value creation model.
The investments we have made over recent years to strengthen and diversify our business are enabling us to deliver consistent results. Despite the difficult environment.
And this was very much evident when you consider the key trends we saw in our business in quarter two.
While industry wide disinflation continues to impact food at home sales.
Team is doing an excellent job managing the effects of this trend on our business.
Key highlights for the quarter include EPS.
EPS growth, despite a significant year over year headwind from fuel profitability.
And underlying operating results, excluding fuel improved versus prior year due to strong gross margin management tight cost controls and continued growth in alternative profit businesses.
I'll now provide more detail on our results this quarter.
Identical sales without fuel grew 1%.
Underlying growth would have been two 6% after adjusting for the effects of the previously communicated decision to terminate our agreement with express scripts.
Similar to the first quarter the terminated agreement with express scripts had a positive effect on our FIFO gross margin rate, excluding fuel and the negative effect on the G&A rate, excluding fuel and adjustment items.
The overall effect on operating profit during the second quarter was slightly positive and we would expect this to continue to be the case for the remainder of 2023.
Our decision to terminate the agreement with express scripts reflects our commitment to making decisions that we believe are in the long term best interest of our customers and shareholders.
Turning back now to identical sales without fuel.
In the second quarter results were at the low end of our internal expectations as we saw food at home inflation decent information at a faster than expected pace.
Inflation ended the quarter at approximately 350 basis points lower than the start of the quarter.
Our sales growth was underpinned by strength in our digital business, which grew 12%.
Our unique combination of assets, including stores and fulfillment centers helped us achieve growth in both pickup and delivery channels.
The growth in delivery was led by a continued ramp in volumes through our CFC network.
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Gross margin was 21, 8% of sales.
FIFO gross margin rates, excluding fuel increased 35 basis points compared to the same quarter last year.
Our team is doing a highly effective job balancing the impact of inflation on the improvement in rates was primarily attributable to strong operating performance.
Lower supply chain costs.
Sourcing benefits on the effect of accumulated agreement with express scripts.
These tail winds were partially offset by higher shrink and promotional price investments.
Importantly, as Rodney said earlier this improvement in rate was achieved while also improving our price position relative to key competitors.
Supply chain efficiency is one of many components of our strategy to expand margin over time, while continuing to invest in greater value for our customers.
This quarter, we achieved meaningful operational efficiencies and supply chain through improved transport capacity utilization and increased productivity in our warehouses and across our network.
We continue to invest in our supply chain as we see significant opportunities to further lower costs, while also improving improving freshness to customers by eliminating waste in our ecosystem.
Shrink increased during quarter, two primarily due to rising theft and organized retail crime.
We are implementing initiatives to mitigate the financial impact, including increased security and new technology solutions, but would expect shrink trends will continue to be a challenge for the remainder of the year.
During the quarter, we recorded a LIFO charge of $4 million compared to a charge of $148 million for the same quarter last year.
This $144 million.
Year over year tailwind from the LIFO, partially offset the $192 million headwind, we experienced in fuel operating profit during the quarter.
The decrease in our LIFO charge was primarily attributable to a downwardly revised inflation outlook for the remainder of 2023.
Craig So G&A rate was flat, excluding fuel and adjustment items.
Our team continues to do an excellent job controlling costs and after adjusting for express scripts, we saw underlying improvement in our G&A rates, excluding fuel and adjustment items.
Our cost saving initiatives, all focused on simplification and utilizing technology to enhance the associate experience without impacting the customer.
For example, we are improving productivity in our stores by expanding shelf ready packaging and introducing data driven enhancements to associate move all devices that optimize the restocking process.
We remain on track to deliver our sixth consecutive year of $1 billion in cost savings.
Fuel is an important part of our overall value proposition and our fuel rewards program continue to drive customer engagements in the second quarter.
The average retail fuel price was $3 65 this quarter.
The $4 62 last quarter and our cents per gallon fuel margin was 45 this quarter compared to 62 last year.
While fuel profitability was a significant headwind compared to prior year, we were cycling historically high results from 2022 and fuel margins remained very healthy relative to historical trends.
I'd now like to provide a brief update on labor relations.
During the second quarter, we ratified new labor agreements with the USW full of Dallas clocks, Southern Illinois clocks in meat, and Smith, Utah clocks and meet covering more than 30000 associates.
In the third quarter, we have also ratified a new labor agreement with the UFC typically Q4, fries food and drug stores associates.
Turning now to liquidity and free cash flow.
Kroger continues to generate strong free cash flow through consistent operating results and working capital improvements.
At the end of the second quarter Kroger's net total debt to adjusted EBITDA ratio was a record level of 131.
This compares to a net total debt to adjusted EBITDA target range of $2 three to $2 five.
The company expects to continue to pay quarterly dividends and expect this to increase over time subject to board approval.
As a reminder, we have pull up our share repurchase program to prioritize deleveraging following the proposed merger with Albertsons.
We continue to be disciplined with that deployment of capital.
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This discipline is reflected in our ROIC results, which have now improved in each of the last three years and is significantly above our cost of capital.
This morning, Kroger announced a nationwide opioid settlement framework to central substantially all opioid lawsuits and claims against <unk>.
As a result included in our financial results is a $1 4 billion charge related to the settlement, resulting in a loss per share of $1.54. This quarter.
This amount was excluded from our adjusted FIFO operating profit and our adjusted EPS results to reflect the unique and nonrecurring nature of the charge.
