Q4 2023 The Kroger Co Earnings Call

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Speaker Change: Good morning, welcome to the Kroger kind of fourth quarter and full year 'twenty <unk> three earnings Conference call. Please note. This event is being recorded.

Operator: Good morning, and welcome to the Kroger Co. fourth quarter and full year 2023 earnings conference call. Please note this event is being recorded. I would now like to turn the conference over to Rob Quast, Senior Director, Investor Relations. Please go ahead.

Speaker Change: I'll now like to turn the conference over to Rob <unk> Senior director of Investor Relations. Please go ahead.

Robinson C. Quast: Good morning. Thank you for joining us for Kroger's fourth quarter and full year 2023 earnings call. I am joined today by Kroger Chairman and Chief Executive Officer, Rodney McMullen, and Interim Chief Financial Officer, Todd Foley. Before we begin, I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions, and actual events or results can differ materially.

Rob: Good morning, Thank you for joining us for progress fourth quarter and full year 2023 earnings call I am joined today by Kroger's, Chairman and Chief Executive Officer, Rodney Mcmullen, and interim Chief Financial Officer, Todd Bali.

Rob: Before we begin I want to remind you that today's discussions will include forward looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially.

Robinson C. Quast: 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 filing. However, The Kroger Company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions. 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 will now turn the call over to Raj. Thank you, Rob. Good morning, everyone.

Rob: 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.

Rob: Kroger company assumes no obligation to update that information.

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

Now I'll turn the call over to Rodney.

William Rodney McMullen: Thank you Rob good morning, everyone and thank you for joining us today I'd first like to take a moment to welcome our interim CFO Todd fully Todd has been a meaningful contributor to Kroger for more than 20 years and we are excited he is serving in this leadership position.

William Rodney McMullen: And thank you for joining us today. I'd first like to take a moment to welcome our interim CFO, Todd Foley. Todd has been a meaningful contributor to Kroger for more than 20 years, and we are excited he is serving in this leadership position. Before we begin, I'd like to provide an outline of our topics for discussion this morning.

William Rodney McMullen: Before we begin I'd like to provide an outline of our discussion topics. This morning.

William Rodney McMullen: I will start by sharing a recap of our 2023 performance, how the strength of our value creation model allowed us to deliver on our goals, and how it positions us well to continue our momentum in 2024 and beyond. Then Todd will cover our financial results for the fourth quarter and full year 2023, as well as our financial guidance for 2024. Finally, I will conclude with an update on our proposed merger with Albertsons before we open it up for questions. We are guided by our vision that when people think food, they think Kroger.

William Rodney McMullen: I will start by sharing a recap of our 2023 performance.

William Rodney McMullen: The strength of our value creation model allowed us to deliver on our goals and how it positions us well to continue our momentum in 2024 and beyond.

William Rodney McMullen: Then Todd will cover our financial results for the fourth quarter and full year 2023, as well as our financial guidance for 2024.

Speaker Change: Finally, I will conclude with an update on our proposed merger with Albertsons before we open it up for questions.

Speaker Change: I'd like to start with kroger's value creation model, which supports our optimism for the future.

Speaker Change: We are guided by our vision that when people think food they think kroger.

William Rodney McMullen: To achieve this vision, we are delivering a best-in-class customer experience and investing in our associates. We know that when we take care of our customers and our associates, we generate attractive and sustainable returns for our shareholders. Kroger's go-to-market strategy includes four focus areas—fresh, power brands, seamless, and personalization—that propel the customer experience that will grow sales and build loyalty. Our team of associates powers Kroger's success by executing this strategy and delivering an outstanding customer experience. To attract, develop, and retain our talented teams, we make holistic investments in our associations.

Speaker Change: To achieve this vision, we are delivering a best in class customer experience and investing in our associates.

Speaker Change: We know that when we take care of our customers and our associates, we generate attractive and sustainable returns for our shareholders.

There's go to market strategy includes four focus areas fresh our brands seamless and personalization that propels our customer experience that will grow sales and build loyalty.

Speaker Change: Our team of associates power Kroger's success by executing this strategy and delivering an outstanding customer experience to.

Speaker Change: To attract develop and retain our talented teams, we make holistic investments in our associates.

Speaker Change: Our value creation model enables us to balance investments in our customer experience and associates, while generating sustainable returns for our shareholders.

William Rodney McMullen: Our value creation model enables us to balance investments in our customers' experience and associates while generating sustainable returns for our shareholders. We've made significant investments to strengthen this model and are now demonstrating how we can generate growth in more ways than ever. For example, by delivering fresh products and personalized offers through a unique, seamless shopping experience.

Speaker Change: We've made significant investments to strengthen this model and are now demonstrating how we can generate growth in more ways than ever.

Speaker Change: By delivering fresh products and personalized offers through a unique seamless shopping experience, our retail business creates traffic and loyalty that accelerates our growth opportunities in other areas such as the alternative profit businesses.

William Rodney McMullen: Our retail business creates traffic and loyalty that accelerates our growth opportunities in other areas, such as alternative profit businesses. This generates sustainable net earnings growth and increases in cash flow, which supports capital investments to grow the business, which in turn creates more jobs for associates and more career opportunities and enables us to return excess capital to shareholders. As part of our capital investment plans for 2024, we are excited to announce that we are building more new stores in a meaningful way that will support our long-term growth model. When we launched Restock Kroger several years ago, we knew that a strong omnichannel experience was the key to serving our customers in the future.

Speaker Change: This generates sustainable net earnings growth and increases in cash flow, which supports capital investments to grow the business, which in turn creates more jobs for associates and more career opportunities.

It enables us to return excess capital to shareholders.

Speaker Change: As part of our capital investment plans for 2024, we are excited to announce that we are building more new stores in a meaningful way that will support our long term growth model.

Speaker Change: When we launched restock Kroger several years ago, we knew that a strong omnichannel experience was a key to serving our customers in the future.

William Rodney McMullen: We are pleased with the progress we've made there, and we'll continue to invest in digital as it remains an important part of our growth model. In addition, we believe a strong and growing store network is important. Many of the ways we go to market and through the store channel still come through the store channel.

Speaker Change: We are pleased with the progress we've made there and we'll continue to invest in digital as it remains an important part to our growth model.

Speaker Change: In addition, we believe our strong and growing store network is important.

Speaker Change: Many other ways, we go to market and digital still comes through the store channel.

William Rodney McMullen: We know that our most profitable customers shop both in-store and online, so it's important to be there for our customers in the way they choose to shop with us. As a result, we expect new stores to be an important part of sales growth and our TSR model going forward. Now I would like to provide a brief recap of 2023. Last year, customers were affected by many factors which pressured their food at home spending, including reduced government benefits such as SNAP, higher interest rates, and the depletion of excess savings that many families accumulated during the pandemic.

Speaker Change: We know that our most profitable customers shop, both in store and online. So it is important to be there for our customers in a way they choose to shop with us.

Speaker Change: As a result, we expect new stores to be an important part of sales growth and our <unk> model going forward.

Speaker Change: Now I would like to provide a brief recap of 2023.

Speaker Change: Last year customers were affected by many factors, which pressured there are food at home spending including reduced government benefits such as snap.

Speaker Change: Higher interest rates and the depletion of excess savings that many families accumulated during the pandemic.

William Rodney McMullen: As a result, customers were looking for value to stretch their budgets. Kroger's commitment to lowering prices and executing our go-to-market strategy positioned us well to meet our customers' needs. By delivering fresh products, enhancing our brand's quality, and improving our digital experience, we grew loyal households in 2023. And our customers saved even more through our industry-leading personalization capabilities, including loyalty discounts, fuel rewards, and personalized offers. By increasing customers' digital experience, we can more effectively deploy our data sciences and our AI to serve the right offers to customers at the right time. In 2023, our customers clipped 4 billion coupons, which is 1 billion more coupons compared to 2022.

Speaker Change: As a result customers were looking for value to stretch their budgets.

Speaker Change: Kroger's commitment to lowering prices and executing our go to market strategy positioned us well to meet our customers' needs.

Speaker Change: By delivering fresh products, enhancing our brands quality and improving our digital experience. We grew loyal households in 2023, and our customers saved even more through our industry, leading personalization capabilities, including loyalty discounts fuel rewards and <unk>.

Speaker Change: <unk> offers.

Speaker Change: By increasing customers' digital experience, we can more effectively deploy our data sciences and our AI to serve the right offers to customers at the right time.

Speaker Change: In 2023, our customers clipped 4 billion coupons, which is 1 billion more coupons compared to 2022.

William Rodney McMullen: We know these offers help customers stretch their budget and lead to deeper loyalty. During the fourth quarter, our effective promotions helped turn traffic positive. These trends position us well and give us optimism for 2024. We expect consumer sentiment to improve in 2024, but our customers will still have to manage many of the same macro pressures as last year. Kroger will continue to provide customers with lower prices and exceptional value.

Speaker Change: We know these offers help customers stretch their budget and lead to deeper loyalty.

Speaker Change: During the fourth quarter, our effective promotions helped turn traffic positive.

Speaker Change: These trends position us well and give us optimism for 2024.

Speaker Change: We expect consumer sentiment to improve in 2024, but our customers will still have to manage many of the same macro pressures as last year.

Speaker Change: Kroger will continue to provide customers with lower prices and exceptional value.

William Rodney McMullen: We also know that customers expect a great shopping experience, and we have robust plans to improve seamless shopping both in-store and online, where customers can get the products they want without compromising on quality, selection, and convenience. We are raising the bar on our full fresh and friendly metrics and investing for growth. As with our brands, which enable Kroger to offer innovative products at a great value, growing sales, and improving margins, we create destination items that our customers love and can only find at Kroger. This year's addition of the Hispanic-inspired Mercado line to our brand's portfolio is an example of how our brands can innovate in categories that meet our customers' evolving needs and accelerate growth. In 2024, Artbrands expects to launch more than 800 new products. As part of the next phase of Kroger's brand architect work, the team is reimagining their R Brands portfolio with a refreshed look, which is based on the insights and preferences collected from extensive customer feedback studies. Next is something fresh.

Speaker Change: We also know that customers expect a great shopping experience and we have robust plans to improve seamless shopping both in store and online where customers can get the products they want without compromising on quality selection and convenience.

Speaker Change: We are raising the bar on our full fresh and friendly metrics and investing for growth.

Speaker Change: As with our brands, which enables kroger to offer innovative products at a great value growing sales and improving margins, we create destination items that our customers love and can only find at Kroger.

Speaker Change: This year's edition of the Hispanic inspired Mercato line to our brands portfolio. As an example of how our brands can elevate in categories that meet our customers' evolving needs and accelerate growth.

Speaker Change: In 2020 for our brands expects to launch more than 800 new products.

Speaker Change: As part of the next phase of Kroger's brand architect work. The team has re imagining there our brands portfolio with a refreshed look which is based on the insights and preferences collected from extensive customer feedback studies.

Speaker Change: Next is fresh fresh is an important influence on where customers shop, and we are continually trying to add days or freshness for our customers with.

William Rodney McMullen: Freshness is an important influence on where customers shop, and we are continually trying to add days of freshness for our customers. With end-to-end freshness in more than 2,100 stores, we are seeing higher produce sales and improving share. Beyond adding days of freshness, we are expanding our assortment. Customers love our convenient in-store fresh-cut fruit program, and we will continue to expand the offering by introducing regional specialties and seasonal favorites. Now turning to Seamless, Vigil had strong results in 2023, delivering more than $12 billion in sales. Digital sales grew by 12% on a 52-week basis.

Speaker Change: With end to end fresh and more than 2100 stores, we are seeing higher produce sales and improving share.

Speaker Change: Beyond adding days of freshness, we are expanding our assortment customers love, our convenient and store fresh cut fruit program and we will continue to expand the offering by introducing regional specialties and seasonal favorites.

Speaker Change: Now turning to seamless.

Speaker Change: Digital had strong results in 2023, delivering more than $12 billion in sales digital sales grew by 12% on a 52 week basis, and we improved our cost to serve through increased volume and process enhancements as well as technology to optimize associated pick routes.