Under the settlement Kroger has agreed to pay up to approximately $1 4 billion.
A $1 1 billion after tax with approximately $1 2 billion to be paid over 11 years and approximately $177 million to be paid over six years each in equal installments.
Initial initial payments will begin in December 2023.
Total approximately $140 million pre tax for the first six years and approximately $110 million per year pre tax for the following five years.
This settlement is not an admission of wrongdoing all liability by Kroger and Kroger will continue to vigorously defend against any other claims and lawsuits relating to opioids that the final agreement does not resolve.
We believe that resolving these claims is in the best interest of program and as customers associates and shareholders and all of those affected by the opioid crisis.
Additionally, this settlement and the payment terms will not affect <unk> ability to complete its proposed merger with Albertsons and we remain on track to achieve our net total debt to adjusted EBITDA ratio of 2.5 within 18 to 24 months post close.
In closing I'd like to provide additional color on our outlook for the remainder of the year.
As I said earlier this inflation is occurring at a greater rate in 2023 than we originally anticipated.
And that customers are continuing to feel the effects of macroeconomic conditions.
For these reasons, we believe the remainder of the year, we will continue to present challenges to navigate and we expect identical sales without fuel will now be at the low end of our full year guidance range of 1% to 2%.
We would expect identical sales without fuel to be slightly negative in the second half of the year.
As a reminder, this guidance reflects the effect of express scripts, which is reducing our reported identical sales without fuel by approximately 150 basis points in 2023.
Despite slowing sales as demonstrated in our year to date results. We believe we have the flexibility within our model to navigate the impact that this environment through effective cost management and growing alternative profits.
We are maintaining our adjusted net earnings per diluted share and adjusted net operating profit guidance and would expect adjusted EPS to be in line with the prior year in the third quarter and slightly ahead of the prior year in the fourth quarter before including the approximately 15 cents benefit at the 50 <unk> week.
Kroger delivered another quarter of consistent results built on the foundation of record growth over the past three years.
While macro uncertainties remain we are confident the strength and resiliency of our value creation model will allow us to continue to deliver attractive and sustainable total shareholder returns.
And now I'll turn it back to Rodney. Thank you Gary before we open up the floor to your questions. Let me provide a brief update on our pending merger with Albertsons companies.
This morning, Croker and Albertsons companies announced that they've entered into a definitive agreement with CNS wholesale grocers for the sale of 413 stores as well as banners distribution centers offices and private label brands in connection with our proposed merger.
When we announced plans to merge with Albertsons last year, we committed to delivering a divestiture plan that would ensure the stores will remain open frontline.
Front line associates will remain employed an existing collective bargaining agreements will continue.
A critical component of that plan was to identify a well qualified buyer who.
Who would be able to operate as a fierce competitor.
Since then we've conducted a robust and thoughtful diligence process and reviewed dozens of buyers spanning from private to public to union to nonunion domestic and international players.
We are very proud today to announce the conclusion of that process, which has led us to CNS wholesale grocers are well qualified buyer that meets all the criteria necessary to complete our transaction.
CNS is one of the largest private companies in America today, and an industry leader in wholesale grocers support grocery supply and supply chain solutions.
With a strong track record as a successful grocery operator retailer.
Operating for over 100 years CNS as retail footprint includes more than 160 stores and the company's served sermon services customers of all sizes.
Supply in more than 100000 products to more than 7500 independent supermarkets retail chain stores and military basis.
CNS service offerings include a full suite of retail service offerings very similar to what Kroger provides.
Including merchandising ecommerce accounting and store design for examples.
The company is deeply invested in the communities where it operates.
This retail expansion will continue their long start standing mission to help feed communities.
CNS is led by an experienced management team with the financial strength to complete this transaction and also invest in the business for future growth.
The company's comprehensive operational infrastructure and purchasing efficiency.
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The divestiture of plan ensures no stores will close as a result of the merger and that all frontline associates will remain employed.
CNS is also committed to honoring all collective bargaining agreements, which include industry, leading benefits and further investing in for growth.
Importantly, the company also brings experience with the merger process, having been an FTC approved divestiture buyer and prior group grocery transactions with a strong record of successfully integrating union employees and collective bargaining agreements.
To help support the immediate and long term success of the divested business. The divestiture plan includes more than just a collection of stores, but also robust operational infrastructure and.
Included in the cell are centrally located distribution facilities.
Regional headquarters and strong teams with deep industry expertise.
In terms of consideration the financial terms of this divestiture plan are in line with what we expected and allow us to reaffirm the compelling shareholder value creation opportunity this transaction creates.
With the announcement today, we are confident that our plans fulfill all the commitments we set out in the original merger agreement.
Our proposed merger with Albertsons creates meaningful and measurable benefits for Americas customers consumers.
Kroger and Albertsons associates and communities that both albertson's and Kroger serves.
This key step keeps us on track to close our proposed merger with Albertsons and early 2024.
We encourage you to review the corresponding press release from this morning for further details.
In terms of integration planning, we are progressing well and it's been exciting to see the talent from both the Kroger and Albertsons teams work together to play out or how the combined company will deliver an even stronger omnichannel food retail experience post close.
We are incredibly excited about the future together with Albertsons.
As a reminder, given the breadth of information shared on today's call are divestiture announcement earlier this morning.
We will.
Extend our Q&A session if needed to ensure we cover a broad range of topics.
With that Gary and I look forward to your questions.
Thank you if you'd like to ask a question you may do sidebar questions. One by one on your telephone keypad.