William Rodney McMullen: And we improved our cost to serve through increased volume and process enhancements, as well as technology to optimize associate pick routes for more efficient picking. Digital is an important growth accelerator in our business, and in 2024, we expect to deliver another year of double-digit sales growth. As we grow volume, particularly in our Kroger delivery network, we expect our unit economics to improve and become a tailwind to our long-term financial model. We have a clear path to improving our digital margins, closing the gap with our traditional brick and mortar business over time. Kroger is well positioned through our combination of stores and dedicated fulfillment centers, enabling us to serve all customer trips, including both immediate and next day. Customers value the ability to shop on their own terms with zero compromises, and we are increasing the number of omni-channel households in our ecosystem. Customers who shop both in-store and online spend three to four times more compared to in-store only shoppers.

Speaker Change: For more efficient picking.

Speaker Change: Digital is an important growth accelerator in our business and in 2024, we expect to deliver another year of double digit sales growth.

Speaker Change: As we grow volume, particularly in our Kroger delivery network, we expect our unit economics to improve and become a tailwind to our long term financial model.

Speaker Change: We have a clear path to improving our digital margins closing the gap with our traditional brick and mortar business over time Kroger.

Speaker Change: <unk> is well positioned through our combination of stores and dedicated fulfillment centers, enabling us to serve all customer trips, including both immediate and next day.

Speaker Change: Customers value the ability to shop on their own terms with zero compromises and we are increasing the number of omnichannel households, and our ecosystem.

Speaker Change: Customers, who shop, both in store and online spend three to four times more compared to in store only shoppers.

William Rodney McMullen: Personalization is also driving digital engagement and remains one of the primary ways we deliver value for customers beyond low prices. By offering personalized savings, we can ensure customers get the right promotions at the right time, allowing us to get the most important return on our promotional spend while enhancing loyalty. Moving promotions online allowed Kroger to take personalization to a new level, targeting customers more efficiently and increasing the breadth and depth of promotions. During the fourth quarter, this led to an 18% increase in digitally engaged households.

Speaker Change: Personalization is also driving digital engagement and remains one of the primary ways, we deliver value for customers beyond low prices.

Speaker Change: By offering personalized savings, we can ensure customers get the right promotions at the right time, allowing us to get the most important return on our promotional spend while enhancing loyalty.

Speaker Change: Moving promotions online allowed Kroger to take personalization to a new level targeting customers more efficiently and increasing the breadth and depth of promotions.

Speaker Change: In the fourth quarter. This led to an 18% increase in digitally engaged households.

William Rodney McMullen: Our digitally engaged households are extremely valuable to our long-term growth model as they spend more with us and help power our alternative profit businesses like Kroger Precision Marketing. Operational excellence is essential to bringing our strategic pillars to life. Our full fresh and friendly strategy is the roadmap to achieving a best-in-class customer experience. We were pleased to see continued progress on these metrics in 2023.

Speaker Change: Our digitally engaged households are extremely valuable to our long term growth model as they spend more with us and help power our alternative profit businesses like Kroger precision marketing.

Speaker Change: Operational excellence is essential to bringing our strategic pillars to life.

Speaker Change: Our full fresh and friendly strategy is the roadmap to achieving a best in class customer experience.

Speaker Change: We were pleased to see the continued progress on these metrics in 2023.

William Rodney McMullen: Notably, significant improvement in our in-stock rate as we achieved a new all-time high during the year. We will continue our momentum on end stock rate in 2024 to further drive sales, as well as improve our execution in these other key areas as well. By delivering our retail strategy, including fuel, we are building customer loyalty and expanding opportunities for profitable growth, including alternative profit businesses and health and wellness. Alternative profit businesses achieved solid results in 2023, generating $1.3 billion in operating profits.

Speaker Change: Notably significant improvement in our in stock rate as we achieved a new all time high during the year.

Speaker Change: We will continue our momentum on and stock rate in 2024 to further drive sales as well as to improve our execution and these other key areas as well.

Speaker Change: By delivering our retail strategy, including fuel, we are building customer loyalty and expanding opportunities for profitable growth, including alternative profit businesses and health and wellness.

Speaker Change: Alternative profit businesses achieved solid results in 2023, generating $1 3 billion and operating profit.

William Rodney McMullen: We were pleased with the portfolio's performance in 2023, where our media business once again delivered strong results. Looking ahead, we expect that the significant investments we made in Kroger Precision Marketing last year will lead to more than 20% growth in our media business in 2024. The U.S. media landscape is evolving, and retail media is one of the fastest-growing channels. However, systems built 20 years ago to power digital advertising, including third-party cookies, are losing effectiveness.

Speaker Change: We were pleased with the portfolio's performance in 2023 or our media business once again delivered strong results.

Speaker Change: Looking ahead, we expect that the significant investments we've made in Kroger precision marketing last year will lead to more than 20% growth in our media business in 2024.

Speaker Change: The U S media landscape is evolving and retail media is one of the fastest growing channels.

Speaker Change: Systems built 20 years ago to power digital advertising, including third party cookies are losing effectiveness.

William Rodney McMullen: Ineffective ad spending is creating more opportunities for those who use first-party data to connect the right content to the right customers while clearly measuring return on investment. KPM is well positioned to excel in this space by offering brands a superior advertising experience. Our media business can utilize first-party data from our loyalty program to create relevant audiences and measure ad spend effectiveness based on customer purchases, both in-store and online. To take the next step in this growth journey, KPM invested in enhanced advertiser functionality. In 2023, KPM launched its own ad platform and introduced a new self-service solution for ad buying platforms.

Speaker Change: And effective AD spending is creating more opportunities for those who use first party data to connect the right content to the right customers, while clearly measuring return on investment.

Speaker Change: <unk> is well positioned to excel in this space by offering brands a superior advertising experience our media business can utilize first party data from our loyalty program to create relevant audiences and measure AD spend effectiveness based on customer purchases both in store.

Speaker Change: And online.

Speaker Change: To take the next step in this growth journey.

Speaker Change: <unk> invested in enhanced advertiser functionality in 2023, KPN launched its own AD platform and introduced a new self service solution on AD buying platforms.

William Rodney McMullen: The new ad platform makes it easier for clients to activate campaigns and gather data insights for advertising on Kroger-owned properties, and the new self-service solutions are responsible for offering more direct access to custom Kroger audiences on clients' existing ad-buying platforms. We expect these enhancements will be key catalysts for growth in 2024. Kroger Personal Finance delivered mixed results in 2023, which led to relatively flat year-over-year operating profit.

Speaker Change: The new AD platform makes it easier for clients to activate campaigns and gather data insights for advertising on Kroger owned properties and the new self service solutions are responsible for offering more direct access to custom kroger audiences on clients' existing ad buying platforms.

Speaker Change: We expect these enhancements will be key catalysts for growth in 2024.

Speaker Change: Kroger personal finance delivered mixed results in 2023, which led to relative flat year over year operating profit our credit card business experienced a challenging macroeconomic landscape, which led to an increase in customer bad debt.

William Rodney McMullen: Our credit card business experienced a challenging macroeconomic landscape, which led to an increase in customer bad debt. In money services, we delivered strong results by implementing more fraud controls that allowed us to process payments more quickly while reducing fraud. Turning to health and wellness, health and wellness delivered a better-than-expected performance in 2023, and we are excited about the momentum in this area of our business. As we find in other areas of our ecosystem, customers who are retail pharmacy patients are more loyal to Kroger than non-pharmacy customers.

Speaker Change: And money services, we delivered strong results by implementing more fraud controls that allowed us to process payments more quickly while reducing fraud.

Speaker Change: Turning to health and wellness health and wellness delivered a better than expected performance in 2023, and we are excited about the momentum in this area of our business.

Speaker Change: As we find in other areas of our ecosystem customers, who are retail pharmacy patients are more loyal to kroger than non pharmacy customers.

Speaker Change: The retail pharmacy industry is going through a period of transformation, which presents a significant opportunity for us we plan to deliver growth by focusing on a few key priorities.

William Rodney McMullen: The retail pharmacy industry is going through a period of transformation, which presents a significant opportunity for us. We plan to deliver growth by focusing on a few key priorities. First, Cultivating an Exceptional Patient Experience

Speaker Change: First cultivating an exceptional patient experience.

William Rodney McMullen: We are incorporating new technologies and simplifying our team's work, which adds capacity in our pharmacies. Our pharmacy staff is using this capacity to provide better care and faster checkout for patients. Next, we are attracting new patients by raising awareness among our non-pharmacy customers. Many of our customers are not familiar with Kroger's retail pharmacy operations.

Speaker Change: We are incorporating new technologies and simplifying our teams work, which adds capacity in our pharmacies.

Speaker Change: Our pharmacy staff is using this capacity to provide better care and faster checkout for patients.

Speaker Change: Next we are attracting new patients by raising awareness to our non pharmacy customers.

Speaker Change: <unk> of our customers are not familiar with kroger's retail pharmacy operations, we are working to convert these customers by increasing our marketing and adding in store engagement and utilizing our data sciences to help build awareness.

William Rodney McMullen: We are working to convert these customers by increasing our marketing and adding in-store engagement and utilizing our data sciences to help build awareness. Finally, we plan to build on our 2023 momentum in vaccines by accelerating share growth in 2024. By improving our outreach in-store, expanding marketing campaigns, and working with providers, we can increase vaccines and help customers live healthier lives. I'd now like to take a moment to talk about our associates. We respect and appreciate our associates for all they do to take care of our customers every day, every time.

Speaker Change: Finally, we plan to build on our 2023 momentum in vaccines by accelerating share growth in 2024.

Speaker Change: By improving our outreach in store expanding marketing campaigns and working with providers, we can grow vaccines and help customers live healthier lives.

Speaker Change: I would now like to take a moment to talk about our associates, we respect and appreciate our associates for all they do to take care of our customers every day every time.

Speaker Change: We firmly believe that by investing in associates and being an employer of choice. We can facilitate an outstanding customer experience.

William Rodney McMullen: We firmly believe that by investing in associates and being an employer of choice, we can facilitate an outstanding customer experience. At the core of our operational initiative this year is delivering a consistent store experience, and team consistency is the key to that strategy.

Speaker Change: The core of our operational initiatives. This year is delivering a consistent store experience.

Speaker Change: <unk> consistency is the key to that strategy.

William Rodney McMullen: To support this strategy, we are taking a holistic approach to retention, which includes wage and benefit investments that Todd will talk about later, as well as investments in associate experience, including training, technology, and career development opportunities. Investments in technology enable us to support our associates beyond the initial onboarding process. Our training app provides ongoing support and development during the flow of work, giving associates more confidence in executing their tasks and leading to a better customer experience.

Speaker Change: To support this strategy, we are taking a holistic approach to retention, which includes wage and benefit investments that Todd will talk on later.

Speaker Change: As well as investments in associate experience, including training technology and career development opportunities.

Speaker Change: Investments in technology enable us to support our associates beyond the initial onboarding process.

Speaker Change: Our training App provides ongoing support and development during the flow of work, giving associates more confidence in executing their tasks and leading to a better customer experience.

William Rodney McMullen: Importantly, associates are developing the skills for their next role with Kroger. We are pleased to see these efforts lead to strong improvements in retention this year. In 2024, we will remain focused on further enhancing training and development opportunities, solidifying Kroger as a place where associates come for a job and discover a career. With that, I'll turn it over to Todd to take you through our financial results and guidance for 2024.

Speaker Change: <unk> associates are developing the skills for their next role with Kroger.

Speaker Change: We are pleased to see these efforts lead to strong improvements in retention this year.

Speaker Change: In 2024, we will remain focused on further enhancing training and development opportunities solidifying Kroger is a place where associates come for a job and discover a career.

Speaker Change: With that I'll turn it over to Todd to take you through our financial results and guidance for 2020 for Todd.

Todd Bali: Thanks, Rodney and thank you for the warm welcome and good morning, everyone.

Todd Foley: Thanks, Rodney. And thank you for the warm welcome. Good morning, everyone.

Todd Foley: Kroger's 2023 results reflect the strength of our business and demonstrate the evolution of our model. We are a more diverse business with more ways than ever to generate net earnings growth. For the past four years, adjusted EPS has grown at a CAGR of 20%, significantly higher than our long-term growth model.

Todd Bali: <unk> 2023 results reflect the strength of our business and demonstrates the evolution of our model. We are a more diverse business with more ways than ever to generate net earnings growth over the past four years adjusted EPS has grown at a CAGR of 20% significantly higher than our long term growth model.