Thank you a question. Please press star followed by <unk>.
Your question. Please ensure your phone is on mute.
Our first question is from Simeon Gutman from Morgan Stanley Simeon. Your line is now open. Please go ahead.
Hi, good morning, everyone I'm going to ask one and a follow up in case my phone cut off my first good morning. My first is on Disinflation wanted to talk about more specifically if there is a chance we get to deflation around the corner in 'twenty four and then how it's changing.
How you run the business, whether it's pricing and if youre seeing elasticity and then the follow up separate question.
Was the review process for the merger.
Waiting to begin until this divestiture was announced or has the FTC's process been ongoing and that allows you to close on time. Thank you.
Okay.
Thanks Simeon.
The merger.
<unk> been ongoing discussions with the FTC and the related teams throughout the process and what.
We announced this morning, we will share this information with the FTC and continue that active engagement and dialogue.
It's along the way there's been ongoing conversations and there'll be continuing ongoing conversations but now we have more specifics in terms of the next steps that will be able to share.
This inflation I'll start and let Garry.
Finish on it.
If you look.
One of the things that Gary reminded me of is if you look at in the last 50 years I think we've had 40 years I don't remember, which ones that we had two years of deflation when you look at over the last.
Several.
Like lifetime almost.
One of the things about the Kroger model is that we have found and we're able to be successful operating and any <unk>.
Environment, both from a competitive standpoint and from an inflation standpoint.
And we would expect it to be no different front.
We are beginning to see some volume improvements as inflation has slowed.
We would we believe that that would continue to be a lag. There. We're also finding CPG is in many cases are partnering in more aggressive ways on helping us move tonnage as well.
With that Gary I'll, let you finish for any additional comments you want to think yes. Thanks, Rodney I think you covered it well I would say so I mean, maybe it's relative to our expectations you may recall at the beginning of the year. We said that we thought inflation might end the year and so does the 3% to 4% range and certainly as we've seen.
Trends continue to evolve throughout the year as I mentioned in my prepared remarks, we would now expect it to be at a lower level than that which is partly why we have guided to the low end of our sales range for the year. So we would expect inflation to be in the low single digits, the 1% to 2% range would be a sort of base assumption for the end of the year and we believe as Rodney said that.
What was the risk that the scenario is concerned how differently and we will continue to adapt our model if we need to reflect that but our base assumption would be that we would expect to sort of return to more normalized very low single digit food inflation, which of course is one of our loan to a model is based upon if not sort of one to one 5% inflation rate.
Yeah.
Okay. Thank you for both answers good luck.
Thanks.
Thank you Simeon and our next question is from Cristina <unk> from Deutsche Bank Cristina. Your line is now open. Please go ahead.
Sure.
Hi, good morning, and thanks for taking the question.
I have a strategic question.
All right.
So I guess the MN.
He has been added that much value. We look at the business is now margins have remained higher post COVID-19, but I think there is a natural question that it's IV slow maybe there will be a greater reinvestment into the business I'd be curious to get your views on the level of the investment versus your targeted synergies.
We think that's changed.
Regarding Europe .
The October here.
If you look at the <unk>.
You today versus October I would say the biggest positive as I've been incredibly impressed with the talent of the Albertsons team. It doesn't surprise me, but actually getting to know people and working with them and the excitement that there is for the merged company together.
Look it from a shareholder standpoint.
We would feel very comfortable with what <unk>.
Things, we shared October of last year in terms of we would expect from a cash flow perspective.
That it would be 30% accretive by year four.
The targeted net to EBITDA ratio that will maintain investment grade and be within those.
Our ranges within 18 to 24 months, if you look at the synergies.
We still are comfortable with the $1 billion, obviously, we're going to work really hard to.
To make sure and identify savings beyond that.
And we also committed and remember that those are net of investing in our associates and investing for the customer to lower prices and Thats always been part of the plan from day, one and would expect to so when you look at overall.
Still remain confident.
In terms of the commitments that we outlined in October and at this point, we just just wanted to get started.
Start benefiting our associates benefiting the customers and benefiting in the communities.
Yes, maybe Rodney just a couple of things to add if I cannot I would completely agree with your comments and we obviously we've had almost a year now since the announcement and so while there is only certain conversations you can have.
At Kroger and Albertsons talking about planning for the merger I would say, we've only gained more confidence in the synergy expectations that we've had so we have been able to continue to validate the assumptions that Rodney outlined a moment ago I think the other thing that I would mention is.
Way back to when we announced the merger we talked about this wasn't just about synergies it was about.
Essentially fueling the flywheel of the new combined company. If you think about the results we've announced so far this year of the strength in our results in growing digital sales and how digital ecosystem to strengthen <unk> performance the growth in alternative profit streams that is sort of the future value creation model for the company and I think the combination of Albertsons, Inc.
Thats upon combined really creating opportunities to significantly accelerate the flywheel effect across those elements of the model that we see is working very well now and we think can work even better in the future when we combine the two companies.
Thank you and just a quick follow up the sale transaction with CNS. This morning, acquiring 413 stores what is the confidence level in that number and I think there was a comment that they would be willing to buy up to 650 can you just maybe talk about the likelihood that it could potentially be that high versus before.
<unk> hundred 13 in today's release thank you.
Sure yes. Thanks for the question. So we feel very good about the plan. We think the plan is a very well thought through we said as Rodney said in prepared comments. We spent almost 10 months now really working with different potential buyers in putting together both a plan around.