Todd Foley: As net earnings grow, we are also producing improved cash flows, and in 2023, we delivered more than $3 billion of adjusted free cash flow. This is strengthening our balance sheet, giving us the flexibility to reinvest in growth opportunities for our business and return excess cash to shareholders. As Rodney discussed, our retail business is performing well and driving data and traffic needed to power our model and accelerate growth in alternative profit businesses. Kroger is entering 2024 from a position of strength.

Todd Bali: As net earnings grow we are also producing improved cash flows and in 2023, we delivered more than $3 billion of adjusted free cash flow. This is strengthening our balance sheet, giving us the flexibility to reinvest in growth opportunities for our business and return excess cash to shareholders.

Todd Bali: <unk> discussed our retail business is performing well and driving data and traffic needed to power our model and accelerated growth and alternative profit businesses Kroger's entering 2024 from a position of strength.

Todd Foley: Many of the headwinds we faced in 2023, including the reduction in SNAP benefits and a loss of pharmacy sales from the termination of our agreement with EFI, are cycling. Recent investments to expand our strategic pillars and grow alternative profit businesses are paying off. We remain confident in our ability to navigate many different operating environments and are well positioned to drive sustainable growth over the long term. I'll now walk through our full year 2023 results. Kroger delivered adjusted EPS of $4.76 per diluted share, including a benefit of 20 cents from the 53rd week. Including the 53rd week, adjusted EPS per diluted share increased 8%, which is above the high end of the guidance range we shared at the beginning of the year. We achieved identical sales without fuel growth of 0.9%.

Todd Bali: Many of the headwinds we faced in 2023, including the reduction of snap benefits and loss of pharmacy sales from the termination of our agreement with ESI are cycling. This year recent investments to expand our strategic pillars and grow alternative profit businesses are paying off.

Todd Bali: We remain confident in our ability to navigate many different operating environments and are well positioned to drive sustainable growth long term.

Speaker Change: Now I'll walk through our full year 2023 results cover delivered adjusted EPS of $4 76 per diluted share, including a benefit of 20 <unk> from the 50 <unk> week.

Speaker Change: Excluding the 50 <unk> week adjusted EPS per diluted share increased 8%, which is above the high end of the guidance range, we shared at the beginning of the year.

Speaker Change: We achieved identical sales without fuel growth and 9%.

Todd Foley: Underlying growth would have been 2.3% after adjusting for the effect of our terminated agreement with Express. Digital sales grew 12% on a 52-week basis, led by 25% growth in delivery solutions. The FIFO gross margin rate, excluding fuel and the 53rd week, increased 18 basis points, primarily attributable to strong R Brands performance, sourcing benefits, lower supply chain costs, and the effect of our terminated agreement with Express Scripts, partially offset by increased price investments and higher strength. Our strategy to improve margin over time has many components, including the expansion of our brand, and improvements in digital profitability, including growth in media. Utilizing technology to improve supply chain efficiency and enhancing the product mix through fresh initiatives, our improvement rate reflected the investments we have made in these areas of our business.

Speaker Change: Underlying growth would have been two 3% after adjusting for the effect of our terminated agreement with express scripts.

Speaker Change: Total sales grew 12% on a 52 week basis led by 25% growth and delivery solutions.

Speaker Change: The FIFO gross margin rate, excluding fuel and the 50 <unk> week increased 18 basis points, primarily attributable to strong our brand's performance sourcing benefits lower supply chain costs and the effect of our terminated agreement with express scripts, partially offset by increased price investments and higher shrink.

Speaker Change: Our strategy to improve margin over time as many components, including the expansion of our brands improvements in digital profitability, including growth in media.

Utilizing technology to improve supply chain efficiency and enhancing the product mix through fresh initiatives.

Speaker Change: Our improvement rate reflected the investments we have made in these areas of our business.

Todd Foley: And it allows us to further invest in price for customers to help drive the flywheel in our model, and continue to have a long runway for improvement. The OG&A rate, excluding fuel, the 53rd week, and adjustment items, increased 21 basis points, attributable to planned investments in associates, investments in strategic growth initiatives, and the effect of our terminated agreement with Express Scripts, partially offset by the continued execution of cost savings initiatives and lower incentive plan costs. Our adjusted FIFO operating profit was $5 billion and $4.8 billion on an adjusted 52-week basis. The LIFO charge for the full year was $113 million.

Speaker Change: And it allows us to further invest in price for our customers to help drive the flywheel in our model we.

Speaker Change: We continue to have a long runway for improvement.

The G&A rate, excluding fuel the 50, <unk> week and adjustment items increased 21 basis points attributable to planned investments in associates investments in strategic growth initiatives and the effect of our terminated agreement with express scripts, partially offset by the continued execution of cost savings initiatives and lower incentive plan cost.

Speaker Change: Our adjusted FIFO operating profit was <unk> 5 billion and $4 8 billion on an adjusted 52 week basis.

Speaker Change: The LIFO charge for the full year was $113 million.

Todd Foley: Kroger continues to generate strong, adjusted free cash flow through our consistent operating results and improvements in working capital. Working capital improvements primarily reflected effective inventory management, led by our sourcing and supply chain team. In addition, recycle through the unfavorable working capital results experienced in the fourth quarter of 2022.

Speaker Change: Kroger continues to generate strong adjusted free cash flow through our consistent operating results and improvements in working capital.

Speaker Change: Working capital improvements, primarily reflected an effective inventory management led by our sourcing and supply chain teams. In addition, recycled through the unfavorable working capital results experienced in the fourth quarter of 2022.

Todd Foley: As a result, we delivered a just and free cash flow of more than $3 billion in 2023. Our strong cash flow generation led to a significant debt reduction and a strengthened balance sheet in preparation for our merger with Albert. Our net total debt to adjusted EBITDA ratio on an adjusted 52-week basis is 1.33 compared to 1.56 a year ago. Turning now to our fourth-quarter results, adjusted EPS was $1.34 per diluted share for the quarter, including a benefit from the 53rd week of 2017. Including the 53rd week, adjusted EPS increased 15%. Identical sales without fuel declined by 0.8%.

Speaker Change: As a result, we delivered adjusted free cash flow of more than $3 billion in 2023.

Speaker Change: Our strong cash flow generation was a significant debt reduction and a strengthened balance sheet in preparation for our merger with Albertsons.

Speaker Change: Our net total debt to adjusted EBITDA ratio on an adjusted 52 week basis is $1 33, compared to $1 56, a year ago.

Speaker Change: Turning now to our fourth quarter results adjust.

Adjusted EPS was $1 34 per diluted share for the quarter, including a benefit from the 50 <unk> week of 'twenty.

Speaker Change: Excluding the 50 <unk> week, adjusted EPS increased 15%.

Speaker Change: Identical sales without fuel declined 8%.

Todd Foley: Underlying growth would have been positive 0.1% after adjusting for the effect of expressed, Our sales trends improved in the final period of the quarter as we began to cycle the effect of ESI, and unit trends improved in the quarter. The fourth quarter was our fifth consecutive quarter of sequential improvement in units, and our teams remained laser-focused on volume growth in 2024. The FIFO gross margin rate, excluding fuel and the 53rd week, increased 13 basis points, reflecting strong R-Branch performance, sourcing benefits, and lower supply chain costs, partially offset by increased price investments and higher strength. The OG&A rate, excluding fuel, the 53rd week, and adjustment items, increased 40 basis points compared to last year.

Speaker Change: Underlying growth would have been positive 1% after adjusting for the effect of express scripts.

Speaker Change: Our sales trends improved in the final period of the quarter as we begin to cycle the effect of ESI and unit trends improved in the quarter.

Speaker Change: The fourth quarter was our fifth consecutive quarter of sequential improvement in units and our teams remain laser focused on volume growth in 2024.

Speaker Change: The FIFO gross margin rate, excluding fuel and the 50 <unk> week increased 13 basis points, reflecting strong our brand's performance sourcing benefits and lower supply chain costs, partially offset by increased price investments and higher shrink.

Speaker Change: G&A rate, excluding fuel the 50, <unk> week and adjustment items increased 40 basis points compared to last year. The increase was attributable to planned investments in associate wages and adjustment for self insurance expenses and the decision to contribute an additional $40 million to multiemployer pension plans, hoping to see.

Todd Foley: The increase was attributable to planned investments and associate wages. An adjustment for self-insurance expenses and the decision to contribute an additional $40 million to multi-employer pension plans helped to stabilize associates' future benefits and to reduce future contribution obligations. These were partially offset by continued execution of cost savings initiatives and lower incentive plan costs. Our adjusted FIFO operating profit was more than $1.3 billion, driven by our strong performance and gross margin. This quarter, LIFO was a credit of $18 million, compared to a charge of $234 million last year, primarily attributable to lower-than-expected inflation in our pharmacy industry.

Speaker Change: <unk> associates future benefits and to reduce future contribution obligations.

Speaker Change: These were partially offset by continued execution of cost savings initiatives and lower incentive plan costs.

Speaker Change: Our adjusted FIFO operating profit was more than $1 3 billion driven by a strong performance in gross margin.

Speaker Change: This quarter LIFO was a credit of $18 million compared to a charge of $234 million last year. This was primarily attributable to lower than expected inflation and a pharmacy inventory.

Speaker Change: Fuel is an important part of kirker strategy offering customers, an additional way to save through fuel rewards and providing yet another lever for us to grow profitability.

Todd Foley: Fuel is an important part of Kroger's strategy, offering customers an additional way to save through fuel rewards and providing yet another lever for us to grow profitability. Fuel Rewards enhance customer loyalty, and customers who redeem fuel points spend twice as much on groceries and buy three times the number of fuel gallons. Fuel Reward engagement was strong throughout the year, as customers saved 14% more with fuel rewards versus last year. Our Fuel Rewards engagement helped lead gallon sales, which significantly outpaced the industry. The average retail fuel price was $3.14 this quarter, compared to $3.39 in the same quarter last year.

Speaker Change: Fuel rewards enhanced customer loyalty and customers, who redeem fuel points spend twice as much on groceries and by three times the number of fuel gallons.

Speaker Change: Fuel reward engagement was strong throughout the year as customers say, 14% more on fuel rewards versus last year.

Speaker Change: Our fuel rewards engagement helped lead the gallon sales, which significantly outpaced the industry.

The average retail fuel price was $3 14, this quarter compared to $3 39 in the same quarter last year and our cents per gallon fuel margin was 49 this quarter versus 51 in the same quarter last year.

Todd Foley: And our cents per gallon fuel margin was $0.49 this quarter versus $0.51 in the same quarter last year. I'd now like to provide a brief update on... In 2023, we increased associate wages, resulting in an average hourly rate of nearly $19 an hour and a rate of nearly $25 with comprehensive benefits factored in.

Speaker Change: I'd now like to provide a brief update on associates.

Speaker Change: In 2023, we increased associate wages, resulting in an average hourly rate of nearly $19 an hour.

Speaker Change: And our rate of nearly $25 with comprehensive benefits factored in.

Todd Foley: Over the last five years, Kroger has now invested more than $2.4 billion in incremental wage investments. Kroger remains committed to supporting our associates with investments in wages and comprehensive benefits that are sustainable and will allow us to continue to keep products affordable for the communities we serve. We expect to make continued associated investments in 2024, and those are fully contemplated in our 2024 guidance and long-term growth model. Turning now to financial strategy and capital allocation. We continue to be disciplined with our capital allocation, and our priority is to invest in high-return projects that support net earnings. We also remain committed to maintaining our current investment-grade rating.

Speaker Change: Over the last five years <unk> has now invested more than $2 4 billion in incremental wage investments.

Speaker Change: <unk> remains committed to supporting our associates with investments in wages and comprehensive benefits that are sustainable and will allow us to continue to keep products affordable to the communities we serve.

Speaker Change: We expect to make continued associated investments in 2024, and those are fully contemplated in our 2020 guidance and long term growth model.

Speaker Change: Turning now to financial strategy and capital allocation.

Speaker Change: We continue to be disciplined with our capital allocation decisions and our priority is to invest in high return projects and support net earnings growth.

Speaker Change: We also remain committed to maintaining our current investment grade rating.

Todd Foley: Growing our dividends over time, subject to board approval, and returning excess capital to shareholders. We expect capital investments for 2024 to be between $3.4 and $3.6 billion, which is consistent with 2023 in our long-range model. Capital investments will be aligned with our strategic priorities and expected to drive sales growth and improve margins. To drive sales, our focus is on enhancing the customer shopping experience and increasing store investments. As Rodney mentioned earlier, in 2024, we plan on completing 30 major store projects, including new stores, relocations, and expansion, with a focus on investments in higher-growth geographies that have a track record of delivering strong ROI.

Speaker Change: Growing our dividends over time subject to board approval and returning excess capital to shareholders.

Speaker Change: We expect capital investments for 2024 to be between three 4% and $3 6 billion, which.

Speaker Change: Which is consistent with 2023 and our long range model.

Speaker Change: Capital investments will be aligned with our strategic priorities and expect to drive sales growth and improved margin.

Speaker Change: To drive sales our focus is on enhancing the customer shopping experience and increasing store investments is wrong.

Speaker Change: And you mentioned earlier in 2024, we plan on completing 30 major storing projects, including new stores relocations and expansion with a focus on investments in higher growth geographies that have a track record of delivering strong ROIC.

Todd Foley: To improve margins, 2024 investments will also enhance our supply chain, including expanding distribution center capacity and utilizing data and technology to optimize network efficiency. Productivity improvements and cost savings continue to be an essential element of our model, and are key to helping us fund investments and associates in the customer experience. These opportunities are embedded into all of our business areas, including in-store operations, digital, supply chain, and procurement.

Speaker Change: To improve margins 2024 investments will also enhance our supply chain, including expanding distribution center capacity and utilizing data and technology to optimize network efficiency.

Speaker Change: Productivity improvements and cost savings continue to be an essential element of our model and are key to helping us fund investments in associates and the customer experience. These.

These opportunities are embedded into all of our business areas, including in store operations digital supply chain and procurement.

Todd Foley: Our productivity and cost-saving initiatives are focused on simplification and utilizing technology to enhance the associate experience without impacting the customer experience. Looking forward, we're testing new initiatives like customer pickup lockers, drive-through lanes, and AI-enabled store routing technology that will allow our pickup associates to be more efficient. Through efforts like these, we continue to improve digital margins, which remains a significant opportunity to improve total company operating results. Turning now to 2024 guidance. We expect to achieve identical sales without fuel of 0.25% to 1.75%, adjusting FIFO operating profits of between $4.6 and $4.8 billion, and adjusted net earnings per diluted share of $4.30 to $4.50. This compares to 2023 adjusted EPS of $4.56 on an adjusted 52-week basis. We anticipate LIFO to be a similar charge to last year.

Speaker Change: Productivity and cost saving initiatives are focused on simplification and utilizing technology to enhance the associate experience without impacting the customer experience.

Speaker Change: Looking forward, we're testing new initiatives like customer pickup lockers product through lanes and AI enabled store routing technology that will allow our pickup associates to be more efficient.

Speaker Change: Through efforts like these we continue to improve digital margins, which remains a significant opportunity to improve total company operating results.

Speaker Change: Turning now to 2024 guidance, we expect to achieve identical sales without fuel of two 5% to 175% adjusting FIFO operating profit of between four six and $4 8 billion and adjusted net earnings per diluted share of $4 30 to $4 50.

Speaker Change: This compares to 2023 adjusted EPS of $4 56 on an adjusted 52 week basis we.

Speaker Change: We anticipate LIFO to be a similar charge to last year.

Todd Foley: We expect inflation to be around 1%, which is in line with external forecasts and consistent with our long-range financial models. We expect to grow revenue by investing in value for the customer and enhancing our seamless shopping experience. We plan to balance investments in our business, including lower prices and increased associate wages, with improved productivity and cost-saving initiatives, improvement in long-term initiatives and gross margin, and growth in our alternative product business. As Rodney discussed earlier, growth in loyal households and digitally engaged customers positions us well to grow profits and power the flywheel in our model. Overall, we expect the FIPO gross margin rate, excluding fuel, and adjusted OG&A rate, excluding fuel, to remain relatively flat on a year-over-year basis.

Speaker Change: We expect inflation to be around 1%, which is in line with external forecast and consistent with our long range financial model.

We expect to grow revenue by investing in value for the customer and enhancing our seamless shopping experience.

Speaker Change: We plan to balance investments in our business, including lower prices and increased associate wages with improved productivity and cost saving initiatives improvement on long term initiatives in gross margin and growth in our alternative profit businesses.

That's driving discussed earlier growth in loyal households, and digitally engaged customers position us well to grow profits empower the flywheel in our model.

Speaker Change: Overall, we expect FIFO gross margin, excluding fuel and adjusted G&A rate, excluding fuel to remain relatively flat on a year over year basis.

Speaker Change: In terms of quarterly cadence, we expect identical sales without fuel to be stronger in the second half of the year.

Speaker Change: This reflects a snap headwinds in the first quarter combined with lower inflation.

Todd Foley: In terms of quarterly cadence, we expect identical sales with outfield to be stronger in the second half of the year. This reflects the snap headwinds in the first quarter combined with lower inflation. We expect inflation to be lowest in the first quarter but do expect it to increase as the year progresses. As a result, we would expect identical sales without fuel to be at or slightly below the bottom end of our annual guidance range for the first quarter, in the middle of our guidance range in the second quarter, and near the top end of our range of guidance in the second half of the year. We expect adjusted net earnings per diluted share in quarter one will be down low double digits year over year, reflecting our most challenging quarter for sales. Quarter two is expected to be relatively in line with last year.

We expect inflation to be lowest in the first quarter, but do expect it to increase as the year progresses. As a result, we would expect identical sales without fuel to be at or slightly below the bottom end of our annual guidance range for the first quarter in the middle of our guidance range in the second quarter and near the top end of our range of guidance and the <unk>.

Speaker Change: Second half of the year.

Speaker Change: We expect adjusted net earnings per diluted share in quarter, one will be down low double digits year over year, reflecting our most challenging quarter for sales growth quarter. Two is expected to be relatively in line with last year quarter. Three we would expect increased double digits compared to last year in quarter. Four is expected to be in line with last year on an adjusted 52 week basis.

Speaker Change: Kroger is well positioned to continue the momentum we've generated over the last few years and 2023, we delivered adjusted net earnings per diluted share growth in line with our long term growth model and on top of our historic growth from the prior three years, despite navigating a challenging operating environment.

Todd Foley: Quarter 3 we expect to increase double digits compared to last year, and Quarter 4 is expected to be in line with last year on an adjusted 52-week basis. Kroger is well positioned to continue the momentum we've generated over the last few years. In 2023, we delivered adjusted net earnings per diluted share growth in line with our long-term growth model and on top of our historic growth from the prior three years. Fight Navigating a Challenging Operating Environment

Speaker Change: We're evolving into a more diverse business and our value creation model is providing us multiple ways to drive sustainable future growth.

Speaker Change: I'll now turn the call back to Rodney.

William Rodney McMullen: Thanks, Todd and closing Kroger delivered another strong performance in 2023, and I'm optimistic about 2024 and beyond our retail business is performing well and by building loyalty, increasing digital engagement and driving customer visits it is well positioned to continue that momentum and <unk>.

William Rodney McMullen: 24, and beyond which will accelerate growth in our alternative profit businesses.

William Rodney McMullen: We're evolving into a more diverse business, and our value creation model is providing us with multiple ways to drive sustainable futures. I will now turn the call back to Rob. Thanks, Todd. In closing, Kroger delivered another strong performance in 2023. And I'm optimistic about 2024 and beyond. Our retail business is performing well. And by building loyalty, increasing digital engagement, and driving customer visits, it is well positioned to continue that momentum in 2024 and beyond, which will accelerate growth in our alternative profit businesses. We are focused on enhancing our strategy with consistent store execution to drive sales and expect to build sales momentum throughout the year as we cycle SNAP benefits in the first quarter, resulting in a strong finish to the year.

William Rodney McMullen: We are focused on enhancing our strategy with consistent store execution to drive sales and expect to build sales momentum throughout the year as we cycled snap benefits in the first quarter, resulting in a strong finish to the year.

Speaker Change: Before we open up the Florida your questions I'd like to provide an update on our pending merger with Albertsons company.

Speaker Change: While we were disappointed about the FTC's recent attempt to challenge our merger we were not surprised given the current political environment.

Speaker Change: Our track record in previous mergers is clear Kroger lowered prices invested and associates.

Speaker Change: Prove the customer experience and deepened its connections with the communities we serve.

Speaker Change: The character of our company is clear and its actions regardless of what others claim.

William Rodney McMullen: Before we open up the floor to your questions, I'd like to provide an update on our pending merger with Albertsons Company. While we were disappointed about the FTC's recent attempt to challenge our merger, we were not surprised given the current political environment. Our track record in previous mergers is clear. Kroger lowered prices, invested in associates, improved the customer experience, and deepened its connections with the communities we serve. The character of a company is clear in its actions, regardless of what others claim.

Speaker Change: Kroger keeps its commitments and we're happy to share this with whomever is willing to talk with us.

Speaker Change: We know this merger will result in a secure future for Union jobs Kroger has added more than 100000 union jobs at a national retail environment for these union jobs shrank elsewhere.

Speaker Change: We are making historic investments in wages, including $2 $4 billion in incremental investments since 2018 on top of hundreds of millions of dollars in benefit investments.

Speaker Change: The retail industry continues to be more competitive.

William Rodney McMullen: Kroger keeps its commitments, and we're happy to share this with whomever is willing to talk with us. We know this merger will result in a secure future for union jobs. Kroger has added more than 100,000 union jobs in a national retail environment where these union jobs shrank elsewhere.

Speaker Change: We know our customers better than anyone and everyday they make decisions about where to buy their groceries and how they eat.

Speaker Change: They shop with us they shop with a wide range of competitors from Costco to Amazon to dollar stores and they eat at restaurants, no matter, how others define the industry, we know how our customers behave and we run our business accordingly.

William Rodney McMullen: We are making historic investments in wages, including $2.4 billion in incremental investments since 2018, on top of hundreds of millions of dollars in benefit investments. The retail industry continues to be more competitive. We know our customers better than anyone, and every day they make decisions about where to buy their groceries and how they eat. They shop with us. They shop at a wide range of competitors, from Costco to Amazon to dollar stores, and they eat at restaurants.

Speaker Change: Throughout my four decades in the retail business I have seen that when we take care of our customers and take care of our associates our shareholders benefit.

Speaker Change: This is true in the past and this will be true in the future.

I know you'd likely have questions on the next steps here is what we know today.

Speaker Change: The FTC joined by several states has sued to enjoin the merger.

William Rodney McMullen: No matter how others define the industry, we know how our customers behave, and we run our business accordingly. Throughout my four decades in the retail business, I have seen that when we take care of our customers and take care of our associates, our shareholders benefit. This is true in the past, and this will be true in the future. I know you likely have questions about the next steps. Here is what we know today. The FTC, joined by several states, has sued to join the merger. Two states, Washington and Colorado, have also sued separately.

Speaker Change: Two states, Washington, and Colorado have also sued separately, we are committed to defending the merger and litigation because we believe this is the best outcome for Americas families.

Speaker Change: We cannot close the merger while these actions are pending during.

Speaker Change: Hearing dates have not been set yet, but we expect these to proceed in the mid to late summer. We remain excited about the future of our combined company and we look forward to explaining the benefits of our merger.

William Rodney McMullen: We are committed to defending the merger in litigation because we believe this is the best outcome for America's families. We cannot close the merger while these actions are pending. Hearing dates have not been set yet, but we expect these to proceed in the mid to late summer.

Speaker Change: Because we are in litigation, we will not be taking any questions on the merger. This morning with that Todd and I look forward to taking your questions.

Speaker Change: <unk>.

Speaker Change: If you'd like to ask a question today. Please press star followed by one on your telephone keypad now.

Robinson C. Quast: We remain excited about the future of our combined company, and we look forward to explaining the benefits of our merger. However, because we are in litigation, we will not be taking any questions on the merger this morning. With that, Todd and I look forward to taking your questions. If you'd like to ask a question today, please press star followed by 1 on your telephone keypad now. When preparing to ask a question, please ensure that you are unmuted locally.

Speaker Change: To ask a question please ensure you're on mute locally.

Speaker Change: Our first question today comes from Simeon Gutman from Morgan Stanley Simeon. Your line is open. Please go ahead.

Simeon Ari Gutman: Hi, good morning, everyone and thanks good morning.

Simeon Ari Gutman: One of my first question is on the comp.

Simeon Ari Gutman: The comp guide.

Simeon Ari Gutman: With inflation expectation I think you said about one I.

Simeon Ari Gutman: Yes.