How do we make sure we find the right buyer that we'll be able to continue to grow those stores successfully in the future I'm, putting an overall structure around the plan with the number of stores that provide the right concentration for a successful model going forward and providing all the infrastructure to support it. So we feel very good about the plan we have announced we did include it.
In the agreement as you mentioned that you may recall, when we announced the deal originally that agreement with Albertsons has a sort of a breakpoint if you'd like it went kroger would have the option to not move forward with the transaction. If we reached 650 stores as potential divestitures. So what you saw in the announcements today we.
We essentially wanted to make sure we align the agreements between Albertsons and CNS and ourselves to make sure that there is a commitment that to be able to flex up if that was something that was needed, but we feel very good about the plan that we announced today.
And the announcement today also.
So.
No more work will be done in terms of the spin co. That's not something that's part of the solution going forward.
Great. Thank you very much best of luck.
Thank you. Thank you.
Thank you Christina our next question comes from Michael <unk> from UBS. Michael Your line is now open. Please go ahead.
Good morning. Thank you so much for taking my question.
Given the announcement today.
Today, good morning flexibility.
They have flexibility given the announcement of theaters today and flexibility that offers to Dubai.
The number of stores that would be consistent with your agreement with Albertsons what other.
Or pushback could the regulators have Q.
Lessing this merger and what action.
Are you taking to date to potentially address those potential concerns.
Yeah, Michael It's a great question and obviously, we feel incredibly excited about CNS and what they bring to the table.
And there'll be an incredibly fierce competitors. So if you look at the commitments that we made in October last year, when we announced the transaction and if you look at.
Selling the stores the CNS, we've been able to check off every one of those boxes.
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And we're also including seven distribution centers two regional offices five private label brands. In addition to the stores. So this is going to be an amazing great business for CNS that we'll be able to operate and grow from.
From a incredible base with <unk>.
Incredible talented people so.
For Us we think we've addressed all of the things and questions. The FTC would have we also.
To accomplish all the commitments we made in October of last year and found a buyer that would recognize the union labor contracts as well. So we feel like all of those things that you would have a check off list. We've met all of those and exceeded as well I don't know Gary anything you want to add to that because you are.
Christine.
The majority of the words.
He said it well Rodney I mean, this has been very well both through we've done a great advisers to help us on the journey and we're excited now to talk to the FTC about the plan.
Michael.
Hum.
Yes.
Your.
The annual growth rate.
I'm here can you hear me.
Okay.
Can you hear me, Rob Yes, you cut out so if you were asking a question Michael we can hear you now, but Europe now so alright.
I'm, sorry about that sorry.
My question is if we look at your guidance for <unk> for the back half of the year, which imply.
Slightly negative Ids is that would translate to.
Four year geometric stacks that are relatively consistent with what you experienced in the second quarter. Despite what is likely to be less of an inflation benefit in the third and the fourth quarter. So inherently either your volume is going to have to pick up on.
Or your market share is going to need to improve it presumably booth. So to what degree are you going to need to see an improvement in volumes.
Order for you.
<unk> achieved the implied guidance and B, how hard and how.
Or to what degree are you going to need to.
Push the other parts of the European now how much price investment or you're going to need to make in order to drive that volume improvement and those share gains. Thank you.
Yeah, Hi, Michael Thanks for the question.
I think as we mentioned in the prepared comments, we do expect inflation to continue to decelerate, but we also have coming through we think the largest part of that deceleration. If you look at the.
Number that I mentioned for Q2 down three 5% from the startup of course to the end of the quarter and then my comment about we're expecting to be between the 1% to 2% by the end of the year, we would expect that to be a slowdown in the deceleration rates in an inflation impacting our results and then as you mentioned if you're looking at.
Second quarter results, we saw a slight decline from being maybe slightly above the 1% that we achieved in Q2 in the first period to being slightly positive in the final period of the quarter and I say that because the slowdown in growth in.
In sales would have been less than the inflation decline, which is really pointing to your point that we are seeing an improvement in unit trends and we expect that to continue by leaning into some of the things that are working really well for us around growing households, driving digital sales and then also continuing to execute on our plan of delivering more promotions to customers.
And continuing to execute on the strategies to support that lower income customer and the budget around accelerating smartway private label products and.
And continuing to deliver those merchandising strategies that connect with that customer in the store as well.
Thank you very much good luck.
Thank you.
Thank you Michael our next question comes from John Hi.
<unk> <unk> from Guggenheim partners.
John Your line is now starting to go ahead.
Sure. So if we think about the old algo on Com right.
Alright.
Which is higher than where we are now I'm curious do you think 1% to 2% inflation as we normalize to that.
Does that support the algo that you had historically on comp.
Or is some of the other <unk>.
Headwinds right.
Work against that.
You said you saw improvement in.
Budget conscious.
Tom which were negative I think 2% last quarter, so is that still negative.
And are the higher income households, still performing as they did before.
And I'll start and let Gary talk about the longer term stuff, but if you look at the higher income household that growth continues that profit that customer is meaningfully more profitable because of buying a lot more fresh product and buying bigger sized products and things.
If you look at the budget conscious shopper the trends have been improved but they would still be negative, but the trends have improved in terms of relative to the long term.
<unk> model, Gary I'll, let you.