Simeon Ari Gutman: At the high end, maybe it may imply a little bit of market share gain at the low end.

Simeon Ari Gutman: I guess, how did you think about market share, especially as you're investing into pricing why shouldnt does that spread look a little bit stronger versus inflation.

Simeon Ari Gutman: Our first question today comes from Simeon Gutman from Morgan Stanley. Simeon, your line is open, please go ahead. Good morning, everyone. My first question is about the computer.

Speaker Change: Great questions and I'll start and Todd add anything you want to add but.

William Rodney McMullen: Good morning. The comp guide, with inflation expectation. I think you said about one. I guess it at the high end, maybe may imply a little bit of market share gain at the low end. It wouldn't.

Speaker Change: As Todd mentioned into a fair remarks, we expect the first quarter.

Speaker Change: To be a tougher quarter as we're cycling ESI and snap and we would expect as you go through the year that are.

William Rodney McMullen: So I guess how you think about market share, especially as you're investing in pricing? Why shouldn't that spread look a little bit stronger versus inflation? It's a great question, Simeon, and I'll start, and Todd, add anything you want to add. But, you know, as Todd mentioned in prepared remarks, we expect the first quarter to be a tougher quarter as we're cycling ESI and SNAP, and we would expect as you go through the year that our market position, market share, would continue to improve throughout the year, both from cycling and from the comment that I And it's really all of those things together. Todd, anything you want to add? No, I think that's a good call, Rodney.

Speaker Change: Market position market share with continue to improve.

Throughout the year.

Speaker Change: Both from cycling and from the comments that I shared that we expect to open incremental stores.

Speaker Change: More stores in 24 than we did in 'twenty three are in fact Sara.

Speaker Change: Over the past years.

Speaker Change: It's really all of those things together.

Speaker Change: Anything you want to add no I think thats a good color on it frankly actually.

Speaker Change: We are satisfied with the trajectory, we're seeing in some of our volume share trends improve.

Speaker Change: It has improved consistently for the last five quarters and I think what Rodney described as is.

Speaker Change: Our expectation to build on that and that's a great point and we've seen improvements in tonnage and in dollars both sequentially on trends.

Speaker Change: And.

Todd Foley: Frankly, actually, we are satisfied with the trajectory we're seeing in some of our volume share trends. It's improved consistently for the last five quarters, and I think what Rodney described is our expectation to build on that. Yeah, that's a great point, and we've seen improvements in tonnage and in dollars both sequentially on trends, and we would expect that to continue. Quick follow-up on advertising, the grocery space in particular, there's always been a lot of support for product in the store promotion, where product is placed. Now we're getting advertising dollars as the consumer shifts the channel in which they're shopping. The way in which your suppliers, or The Dollar Basket, are getting larger? The advertising plus the product support, are those dollars still growing, and how do you think about that over the next several years? Yeah, if you look from a media standpoint, we're really competing against Google and Facebook and other channels. And everything that we can see that those dollars are coming from other channels or even traditional media channels. And we tell our CPGs, we have to earn our right for you to want to spend media money with us, because it doesn't do us any good if you just take trade dollars and move them over.

Speaker Change: We would expect that to continue.

Speaker Change: A quick follow up on advertising.

Speaker Change: The grocery space in particular, there has always been a lot of support on product in the store.

Speaker Change: Motion where product display now we're getting advertising dollars as the consumer shifts the channel in which they're shopping.

Speaker Change: And with your suppliers or your suppliers.

Speaker Change: Suppliers are looking at it is.

Speaker Change: Is the dollar basket, you think still getting larger on hold or are they looking at it more holistically.

Speaker Change: The advertising plus the product support are those dollar still growing and how do you think about that over the next several years.

Speaker Change: If you look from a media standpoint, we're really competing against Google and Facebook.

Speaker Change: Other channels and.

Speaker Change: Everything that we can see.

Speaker Change: That those dollars are coming from other channels or even traditional media channels and we tell our CPG is we have to earn our right for you want to want to spend media money with us because it doesn't do us any good if you just take trade dollars and move them over.

William Rodney McMullen: So, that's something we've been aggressive in terms of communicating with CPGs since day one, and it's really important. If you look at trade support, we actually saw a pickup in trade support, and it's more around some of the CPGs are starting to focus more on tonnage growth than they have in the last several quarters. And trade dollars are really trying to support tonnage growth for certain CPGs, but not all. Thanks, Simeon. The next question comes from Leah Jordan from Goldman Sachs. Leah, your line is open, please go ahead. Thank you. Good morning.

Speaker Change: So that's something we've been aggressive in terms of communicating with CPG since day, one and it is really important.

Speaker Change: If you look at trade support now we actually saw a pickup in trade support and it's more around some of the cpg's are starting to focus more on tonnage growth.

Speaker Change: And what they have in the last several quarters and the.

Speaker Change: Trade dollars are really trying to support.

Speaker Change: <unk> growth for certain cpg's, but not all.

Speaker Change: Thanks Simeon.

Speaker Change: The next question comes from Lee of Jordan <unk> from Goldman Sachs. Your line.

Lee: Is open please go ahead.

Lee: Thank you good morning, I'm wondering if noted an inflection to positive traffic in the quarter I'm. Just curious if you could comment on where you think you're gaining that trip.

Leah Jordan: You noted an inflection to positive traffic in the quarter. I'm just curious if you could comment on where you think you're gaining that trip. How much do you think a shift to more food at home has been a factor? And then just where are you seeing maybe in trip frequency across your customer base versus those that are more loyal versus maybe those that are a little less so? Yeah, in terms of where we're seeing the growth, our loyal household has continued to grow for several quarters in a row. They are starting to shop with us more frequently as well. So it's really both of those things together.

Lee: How much do you think a shift to more food at home has been a factor.

Just what are you seeing maybe in frequency across your customer base versus those that are more loyal.

Lee: Maybe that's a little lesser.

In terms of where we're seeing the growth of our loyal households.

Lee: Continued to grow and it's several quarters in a row. They are starting to shop with us more frequently as well so it's really both of those together.

William Rodney McMullen: The food away from home, to me, is, if you ask me what our biggest opportunities are, seamless is obviously one of them, but one of them would be food away from home. Our market share there is very low, and our deli and bakery team are doing some incredible work and incredible work partnering with a couple of outside companies, really focused on making it a destination. And one of the things that we recently did was reformulate our fried chicken, and the customers are telling us they really like it. So when we look at food away from home, we think we're just scratching the surface, and we think that's really a huge growth opportunity. But the growth is really coming from our frequency and our loyal shoppers. Great. Thank you. Thanks, Leah.

Lee: The food away from home.

Lee: To me as well if you ask me what is one of our biggest opportunities seamless is obviously one of them, but one of them would be food away from home our market share. There is very low and our deli bakery team are doing some incredible work and incredible work partnering with us on a couple of outside companies.

Lee: <unk>.

Lee: Focused on making it a destination and we are one of the things that we recently did was reformulate, our fried chicken and the customers are telling us they really like it. So when we look at food away from home.

Lee: We think we're just scratching the surface and we think that's really a huge growth opportunity, but the growth is really coming from our frequency and our loyal shoppers.

Speaker Change: Great. Thank you thanks Lee.

Speaker Change: Okay.

Leah Jordan: The next question comes from Michael Lasser from UBS. Michael, your line is open. Please go ahead.

Speaker Change: The next question comes from Michael Lasser from UBS, Michael Your line is open. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question. Sonny, presumably you would get a lot of new stores if and when the Albertson merger closes. So what's driving the decision to accelerate organic store growth now? Thank you. Yeah, thanks, Michael. And great seeing you a couple of weeks ago as well. You did a great job.

Michael Lasser: Good morning. Thank you so much for taking my question, presumably you would get a lot of new stores, if and when the Albertsons merger closed is whats driving the decision to accelerate organic store growth now. Thank you.

Speaker Change: Thanks, Michael and Great seeing you a couple of weeks ago, as well and did a great job.

Speaker Change: During when you look at.

William Rodney McMullen: Storage, when you look at it, it really ties back to capital and, you know, it's kind of, I call it bifurcation, because we continue to run our business just like we would run our business without the merger, and we're finding good growth opportunities in certain markets where we have a strong borrow I.C. and there's good population growth, and it's something that we feel comfortable doing with or without the merger, so it's really strong from both a financial and a demographic perspective, and we have good, strong, obviously, cash flow to be able to fund it as well. Yeah, it looks like, yeah.

Speaker Change: It's really ties back to capital and.

Speaker Change: Where is kind of I would call. It bifurcation, because we continue to run our business just like we would run our business without the merger and we're finding good.

Speaker Change: Growth opportunities in certain markets, where we have a strong ROIC.

Speaker Change: And there's good population growth.

Speaker Change: It's something that we feel comfortable doing with or without the merger.

Speaker Change: So it's.

Speaker Change: Really strong from a both perspective and we have good strong obviously cash flow to be able to funded as well, yes, Chris great, Colorado and if you think over the last few years, we've really concentrated a lot of our.

William Rodney McMullen: Yeah, great call, Rodney, and if you think over the last few years, we've really concentrated a lot of our capital investments in the digital space. As we saw customers evolving more into that space, naturally, our investments went there to help support what they were looking for and what we were trying to do in our business, and we've been very pleased with the progress we've made with those investments with customers, but, as Rodney said, we continue to see opportunities that go into higher-growth areas and some of those markets where we have a good track record and make sure that we're balancing those investments with Thank you very much for that.

Chris: Capital investments in the digital space as we saw customers evolving more into that space naturally our investments went there to.

Chris: To help support what they were looking for and what we're trying to do in our business and we've been very pleased with the progress we've made with those investments with with customers, but as Rodney said, we continue to see opportunities.

Chris: Go into <unk>.

Chris: Higher growth areas and some of those markets, where we have a good.

Chris: Good track record in making sure that we're balancing those investments with both.

And in store investments, because our best shoppers engage with us in both of those areas.

Chris: Sure.

Speaker Change: Thank you very much for that and my final question is what is your assumption for overall weak growth in 2024, and how much flexibility do you have with managing that line item in the event that it either.

Michael Lasser: My follow-up question is, what is your assumption for overall wage growth in 2024? And how much flexibility do you have with managing that line item in the event that IDs don't accelerate to the degree that you expect over the course of the year? Thank you.

Speaker Change: Don't accelerate to the degree that you expect over the course of the year. Thank you.

Todd Foley: No, a great question, and I appreciate that. One thing to keep in mind when we talk about wage investments. You know, 75% of our collectively bargained wages are kind of locked in through previous CBAs. So we have that on our radar, and that's built into our model. And the other part to keep in mind is that our associates are a vital part of our strategy, and we're going to continue to invest in their wages and benefits through everything that we do. They are so important to our model because they are the ones that unlock the customer experience. So, and you've seen that over the last five or so years, we've increased the average hourly rate 30% to help support those investments in those associates.

Speaker Change: No great question and I appreciate that.

Speaker Change: One thing to keep in mind, when we talk about wage investments.

Speaker Change: 75% of our collectively bargain wages.

Speaker Change: Aren't kind of locked in through two previous Cba's. So we have that on our radar and that's built into our model.

Speaker Change: And the other part to keep in mind.

Speaker Change: But our associates are a vital part of our strategy and we're going to continue to vest and associates.

Speaker Change: Wage and benefits through everything that we do they are so important to our model because they are the ones that unlock the customer experience, so and you've seen that over the last five or so years, we've increased average hourly rate, 30% to help support those investments and those associates. So.

William Rodney McMullen: So we will continue to invest in associates next year. The other part of our model, and I would even argue, part of our culture that's critical to what we do, is identifying and investing in productivity improvements and cost savings initiatives to help us be able to fund those investments in our associates and in our customers. And so I think that's an important part of our model, and we'll continue that through 2024. And Todd's last point, that's really how we fund. As Todd mentioned, we've increased our average hourly rate by over 30% over the last five years. And the way we've funded that, that's been an excess of our sales growth. And the way we've funded that is through cost savings. And its process change. It's using less energy.

Speaker Change: So we will continue to invest in associates next year. The other part of our model I would even argue part of our culture, that's critical to what we do.

Speaker Change: Is identifying and investing in productivity improvements and cost savings initiatives to help us be able to fund those investments in our associates and our customers and so.

Speaker Change: So I think thats important part of our model and we will continue that through 2020.

Todd Bali: And Todd last point.