John I think your question, maybe was waiting a little bit between the second half of the year and the long term plan as well so I would definitely think about it in those two buckets. So I wouldn't say that we are changing our long term growth algorithm view that we believe in a food at home will continue to grow in that sort of 2% to 3% to year over long term and we would expect to grow topline between two and 4% and <unk>.
Earnings growth of 3% to 5% by both achieving growth in line with a slightly ahead of the market and also continuing to expand margins through the different levers that we talked about during our investor days I think in the short term when we think about the rest of the year.
Would use the first half as a business at a decent sense of how we're thinking about the rest of the year, we would expect to continue to see some tail winds in AR.
Gross margin ready to run some of the areas that I mentioned in the prepared remarks on supply chain and high brands sourcing benefits et cetera.
Oh G&A will continue to manage costs very closely given that the environment is.
Point of lower in terms of the headline growth rates, then we would be expecting in our long term models that we will be managing costs accordingly.
Obviously, we do continue to flex our model to make sure that we're adjusting our plans when we have those short term adjustments to what we see in the operating environment.
And then maybe as a quick follow up what is the update now on the Ocado process.
Right in terms of rollout and.
Adoption.
We've talked about it a bit.
And movement toward your profitability objective.
Where are we on all of that relative to I know you talked about pickup.
Yes, if you look at the sheds.
Continued great progress on the growth in the sheds and the base operating model right now all the energy is focused on the ones, we have and making sure that those are.
Where we want them to be where they need to be an honest sustainable basis.
The other thing that I that I think is incredibly important is if you look at the repurchase rate when somebody starts using a shed.
And the NPS scores they remain very high so.
I'd say that.
A ton of work is being done.
We're making progress.
We wouldn't be to the point, where we would start focusing on additional sheds until we make sure that we have a clear path on the ones we have.
And we are making meaningful meaningful progress, but we still have a lot of work to do.
Thanks, John Thank you.
Okay.
Thanks take care.
Thank you John our next question is from Michael one tiny from Evercore ISI. Michael Your line is now open. Please go ahead.
Hey, everyone. Thanks for taking the question just wanted to ask about ESI. So one question earlier was related to market share and why that might improve towards the end of the year thinking that could be part of it but I wanted to ask at a high level would you be comfortable kind of going it alone. If you can't seem to find a good partner and.
Then what could some of the longer term benefits b to.
The business model is that is the case.
Yes, yes.
First of all I'm incredibly proud of our pharmacy teams they've done an amazing job.
Being able to retain a meaningful a meaningful part of those customers and it's a combination of doing direct contracting with some companies and also leveraging our discount card for <unk>.
Patients. So when you look at overall I think they've done an incredible.
Job on minimizing the effect now with that said, it's still over about 1% and a half and I think this quarter I think we shared one 6%.
We're very comfortable with where we are but we're always focused on trying to make sure. We're taking care of the customers and taking care of patients, but we have to be able to do that in a way where we don't lose money on every prescription filled so that's really what the focus is on and we feel very comfortable.
<unk> with where we are Gary anything you want to add to that.
Thanks.
Just wanted to follow up if I could quickly on the potential multiple implied by the transaction for the divested stores has had some pushback it seems to be around two to two five times, which was a little less than we thought so I didn't know if you could discuss that potentially in the context of the ability to increase the stores divest.
If needed to close the deal. These are the what the potential profitability might be of those locations.
Yes. Thanks for the question I think may be the confusion could be around the multiple and what we were assuming because the I think the only previous information that we've shed was relative to spin co which was potentially a solution for a part of the overall divestiture planning wouldn't have been actually a <unk>.
<unk> for all geographies, but that was the 100 stores to 375 stores that were contemplated in the spin cost structure, and we'd mentioned or shed in that agreement that the multiple could be three times four wall EBITDA.
So this.
This multiple would be a little bit below that number but that being said as Ralph mentioned in the prepared comments, we haven't necessarily assumed in our modeling the transaction would move forward with a different number than we actually announced today.
Fact that number would be very much in line with what we were contemplating we believe.
It's a good solution for our shareholders because as Rami mentioned it actually it's also all the elements that are important to a divestiture plan it.
It will help us longer term and being able to simplify a transition services to be able to manage the new combined company more effectively and drive future value for our shareholders and we believe it's a it's also at a price that allows CNS to be able to be a successful operator in the future as well so very much consistent with what we were thinking would keep us on.
Track with the commitments that we shared when we announced the deal back in October .
Thanks, Michael.
Thank you Michael our next question is from Kenneth Goldman from J P. Morgan Kenneth Your line is now open. Please go ahead.
Hi, Thank you.
You mentioned youre seeing volumes start to improve a little bit it's kind of going the other way for a lot of your branded I guess center store packaged food vendors you highlighted that your store brands are doing better maybe that explains much of the difference, but I'm also curious if youre seeing consumers.
Change their behavior, a little bit in terms of which departments, they're shopping and I guess the core question. There is has there been a boost that youre seeing to your perimeter maybe at the expense of the center store just wanted to get a little more color on where those volumes are are getting I don't know if less bad is the right phrase or better.
Yes. The in terms of volume there is a couple of things one if you look at like in the.
Meat Department for an example.
We are seeing people much more move to <unk>.
<unk> meet or we call it grinds, but.
I don't know that many people publicly would do that or chicken and some of those things. So.
You are starting to see us some improvement tonnage relative to that.
We're also seeing people moving to the entry price point in many cases, and obviously that would be affecting the cpg's and I mentioned in the prepared remarks, we are beginning to see.
Some CPG is be more aggressive on partnering on moving.
Their tonnage as well so all of those things are happening.
You are never satisfied with where you are but the trends are starting to improve and there is a ton of focus on making sure that we're supporting that customer in our budget as well.
Thank you and then as a follow up I think.
With concern some investors.
Disinflation and possible deflation is that.
Even though deflation has been a rare thing the last time it came around it did last for a fairly long time, a couple of years and helped drive a competitive environment in which gross margins actually declined in your core operating income was.
<unk> was down as well so I guess, what I'm curious about is what gives you the confidence that in a world where consumers are struggling more than your competitors will remain as rational as they are today and to what extent does your guidance potentially factor the risk of them being a little bit less.
Rationale I guess.
Yes.
When you look at our long term model, we always assume the market will get more competitive than it has because thats been the case for the last 10.
10 years, 20 years, 30 years and customers get the benefit of that.
The other thing Thats built into our model that's different.
Different today is if you look at our diversified income streams alternative businesses are.
Well north of $1 billion that business didn't even exist. The last time when the economy was tough as an example.
If you look at from a seamless standpoint, the meet the retail meat, which is obviously part of the REIT.
Alternative profit business those margins are completely different than the supermarket margins.
All of those things are things.
That are part of the model and part of the long term thinking.
But.
The thing that I think is always important to remind people is even in the <unk>.
Scenario, you've outlined we still were significantly above our cost of capital significantly generating.
Economic value for shareholders the stock price didn't.
But if you look at the value of the company.
And we continue to generate cash flow that we used to pay a dividend buyback stock and balance our debt. So all of those things I think are important parts of it but it is a different market model today than it was the last time.
Great. Thank you. Thanks.
Thanks, Ken.
Thank you. Our next question is from Ed Kelly from Wells Fargo.
Your line is now open. Please go ahead.
Ed Your line is now open. Please go ahead.
Please ensure that you are not muted on your side.
Guys can you hear me.
We can now.
Go ahead Ed.
Okay.
We'll move on to the next question.
Hi, Ed.
Did you want to chime. Please go ahead your line is open.
Our next question is from.
Pat how up on yet from BMI.
Your line is now open. Please go ahead.
Hi.
This is kelly being I think I thank him up.
Hi, I guess.
Thank you Kelly.
Okay.
I wanted to ask about the divestiture.
Package I think the comment was made that the valuation for this is slightly below the three times four wall EBITDA.
<unk> restructured that and so I guess can you comment on why why that would be in kroger's best interest to accept a lower valuation than then.
And then what was available to spin co.
That was a viable option and are you willing to share the estimated EBITDA our EBITDA margin for these planned 413 stores.
Hi, Kelly, yes, thanks for the question Sn.
Essentially.
When we think about the spin kind of option that we announced when we when we communicated the merger with Albertsons, just as a sort of a recap.
<unk> was an option that was always going to be a solution alongside other solutions.
The package that would have been involved with <unk> as a group of stores would have covered certain geographies, but it would not cover the whole of the store footprint geographically that would need to be divested that we always sort of contemplated as part of the plan to take to the FTC. So we would always have had to have put together a spin co with under the buyer which adds.
Significant complexity, both from the perspective of working with two different companies around their future plans to take forward to the FTC, but also the complexity around transition services agreement technology solutions that are implementing if you'd like a period of time, where the companies need to operate in separate effectively so when.
We looked at the options that were available and I would say that from day, one we always viewed spin co as a viable option, but if we believe we could find a single buyer that was able to do everything that CNS can do which is bring a strong plan a strong capable management team and well capitalized balance sheet to commitment to <unk>.
Vesting in the business in the future and then being able to put together a set of <unk>.
So then that would enable them to do that we always believe that that would likely be both a more effective solution.
To move forward with but also longer term a better solution for kroger to be able to execute on a plan. So it's why we didn't go into specific details when we announced the transaction back in October when we assumed.
Valuation in our models with the commitments that we should add around being accretive to EPS in year, one without onetime costs in it.
Perfect.
And reaching the $1 billion of synergy over four years.
All the other metrics that we shed a lot of that was based on evaluation that is essentially in line with the valuation that we announced today with CNS. So very consistent with what we were assuming but obviously the Danny oney and so we could actually show that when we announced the deal what's been go because we haven't had chance until 'twenty buys at that point that was the plan that was really fully baked through us.
The discussions with Albertsons.
Okay, that's very helpful.
Should we assume that the additional 200 potential stores would be under a similar or the same valuation.
Just a quick question there and then also can you help us understand the financing structure and the commitment from CNS.
Partner here with Softbank.
To this transaction and the potential for the incremental 200 stores.
Yes, Thanks, Kelly well first of all in terms of the incremental stores, we certainly share more details on that if that was required but as we said earlier, we feel really good about the plan that we have we believe it's a very strong package and it really does address all of the questions and feedback that we've sort of received in.
And evaluate it as we thought about the plans. So our focus is really on moving forward with that plan, but we did think it was important to build flexibility into the agreements. So that if we have to flex we're able to do that.
I wouldn't be able to comment on CNS as financing strategy. That's obviously specific to them and that will be something for them to come until they wanted to I would just say that from our perspective, we felt very comfortable with our financing strategy and fail. They both have the financial strength to be able to complete the transaction, but also the financial strength to be able to keep investing in the business going forward as well.
Thanks Kelly.
Thank you Kelly. Our next question is from <unk> Hari from Oppenheimer.
Your line is now open. Please go ahead.