That's really how we fund as Todd mentioned, we have increased average hourly rate by over 30% over the last five years and the way we've funded that that's been in excess of our sales growth in the way we funded that is through the cost saves.

Todd Bali: And it's a process change it's using less energy is a whole host of hundreds of different things that our teams are doing and we would have the same type of commitment expectation of ourselves that we can do the same thing again in 2024 as well.

William Rodney McMullen: It's a whole host of hundreds of different things that our teams are doing. And we would have the same type of commitment expectation of ourselves that we can do the same thing again in 2024 as well. Thanks, Michael. The next question comes from Krisztina Katai from Deutsche Bank. Krisztina, your line is open, please go ahead.

Speaker Change: Thanks, Michael.

Speaker Change: The next question comes from Cristina <unk> from Deutsche Bank. Your line is open. Please go ahead.

Hi, good morning, and congrats on a great quarter good morning.

Krisztina Katai: Hi, good morning, and congrats on a great quarter. Good morning, thank you. Rodney, you talked about the importance of pricing for the consumer, but you also mentioned taking personalization to a new level. So I was wondering if you could just talk about how you are positioned price-wise to take share, especially when you're using loyalty. And to what degree is Kroger investing its own dollars into prices, which is aided by higher profits from the media business versus what you're getting from vendors? Yeah, it's a mixture of both.

Cristina: Rodney you talked about.

Yes, good morning, Rodney you talked about the importance of pricing for the consumer but you also mentioned taking personalization to a new level. Phil I was wondering if you could just talk about how you are positioned pricewise to take share, especially when you're using loyalty and to what degree program investing $1 in price.

Cristina: Mkay aided by higher profits from the media business versus what you were getting from Vanguard.

Phil: Yes. It is it's a mixture of both and as I mentioned earlier, we did see an increase in trade dollars, but we would also take some of this savings and some people would call. It a productivity is blue.

William Rodney McMullen: And as I mentioned earlier, we did see an increase in trade dollars, but we would also take some of this savings and, you know, some people would call it a productivity loop. But if you look at the cost savings that we're able to achieve, the leverage we get from sales growth and some of those things, we would also be investing in lower prices. If you look at the overall picture, when you look at the way somebody shops, obviously, we go to the market as a promotional merchant. And customers, when things are on promotion, they buy more of them. So when you look at the total mix, price.

Phil: But if you look at the cost saves that we're able to achieve.

Phil: The <unk>.

Phil: Leverage we get from sales growth in some of those things we would also be in investing in lower pricing.

Phil: If you look at overall.

Phil: When you look at the way somebody shops, obviously, when we go to market as a promotional merchant and customers when things are on promotion they buy more of it. So when you look at the total mix of price.

William Rodney McMullen: And you include our rewards. We're exactly where we are satisfied and like to be. And the customers get incredible value. And many of our customers feel like they actually get better value than some of our competitors. And they don't have to compromise on experience, both in terms of people's experience and fresh experience.

Phil: And they include our rewards, we're exactly where we were.

Phil: We are satisfied and like to be and the customers getting incredible value in many of our customers feel like they actually get a better value than some of her.

Phil: Competitors and they don't have to compromise on experience both in terms of people experience and fresh experience.

William Rodney McMullen: On personalization, it really is being able to identify what's important to each of us individually and to make specific offers where something that matters to me is going to be different than what matters to everyone else. Almost every household that shops with us gets a unique offer. It would be highly unusual for somebody to actually get the same offer.

Phil: On personalization, it really is being able to identify what's important to each of us individually and doing specific offers.

Phil: To wear something that matters to me is going to be different than what matters to everyone else in almost every household that shops with us gets a unique offer.

Phil: It would be highly unusual for somebody to actually get the same offers.

Speaker Change: Thank you for that and then just my quick follow up question on FIFO gross margin.

Krisztina Katai: Thank you for that. And then just my quick follow-up question on FIFO gross margins. 13 basis point expansion in the fourth quarter, I think, probably came in ahead of plan. So if you could talk about sort of how you view some of the opportunities, what are some of the main puts and takes that we should keep in mind for the year? Because I think we talked about flat levels overall. That would be great. Thank you. Yes, sure, Krisztina.

Speaker Change: The 30 basis point expansion in the fourth quarter I think probably came in ahead of plan. So you could talk about sort of how you view some of the opportunity.

What are some of the main puts and takes that we should keep in mind for the because I think you talked about flat level overall that would be great. Thank you.

Speaker Change: Sure Kristina.

Todd Foley: Yeah, very pleased with the progress we made with driving margin expansion. But it's been a lot of the initiatives that we've been talking about for most of the year and the ones, frankly, that we'll continue to execute on going forward. A lot of our merchandising strategies around really driving product mix, driving fresh penetration improves margin through mix. And same with our brands.

Kristina: Yes, very pleased with the progress we've made with driving margin expansion, but it's been a lot of the initiatives that we've been talking about for most of the year and the ones frankly that will continue to execute on going forward.

Kristina: A lot of our merchandising strategies.

Kristina: Around really driving product mix driving fresh penetration.

Kristina: Improved margin through mix.

Kristina: And same with our brands our brands to me.

Todd Foley: You know, our brands to me are we get the best of both worlds, not only from a margin expansion standpoint because of the margin that our brands deliver us. But in the current environment that we're in, where customers are looking for value, they get to experience that through our brands, where they get value, and they don't have to have to sacrifice quality. So, that's a double win to me.

Kristina: You can get the best of both worlds not only from a margin expansion standpoint, because of the margin that our brands delivers us but in the current environment that we're in where customers are looking for value.

Kristina: They get to experience that through our brands, where they get value and they don't have to have to sacrifice quality. So so thats a double win to me, it's not just a margin expansion, but but but also customer opportunity.

Todd Foley: It's not just a margin expansion but also a customer opportunity. But then Rodney alluded to this from the margin enhancement. I think that we're doing in our logistics business in operating or optimizing operations in the supply chain and, of course, sourcing. We've talked about that partnership with sourcing, working with all of our vendors to help drive margin improvement. Those are the initiatives that gave us momentum in 2023, and those are the same ones that give us confidence as we go forward. We'll continue to drive that margin expansion. Thanks, Krisztina.

And Rodney alluded to this.

Kristina: From the margin enhancement things that we're doing in our logistics business in operating optimizing operations and supply chain and of course sourcing we've talked about several times that partnership with sourcing working with all of our vendors to help drive margin improvement. Those are the those are the initiatives that gave us momentum in 2023 I know those are the same ones.

Kristina: That gives us confidence as we go forward, we'll continue to drive that margin expansion.

Speaker Change: Thanks Kristina.

Speaker Change: The next question comes from John <unk> from Guggenheim Partners. Your line is open. Please go ahead.

John Edward Heinbockel: The next question comes from John Heinbockel from Guggenheim Partners. John, your line is open. Please go ahead. And Rodney, can you talk about where we are now with profitability on the 12 billion in digital sales? Right?

John: Hey, Rodney can you talk about where are we now with profitability on the $12 billion of digital sales and I know that.

William Rodney McMullen: I know that I'm pretty sure it's profitable. It's, it's not where the brick and mortar is. But where are we?

John: I'm pretty sure it's profitable.

John: We're right the brick and mortar news, but where are we in is it possible. If you look out over the next three years whatever that profit is could that easily double or triple in dollar terms from where we are today.

William Rodney McMullen: And is it possible if you look out over the next three years, whatever that profit is, you know, could that easily double or triple in dollar terms from where we are today? It, John, it's a great question. And the, as you know, because we've been following you for a long time.

William Rodney McMullen: John It's a great question.

William Rodney McMullen: As you know because you've followed us a long time and we've always told everybody job. One is to make sure. We don't lose the digital customer and job two is our responsibility to figure out how to make sure that customer is profitable.

William Rodney McMullen: And we've always told everybody job one is to make sure we don't lose the digital customer, and job two is our responsibility to figure out how to make sure that customer is profitable. I would say that we continue to make meaningful progress, but it's a meaningful tailwind that should be with us for several years. And when I say several years, I'm talking three to five years.

Speaker Change: I would say that we continue to make meaningful progress, but it's a meaningful tailwind that should be with us for several years.

Speaker Change: When I say several years I'm talking three to five years.

William Rodney McMullen: If you look at the in-store digital business, we have a pathway to get to where the margins are the same there as shopping in-store. If you look at our sheds, we believe that at maturity, a shed margin will actually be better than a store because of the media and other pieces. But if you think of a baseball game, we're still in the very early stages of this journey, and we're incredibly excited about the customer's reaction to the net promoter score. And, in fact, our sheds had the highest net promoter score that they've ever had this quarter, and the repeat rates and all those things continue to improve. But, you know, we're early in the game on something that's going to be a tailwind for a long time, and we're still learning how, from a profitability standpoint, to make it a meaningful contributor. So excited, but we still have a long ways to go.

Speaker Change: If you look at the.

Speaker Change: In store digital business.

Speaker Change: We have a pathway to get to where the margins are the same there is shopping in store. If you look at our sheds.

Speaker Change: We believe that maturity a shed margin will actually be better than a store because of the media and other pieces, but we are.

Speaker Change: If you think of a baseball game, we're still in a very early inning of this journey.

Speaker Change: We're incredibly excited about the customers' reaction from our net promoter score and in fact, our sheds had the highest net promoter score that they've ever had this quarter and the repeat rates and all those things continue to improve but we are.

We're early in the game on something that's going to be a tailwind for a long time and we're still learning help from a profitability standpoint, how to make it a meaningful contributor.

Speaker Change: Excited but we still have a long ways to go.

Speaker Change: Alright, and maybe sort of a follow up on that in terms of <unk>.

John Edward Heinbockel: All right, maybe sort of a follow up on that in terms of profit buckets. So is this going to be another year of a billion dollars of proactive cost out? I'm not sure.

Speaker Change: Buckets.

Speaker Change: So is this going to be another year of a $1 billion of proactive cost out.

Speaker Change: I'm not sure.

William Rodney McMullen: And then alternative profit. I think the goal was to be up, you know, 150 million last year. I'm not sure if you got there, but this coming year, given what you said about personal finance, is the idea for that business to grow maybe 100 million? Or do you think it can do better?

Speaker Change: And then alternative profit I think the <unk>.

Speaker Change: Goal was to be up $150 million last year I'm not sure if you got there but.

Speaker Change: This coming year, given what you said about personal finance.

Speaker Change: Is the idea for that business to grow maybe $100 million.

Speaker Change: What do you think it can do better.

William Rodney McMullen: If you look at cost reductions or whatever, because it's a whole host of things, our internal target would be around a billion dollars again, and this would be the seventh year for that. If you look at all profit, at this point, 100 million would be a good number. But obviously, we're going to work really hard to make it a little bit better than that. But, you know, the media business will be a meaningful driver of that. KPF, we think there's a lot of opportunity. But, you know, right now, consumer sentiment is improving. So hopefully, that starts showing up in bad debt and other things. So that becomes a tailwind, as opposed to being neutral.

Speaker Change: If you look at core.

Speaker Change: Cost.

Speaker Change: The reductions or whatever because it's a whole host of things.

Speaker Change: Our internal target would be around $1 billion again, and this would be the seventh year for that.

Speaker Change: If you look at all profit at this point $100 million would be a good number.

Speaker Change: But obviously, we're going to work really hard.

Speaker Change: To make it a little bit better than that.

Speaker Change: But.

Speaker Change: The media business.

Speaker Change: We will be.

Speaker Change: A meaningful.

Speaker Change: Driver that Kps, we think theres a lot of opportunity with Sig.

Speaker Change: Right now the consumer sentiment is improving so hopefully that starts showing up in bad debt and other things so that becomes a tailwind.

Speaker Change: As opposed to neutral.

Michael David Montani: Thanks, John. The next question comes from Michael Montani from Evercore ISI. Michael, your line is open, please go ahead. Hey, good morning, and thanks for taking the question. I want to ask two things, I guess. First off, I was wondering what the leverage point is that we should be thinking about from ID sales, given some of the cross currents, and do you see store hours needing to grow if units start to recover? And then I had a follow-up appointment.

Speaker Change: Thanks, John.

Speaker Change: The next question comes from Michael <unk> from Evercore ISI. Your line is open. Please go ahead.

Michael Lasser: Hey, good morning, and thanks for taking the question.

Michael Lasser: Just wanted to ask two things I guess.

Michael Lasser: First off just wondering if you could discuss the leverage point that we should be thinking about from I'd sales given some of the cross currents and do you see.

Michael Lasser: Store hours needing to grow units start to recover and then I had a follow up.

William Rodney McMullen: If you look at the leverage point, this won't be true forever. But right now, we're having a lower leverage point. Because if you look at the softness and identicals, a lot of that is driven by things that were low margin.

Michael Lasser: If you look at leverage point this wont be true forever, but right now, we're having a leverage point lower because if you look at the soft as it is.

Michael Lasser: Softness in identical.

Michael Lasser: Lot of that is driven by things that were low margin. So our DSI business was something that actually was a negative unprofitability.

William Rodney McMullen: So our ESI business was something that actually was a negative for profitability. So by not having that, it actually supports improving profitability. If you look at hours, I mean, we use AI, and every department and every store is generated; the hours to support the business are generated by the number of units, and, you know, I feel very good that we'll be able to continue to provide great service to our customers. The other thing that helps us is that we're always figuring out new ways of doing something to reduce, you know, how many hours it takes to do it. So, if you think about picking up an order, the walk time continually gets reduced because we're able to identify every individual store where every item is on what shelf, and it reduces the time to pick an order, as an example.

Michael Lasser: So by not having that it actually supports improving profitability.

Michael Lasser: If you look at ours.

Michael Lasser: I mean, we use AI in every department and every store has generated the hours to support the business is generated by the number of units.

Speaker Change: I see.

Speaker Change: Feel very good that we'll be able to continue to provide great service.

Speaker Change: To our customers. The other thing that helps us is youre always figuring out new ways of doing something to reduce.

Speaker Change: How many hours it takes to do it so if you think about.

Speaker Change: Picking.

Speaker Change: A pickup order.

Speaker Change: The walk time is continually gets reduced because we're able to identify every individual store where every item is on what shelf.

Speaker Change: It reduces the time that they can order as an example, so all of those things together, we feel really good about leverage points relative to <unk>.

William Rodney McMullen: So all of those things together, we feel really good about leverage points relative to where we are on IDs. Now, you know that's not going to last forever, but certainly, if you look at 2024, we feel good about where we are. And then if I could just follow up on the fuel side, is there a CPG that you could share with us that you guys have in the guidance or how to think about fuel? And then, similarly, for a pharmacy, can margins start to improve in that business? Yeah, thanks for the question.

Speaker Change: Where we are on it now.

Speaker Change: That's not going to last forever, but certainly if you look at 2024, we feel good about where we are.

Speaker Change: And then if I could just follow up on the fuel side is there a CPG that you could share with us that you guys have in the guidance or how to think about fuel and then similarly for our pharmacy can margins start to improve in that business.

Speaker Change: Yes.

Todd Foley: On the fuel side, I think our outlook for 2024 is that we expect to be flat in that business year over year. You know, recall the last five years it was, you know, prior to this one, it was quite a profit driver. And as we guided for 2023, we were a little bit behind year over year in 2023.

Speaker Change: Thanks for the question.

Speaker Change: On the fuel side.

Speaker Change: I think our outlook for 2024 is we expect to be flat in that business year over year Youll recall the last five years. It was prior to this one it was it was quite a profit driver and as we guided for 2023 were a little bit behind that year over year and 23, but our expectation for 2024 is to is to be flat and operating profit.

Todd Foley: But our expectation for 2024 is to is to be flat in operating profit. Pharmacy margins. We would view margins probably pretty stable, that we continue to identify ways to improve service and we invest most of that savings that we get in reducing wait time for customers and other aspects because what our customers or patients are telling us when you look at our principal competitors, they're continued in closed locations, they're continuing to pull out of certain markets and we view that as an opportunity so we're reinvesting in that business and our pharmacy team or health and wellness team is doing a great job of really working with the whole team to be able to support our patients and the thing that's always, I always find amazing is about a third of our customers don't even realize we have a pharmacy and we've been in the business for at least 30 years and we continue to see where we have opportunity to gain share in that business and we'll do that.

Speaker Change: Pharmacy margins.

Speaker Change: <unk>.

Speaker Change: We wouldn't view as margins is probably pretty stable, but we continue to identify.

Speaker Change: Ways to improve service and where you invest most of that savings that we get and reducing wait time for customers and other aspects because what our customers. Our patients are telling us when you look at.

Speaker Change: Our principal competitors.

Speaker Change: Their continued in close locations they are continuing to.

Speaker Change: You.

Speaker Change: You pull out of certain markets and we view that as an opportunity. So we're reinvesting in that business.

Speaker Change: Our pharmacy team or health and wellness teams doing a great job of.

Speaker Change: Really working with the whole team to be able to support our patients.

Speaker Change: And the thing that's always I always find amazing is about a third of our customers don't even realize we have a pharmacy and we've been in the business for at least 30 years and we continue to see where we have opportunity to gain share in that business and we will and we will do that.

Todd Foley: So one add to that Rodney in pharmacy as a specific point relates to GLP, obviously we saw quite a bit of sales volume in that in 23 and expect the same in 24 but to your point on rate, the rate on GLP that's obviously a little bit of a headwind relative to rate because the margins on those but we're still excited about those because it's high demand with our customers and it helps drive traffic in our stores so and then on top of that the other sales driver we saw the back half of the year related to our vaccine business as well and that obviously is helpful both on the sales and the margin side so just a couple of other points in addition to what Rodney called out. Thanks Todd, thanks Michael. The next question comes from Ed Kelly from Wales Fargo. Ed, your line is open, please go ahead. Hi, good morning, everyone. Good morning. I wanted to ask you about, I wanted to ask you about the outlook for, you know, unit volumes within grocery. And I was hoping you could you could dig in here.

Speaker Change: One add to that Ron in pharmacy is a specific point relates to GOP, obviously, so quite a bit of sales volume in that in 'twenty three and expect the same in 'twenty four but to your point on rate.

Speaker Change: The rate on GOP, that's obviously, a little bit of a headwind relative to rate because the margins on those but we're still excited about those because it's high demand with our customers and it helps drive traffic in our stores. So.

Speaker Change: And then I'll talk without the other sales driver we saw in the back half of the year related to our vaccine business as well and that obviously is helpful. Both on the sales and the margin side. So just a couple of thoughts.

Speaker Change: Other points in addition to what Randy called out thanks.

Speaker Change: Thanks, Todd Thanks, Michael.

Speaker Change: The next question comes from Ed Kelly from Wells Fargo. Your line is open. Please go ahead.

Edward Joseph Kelly: Hi, good morning, everyone. Good morning.

Edward Joseph Kelly: I wanted to ask you about that.

Edward Joseph Kelly: I wanted to ask you about the outlook for unit volumes.

Edward Joseph Kelly: Within grocery and I was hoping you could you could dig in here I mean, obviously the industry by negative volumes. It looks like you have negative volumes there.

Edward Joseph Kelly: I mean, obviously, the industry's had negative volumes. You know, it looks like you've had negative volumes there. But I think the issues right have been all this elasticity on price, low income pressure, probably a little bit of share loss in that cohort, and then the lack of trade spend, which I think is probably particularly important to driving traffic. Grocery, can you maybe just talk about how those points are evolving in 24? And then your expectation for unit volumes, because, you know, back in 19, right? Unit volumes are positive. Why can't Kroger get back to positive unit volumes? Um, you know, in the back half of the year.

Edward Joseph Kelly: But I think the issue prior to all this elasticity on price low income pressure, probably a little bit of share loss in that cohort and then the lack of trade spend which I think is probably particularly important to driving traffic for.

Edward Joseph Kelly: Grocery.

Edward Joseph Kelly: Can you maybe just talk about boogers points are evolving in 'twenty four.

Edward Joseph Kelly: And then your expectation for unit volume because back in 19 right unit volumes are positive why can't Kroger to get back to positive unit volumes.

Edward Joseph Kelly: And in the back half of the year I mean, I know you are projecting that so but maybe just some support for it.

William Rodney McMullen: I mean, I know you're projecting that, so maybe just some support for it. And we would expect unit volumes to be positive, and we expect of ourselves, holding ourselves accountable for positive unit volumes. You know, as Todd and I mentioned in our prepared remarks, we've seen sequential positive trends in units. If you look at trade dollars, as I mentioned earlier in one of the questions, we actually saw an increase in trade dollars to support.

Edward Joseph Kelly: And we would expect unit volumes to be positive.

Edward Joseph Kelly: We expect of ourselves holding ourselves accountable for positive unit.

Edward Joseph Kelly: Volume.

Edward Joseph Kelly: As we tied in I mentioned in our prepared remarks, we've seen sequential positive trends.

Edward Joseph Kelly: And units.

Edward Joseph Kelly: If you look at trade dollars as I mentioned earlier in one of the questions. We actually saw an increase in trade dollars to support now.

William Rodney McMullen: Now, our success has been much better with mainstream and upscale customers, and we've continued to gain share with that customer. And one of the things that's always important to remember on units, and economists always say all short answers are wrong, but that customer buys bigger packs of items. So from that perspective, units are down because somebody buys a 30-pack or a 36-pack of something.

Edward Joseph Kelly: Our success has been much better with the mainstream and upscale customer and we've continued to gain share with that customer and one of the things that's always important to remember on units.

Edward Joseph Kelly: Economists always say all short answers are wrong, but.

Edward Joseph Kelly: That customer buys a bigger packs of items.

So on that perspective units are down because somebody buys 30 pack or a 36 pack of something.

William Rodney McMullen: If you look at the customers that are under a lot of budget pressure, they're actually buying smaller units, a pack of goods and stuff. So overall, it's a great question. We would hold ourselves accountable for continuing to improve trends in units and getting to positive as well. And then just a quick follow-up for you on, you know, current debt leverage. Is there any reason to believe that this 2.3 to 2.5 target would not be the target if, let's just say, you failed to close Albertsons? Is there any reason why, you know, you wouldn't go back to that pretty quickly?

Edward Joseph Kelly: If you look at the customers that are under a lot of budget pressure, they're actually buying smaller units.

Edward Joseph Kelly: A pack of goods and stuff.

Edward Joseph Kelly: So overall.

Speaker Change: It's a great question, we would hold ourselves accountable for continuing to improve trends in units and getting to positive as well.

Speaker Change: And then just a quick follow up for you on.

Speaker Change: Current debt leverage is there is there any reason.

Speaker Change: To believe that this two three to two five target.

Would not be the target if let's just say that you failed to close the albertsons deal.

Speaker Change: Is there any reason why.

Speaker Change: You would go back to that pretty quickly I don't know if it's capex related if its environment tickets rating agencies are sort of looking at things, but just that just thoughts about that.

Edward Joseph Kelly: I don't know if it's CapEx related, if it's the environment, if it's the rating agencies are sort of looking at things, but just thoughts about that. Yeah, thanks, Ed. You know, first and foremost, we're laser focused on closing on the merger. So, but I appreciate your comment.

Speaker Change: Yes, Thanks, Ed first and foremost we're laser focused on closing on the merger.

Speaker Change: Appreciating your comment.

Todd Foley: And our model is always built to drive TSR and accelerate TSR in that space. But when you think about the business, the business does continue to generate strong free cash flow, and we have a very strong balance sheet right now. And I think, as you think about our targets, you know, in the future, I would look at how we've thought about them in the past. I think that would be a good way to think about it and a good benchmark.

Edward Joseph Kelly: And our model is always always built to drive CSR and accelerated CSR in that space, but when you think about the business. The business does continue to generate strong free cash flow and we have a very strong balance sheet right now and I think as you think about our targets.

Edward Joseph Kelly: In the future I would look to how we thought about it in the past I think that would be a good good way to think about it in a good benchmark and our priorities have always been and will continue to be maintaining an investment grade rating.

Edward Joseph Kelly: And our priorities have always been and will continue to be maintaining an investment-grade rating, investing in growing the business. You know, we've talked a lot about the warehousing and digital investments that we've made. We continue to do that. And then third, always returning money to shareholders through a growing dividend and a buyback program.

Edward Joseph Kelly: Investing in growing the business and we've talked a lot about storing and digital investments that we've made we've continued to do that and then third always returning money to shareholders through a growing dividend.

Edward Joseph Kelly: On the buyback program, so I would expect that.

Rupesh Dhinoj Parikh: So, I would expect that, you know, in any scenario, those will be our priorities from a financial strategy standpoint. Yeah, and we'll use that free cash flow to continue to support growth. Thanks, Seth. The next question comes from Rupesh Parikh from Oppenheimer.