Good morning, and thanks for taking my question. So I just wanted to touch on the promotional and competitive backdrop, just curious where you guys are seeing right now in the promotional environment any changes on the competitive front lately and I'm. Just curious is there a waning inflation out there and there is a clear desire for the industry to drive volumes. So just curious if you guys expect it to become more promotional in coming months or quarters.
Yes, if you look at overall the promotional activity is getting close to where it was pre COVID-19. So it's pretty consistent with where we expected it to be.
And.
Obviously during COVID-19, the supply chains, where such a mess and it's really those are recovering.
Look at the conversations with CPG, that's getting for the most part.
It's getting much more back to normal in terms of how do you grow units and the Cpg's.
In some cases raise their own margins and now they are starting to focus on tonnage again so.
For us we feel like it's in a good healthy dialogue.
And it's one of the reasons as you know that we believe are our brands is such an important part of our overall.
Go to market equation for customers because of the CPG or doing things that arent justifiable. Our brands always gained share because we have an amazing set of products and when people try them. The repeat rate is incredibly strong as well.
Great and then maybe just one follow up question. So as you look at the consumer backdrop for the balance of the year is is your team assuming it stays pretty similar to what you've seen recently or do you expect it to get worse in gist.
I also wanted to get a sense of how you think about student loan impacts on grocery.
Yes.
I was going to say if you hadn't added the last part that's the one part where we do expect it will get.
I think from a.
Environment standpoint from a consumer standpoint that it will be a little tougher is the student loan repayments and you don't know for sure until it happens we do believe that the impact on grocery would be less than other categories.
So we've assumed.
That to be a headwind, but the specifics until it happens you just don't know.
And on that refresh when we talked to customers about it we know it's going to be a meaningful financial impact on their overall budget, which obviously creates some.
Some risks that we factor into our thinking while customers also say, though is that one of the first places they go to adjust their budgets to pay for the incremental cost is two eight more food at home versus eating out certainly interesting to see if that turns out to be a trend that's helpful over time as well.
Great. Thank you for all the color I'll pass it along.
Take care.
Thank you Ray pass. Our next question is from Ed Kelly from Wells Fargo. Your line is now open. Please go ahead.
Hi, guys can you hear me now.
Yes.
If we can it sounds like a commercial.
I thought youre going to say that your cat, So I'm happy to hear you Ken.
I wanted to ask you about the sustainability of.
Margin opportunity going forward, if we look at the back half of this year with I guess minimal comp and it seems like maybe thats the environment for next year as well.
You are getting benefit out of LIFO gross margin cost control is really good.
How do we think about the potential for continued improvement and those type of areas in 'twenty four.
To offset what traditionally would be an environment, where it's really difficult for grocers to actually get any earnings growth or even keep earnings flat.
Okay.
Yes, it's a great question you know what I would say is as you know, we typically don't get into like forward guidance beyond the current year until later in the year, but what I would maybe comment on is if you look at the areas that we've called out as being tail winds during the quarter that helped us on the gross margin rate, we think of those as more long term drivers of our model.
Is this sort of short term.
One time benefits cycling prior activity in our business and what I mean by that is if we look at our brands Rodney mentioned it on the call earlier, but we've been doing a tremendous amount of work.
<unk> <unk> is really focusing on how do we continue to improve the portfolio. Both in terms of how we architect our products to get the maximum reach and value from each different product category across private selection and simple truth Kroger Brenda on the smart way product range, how do we continue to innovate how do we drive sourcing.
Best practices, so really kind of taken almost a CPG type mindset to that that approach to our products is saying how do we maximize value and I would say the team would probably tell you that it maybe a third of the way through that work right. Now so there's still a lot of opportunity. We believe to continue to get stronger in our brand's performance.
From a supply chain perspective, I mentioned that in my comments, but we continue to invest significantly in supply chain because the team's doing a great job identifying ways in which we believe we can continue to drive efficiency in our supply chain strategy by leveraging data more effectively in technology and continuing to optimize.
The ramps that we're taking the capacity that we're utilizing on those routes and we believe thats still again significant opportunity ahead of us that alternative.
Alternative profit you've heard us talk about before is being we're still in the early innings of the online to what the potential for alternative profits can be particularly as we keep growing digital and driving engagement through Kroger precision marketing business. So I think overall, we would say that we've been on the journey for a few years that we've talked to investors about how do we.
We manage these levers to be able to continue to improve profitability over time.
Let's say, we have a good degree of confidence that we see continued plans in those areas that will that being said, obviously, we're going to continue to invest in the customer and continue to deliver more value that to balance that model. So that we're driving top line growth over time as well.
Alright, and just a quick follow up.
I don't think Albertsons has had a large opioid settlement yet is that correct.
That would be correct.
Okay, great. Thank you.
Yeah.
Thank you Ed. Our next question is from Robert <unk> from Bank of America Merrill Lynch.
Your line is now open. Please go ahead.
Oh. Thank you can you guys hear me okay.
Yes, good morning, Robert Hey, Rob Okay excellent excellent you can hear me Greg to.
Two follow up questions on the CNS deal. The first one just the the adcs to headquarter regional headquarters I guess.
Five private brands was that.
The original October outline.
Or is that sort of unique to this deal with CNS.
Yes.
They're actually part it was one of those things, where we knew that it would be part of the consideration, but until you had a specific.
Buyer you wouldn't know the specifics so we had always had in the back of our mind that that was something that.
Might be needed in order to define a buyer that would be able to day, one hit the ground running but it wasn't it was one of those things where we could have managed it either way.
Depending on what the particular needs of that particular buyer would have been on the only thing I would add maybe Rodney Ravi would be that if you think about spin Coca Cola <unk> I was going to be have to be set up as a full separate company. So they would have to be meaningful assets that would have moved with spin co for it to be a viable solution.
Any infrastructure other than what would have to move across from some of the albertsons on Kroger business today, so that would have been.
Probably more meaningful in terms of the impact of we sort of move forward with a ah behind like CNS.
Got you that's helpful. And then it looks like there's a fair amount of Kroger and Harris Teeter stores as part of the plan was that.
Part of the October thinking or like I noticed the Harris Teeter stores I guess in Virginia like was that part of the original thinking or is there a greater mix of Kroger banners as part of this.
It was always part of the original thinking that some of the stores to be divested would be best for it to be Kroger stores. So that that wasn't something that was new to <unk>.
The analysis that was done late last year.
Got it and what's the total Kroger banner stores.
CNS announcement.
Yes, there isn't a specific number yet.
It's still in the middle of the dialogue with the FTC, so there wouldn't be specifics.
In the press release that show by state the number of stores and the banners, but not there wouldn't be specifics at this point.
Got you and just last question just is there.
Is there any difference in the expected dilution in year one.
Whether you do 650 year for 11.
Yes, as I mentioned earlier.
We're really focused on the 413 store plan, because we have a high degree of confidence that that addresses all of the areas that we think are important to have a viable operator in the markets that we're divesting stores and we believe the packages is really effective in solving for that so what we what we said with the guidance back in October .
Would still be very consistent in that we now thinking based on the plans that we're moving forward with and if obviously if our plans were to change over time, we would share more details around that but we feel we've got a very strong plan and we feel the guidance that we said nothing nothing at this point would would say that we have.
Anything that would be of concern to move away from those.
Those guidance is that we shed and if anything I would say between the work that we've done now to identify them. Obviously in essence, some additional where we've been able to do in planning for the merger.
In some respects of Albertsons gives us a high degree of confidence that the plans that we should have is still very much the expectation.
Ravi.
Thank you.
Thank you about that all final question today comes from Dean <unk> from Bernstein.
Your line is now open. Please go ahead.
Thank you so much hey, guys. Thanks, so much for making time for the question I really appreciate it up to questions regarding the divested stores.
First question is if.
If there's a big debate about whether you guys are going to.
The acquirer now known as CNS to operate the stores under the banners that they're currently operating on and I guess just two part question. Here. One is if you are you going to allow CNS to operate the stores under their existing banners, yes, or no and if not do you have any idea what the plan is for CNS in terms of rebranding the stores.
Yeah.
And then the second question is you mentioned 160 stores that CNS operates at retail can you share some.
Detail on where those stores are actually located because theres very little regional geographic overlap between existing piggly wiggly stores and the locations, where you've announced the divested stores to be thanks.
Yeah.
Sure Yeah. Thanks for the question so just to clarify on the battery what we chat this morning was that.
CNS will be provided with three matters that we'll be divesting as part of the plan. So Mariano <unk> <unk> and cause all banners that they will be essentially acquiring as part of the divestiture package and they will also receive.
Our license to operate under the Albertsons banner in full of states, so that would be California, Colorado.
<unk>.
Arizona, Arizona, Thanks Rodney.
So essentially.
Yes, I won't speak for what their plans are that's obviously their decision to move forward, but they will have the right to be able to use those banners.
Now this is in the full estate as I mentioned in the three of the band is it any states they choose to use them and operate the stores. So that will be a decision they will make over time, but they they.
I would not key if they are if they ultimately buys still is that a different patterns than those full today, they would need to rebound to those stores over a period of time.
And the stores they operate piggly wiggly would be in the Midwest and the south and the Grand Union would be in the northeast.
So, yes, we think thats a compelling part of the plan actually for CNS, because he will introduce a new competitor into markets, where they have infrastructure and capability, but unable to to present, a new competitor in that market as well.
Thanks Dean.
And thanks, everyone for all the questions as always I'd like to share a few comments directly with our associates listening in.
The back to school season gets underway, we want to wish all families. Good luck on the upcoming school year and acknowledge our own associates, who continue their education through our.
Our feed your future program.
<unk> future is our continuing education benefit that provides up to $21000 for each associate over the course of their career to cover continuing education. We are proud that since the program started in 2018 more than 16000 associates have utilized this benefit.
With approximately 91% of these participants are being hourly associates.
So thankful that you've chosen to grow year career with Kroger and we're excited to see that number to continue to increase and we've committed to bringing this benefit to Albertsons 11, we merge as well and then in closing overall Kroger is delivering consistent results, which reflect the strength of our business model.
That we've talked about in a challenged environment by managing cost and growing alternative profit streams, we drove earnings growth and generated strong free cash flow again this quarter.
We are proud of our ability to deliver these results while creating value for our customers. We are thankful for our incredible associates and their dedication to providing our customers a full fresh and friendly experience. We are excited about the significant step progress taking <unk>.
Phil our merger commitments through the divestiture plan and we remain committed to fulfilling all of the commitments. We set out last year, when we announced our proposed merger with Albertsons. Thanks again for everyone for joining us today that concludes todays call.
This concludes today's call you may now disconnect your lines.
Yeah.
Okay.
Yeah.
Yeah.