Edward Joseph Kelly: In any scenario.

Edward Joseph Kelly: Will be our priorities from a financial strategy standpoint, and we will use that free cash flow to continue to support growth.

Speaker Change: Thanks, Ed.

Speaker Change: The next question comes from refresh Creek from Oppenheimer.

William Rodney McMullen: Rupesh, your line is open. Please go ahead. Good morning and thanks for taking my question. I just wanted to touch on the promotional competitive backdrop. I'm just curious how you guys are thinking about the promotional backdrop this year. Yeah, we would expect it to stay pretty similar. And, you know, probably for us, more and more of our promotions would be done directly to customers. So it's not necessarily what shows up in an ad.

Refresh Creek: Your line is open. Please go ahead.

Refresh Creek: Good morning, and thanks for taking my question. Good morning, I just wanted to touch on the promotional competitive backdrop I was just curious how you guys are thinking about the promotional backdrop this year.

Refresh Creek: We would expect it to stay pretty similar.

Refresh Creek: For us more and more of our promotions would be done directly to customers. So it's not necessarily what shows up in an AD, but we would expect overall to be pretty similar to what it was last year.

William Rodney McMullen: But we would expect overall to be pretty similar to what it was last year. And, you know, I mentioned it a couple of times, but customers that are on a budget or strained financially continue to aggressively try to look for ways to stretch their budgets. And one of the ways they're doing that is downloading digital coupons.

Refresh Creek: And I mentioned it a couple of times, but customers that are on a budget or strained financially continue to aggressively try to look at ways to.

Refresh Creek: Stretch their budgets and one of the ways, they're doing that is downloading digital coupons and to me.

William Rodney McMullen: And to me, you know, in our prepared remarks, we shared, but we had people download 4 billion coupons, and that was an increase of 1 billion over the prior year. And the customer on a budget would be a bigger driver of that increase in downloading coupons. So, Overall, we think about the same things. But if you look at the individual segments, we would expect that customer on a budget to still be under strain. Great. And then, maybe just one follow-up question.

Refresh Creek: In our prepared remarks, we share, but we had people download 4 billion coupons and that was an increase of $1 billion over the prior year and the customer on a budget would be a bigger driver of that increase in Q and downloading coupons. So.

Refresh Creek: Overall, we think about the same but if you look at within segments, we would expect that customer on a budget to still be under strain.

Great and then maybe just one follow up question for Rodney you made the comment that you expect an improving consumer sentiment in 2024 are you seeing any positive changes in consumer behavior lately.

Rupesh Dhinoj Parikh: Rodney, you made the comment that you expect consumer sentiment to improve in 2024. Are you seeing any positive changes in consumer behavior lately? Um, I wouldn't say a ton of stuff.

William Rodney McMullen: I wouldn't say a ton of stuff.

William Rodney McMullen: Um, the people that aren't under pressure, uh, they continue to buy nicer wine and engage in Starbucks and Murray's cheese and things like that. But the word that they tell us they're feeling better is more so than their behavior is changing so far. Thanks, Rupesh. The next question comes from Robert Ohmes, Bank of America. Robert, your line is open. Please go ahead.

William Rodney McMullen: The people that are under pressure.

William Rodney McMullen: They continue to buy nicer wine and engage in Starbucks.

William Rodney McMullen: Murray's cheese and things like that.

William Rodney McMullen: But.

William Rodney McMullen: The work there.

William Rodney McMullen: Tell us they are feeling better more so than their behavior is changing so far.

Speaker Change: Thanks for passion.

Speaker Change: The next question comes from Robert Holmes.

Speaker Change: Okay.

Robert Holmes: Your line is open. Please go ahead.

Robert Frederick Ohmes: Oh, hey, Rodney. I was wondering if you could talk more about the pharmacy opportunity. You know, do you see an opportunity to sort of re-engage with some of the PBMs and, you know, become a more significant player over time in a more profitable way than you guys had been and which ended you up in this situation with Express Scripts? Could you maybe kind of give us some thoughts on maybe the multi-year outlook for pharmacy and what could happen there for you guys? pay for somebody else's profit margin.

Robert Holmes: Hey, Ravi I was wondering if you could talk more about the pharmacy opportunity.

Robert Holmes: Do you do you see an opportunity to sort of reengage with some of the pbms.

Robert Holmes: Hi.

Robert Holmes: Become a more significant player over time.

Robert Holmes: More profitable way than you guys.

Robert Holmes: It had been in which ended you up in the situation with express scripts could you maybe kind of give us some thoughts on maybe the multiyear outlook for pharmacy and what could happen there for you guys.

Pay for.

Robert Holmes: Somebody else's profit margin, but we are we're always open to those conversations and would be delighted to fill those scripts assuming that they have the appropriate <unk>.

William Rodney McMullen: But we're always open to those conversations and would be delighted to fill those scripts, assuming that they had the appropriate margins in them to cover our costs. So, and you know, I hope, hopefully, over time, their customers or patients will start reaching out because they want to have the great service that we're providing to everyone else, and their customers aren't getting the opportunity to engage and get that great customer experience. Gotcha.

Robert Holmes: Margins in it to cover our costs.

Robert Holmes: So.

Robert Holmes: I hope hopefully over time their customers or patients.

Robert Holmes: I'll.

Robert Holmes: Start reaching out because they wanted to have the great service that we're providing.

Robert Holmes: To everyone else and their customers not getting the opportunity to.

Robert Holmes: Engage and get that great customer experience.

Yeah.

Speaker Change: Got you and then just a quick follow up on the previous question I think with the lower year lower income customer.

Robert Frederick Ohmes: And then just a quick follow-up on the previous question. I think with your lower income customer, that might have been where you had been seeing more market share pressure. Has there been any change in that or any change in your lower income customers or your ability to keep them? Not really.

Speaker Change: That might have been where you had been seeing more market share pressure or is there any change in that or any change in your lower income customer or your ability to keep them.

Speaker Change: Not it's slightly better, but we still have a lot of work to do.

William Rodney McMullen: It's slightly better, but we still have a lot of work to do. And one of the things that are half full and half empty is that our customers that are most profitable for us are our mainstream and upscale customers, but we're not satisfied with where we are. Thanks, Robbie. Our final question today comes from Kelly Bania from BMO. Kelly, your line is open, please go ahead. Hi, good morning. Thanks for fitting me in here. I'm just wanting to go back.

Speaker Change: One of the things that half full half empty or half full is that.

Speaker Change: Our customers that make that make our most profitable for us as our mainstream and upscale customer.

Speaker Change: But we're not satisfied with where we are.

Speaker Change: Thanks Robyn.

Speaker Change: Our final question today comes from Kelly Bania from BMO Kelly. Your line is open. Please go ahead.

Kelly Ann Bania: Hi, good morning, Thanks for fitting me in here.

Kelly Ann Bania: Just wondering if you go back good morning, Let me go back to alternative profit and <unk> in particular.

Kelly Ann Bania: Good morning. I'm going to go back to alternative profits and KPM in particular. Did that end up around a $500 million EBIT contribution in 2023? And at this stage, can you just help us understand what are the factors that are going to drive that 20% growth that you're planning for 2024? How much is maybe on property or off property or some of the new investments that you're making in this business?

Kelly Ann Bania: Larry.

Speaker Change: And that around.

Kelly Ann Bania: $500 million.

Kelly Ann Bania: EBIT contribution in 2023 and at this stage just can you just help us understand.

What are the factors that are going to drive that 20% growth that you are planning for 24, how much maybe on property or property.

Kelly Ann Bania: Some of the new investments that Youre, making in this business can you help us dig in a little bit more on that.

William Rodney McMullen: Can you help us just dig in a little bit more on that? Yeah, I will talk broadly, and then I'll let Todd get into the specifics. When you look at media overall, we see no reason why our share of CPG's media spend should be the same as our share of the products we sell. And it's our responsibility to make sure that the way we help them spend their money, they get a great ROI on that investment. And our KPM team holds itself accountable for being transparent and making sure that people get a good return on their investment. And we will continue to do that. So we think the opportunity is still huge in terms of continued growth relative to specifics for 24 and other things. Todd, I'll let you answer that. Yeah, no, that's good.

Speaker Change: I will talk broad and then I'll, let Todd get into the specifics when we when you look at.

Speaker Change: Media overall.

Speaker Change: We see no reason why our share of.

Speaker Change: Cpg's media spend should be the same as what our share of the products we sell.

Speaker Change: And it's our responsibility to make sure that the way we help them spend their money that they get a great ROI on that investment.

Speaker Change: And our Kroger are KPN team holds there himself themselves accountable to be in transparent.

Speaker Change: And making sure that people will get a good return on their investment and we will continue to do that so we think the opportunity is.

Speaker Change: Still huge in terms of continued growth relative to specifics for 'twenty four and other things Todd I'll, let you answer that yes, no. That's good and I. Appreciate the question. Thanks. Thanks Rami.

Todd Foley: And I appreciate the question. Thanks. Thanks, Rodney. I don't know that I'll get into the breakout between on and off, but I think we see growth in both, both on property and off.

Todd Bali: I don't know that will get into the breakout between on and off but but I think we see growth in both.

Todd Bali: Both on property and off certainly our digital ecosystem is built around driving that digital engagement within our stores. We know those customers are more loyal to us and increase their spend.

Todd Foley: Certainly, our digital ecosystem is built around driving that digital engagement within our stores. We know those customers are more loyal to us and increase their spend. And that ecosystem, along with KPM, really gives us some opportunities to drive our own growth in both of those businesses. The other thing that KPM is doing and that has us really excited, I think you heard it alluded to earlier, is the new platform that they've put in place. We've always used first-party data from our loyalty programs so that our clients can create custom audiences in the work that they do and build out their campaigns. But this new platform, I think, makes it even easier for them to activate their campaigns and drive their data and insights. And it gives them some self-service opportunities for more direct access to these audiences as they carry out these on property and off.

Todd Bali: And that ecosystem, along with with <unk> really gives us some.

Todd Bali: Opportunities to drive or drive our own growth in both of those businesses.

Todd Bali: The other thing that <unk> is doing and that has us really excited.

Todd Bali: Heard it alluded to earlier is the new platform that they've put in place.

We've always used first party data from our loyalty programs.

Todd Bali: So that our clients can can create custom audiences and the work that they do in building out their campaigns, but this new platform I think makes it even easier for them to activate their campaigns and drive their data and insights.

Todd Bali: And it gives them some self service opportunities for more direct access to these audiences as they execute these.

On property and off and so.

Kelly Ann Bania: And so I think the new tool and the functionality and the features that it brings us are really excited about that opportunity for growth, both on and off. Thanks, Kelly, and thank you for all the questions today. As always, I'd like to share a few comments with our associates that are listening in, and we always have a lot of associates listen in each quarter. First, thank you for all you do every day for our customers and each other. I'd also like to take a moment to celebrate two of our outstanding associates in Colorado. Just this week, Chris Gay from City Market won two gold medals in skiing during the Special Olympics event at Copper Island, Copper Mountain. Chris is an amazing athlete, taking second place in an Olympic event in Aspen just last month.

Todd Bali: So I think the new tool and the functionality and features that it brings.

Todd Bali: Really excited about that opportunity for growth both on and off.

Speaker Change: Thanks Kelly.

Speaker Change: And thank you for all the questions today.

Speaker Change: As always I'd like to share a few comments with our associates that are listening in and we always have a lot of associates listen in each quarter.

Speaker Change: First thank you for all you do every day for our customers and each other I'd also like to take a moment to celebrate two of our outstanding Associates in Colorado, just this week, Chris Gay from city market, who won two gold medals and skiing during the Special Olympics event at Cooper Copper Island, the copper mountain.

Speaker Change: Chris is an amazing athlete, taking second place and in Olympics event in Aspen just last month.

Kelly Ann Bania: A few months ago, I had the pleasure of meeting Jeff Gregory, a Special Olympian at King Soopers. Last year, Jeff was honored as Mel Athlete of the Year, and I had a chance to meet him and his parents. What an inspiration. Congratulations, Kris and Jeff. We're so proud of all you do and what you continue to accomplish, and all that you've done for our customers and communities and for uplifting those around you. Thanks, everyone, for joining us today, and have a great day, concludes today's call. Thank you very much for your attendance. You may now disconnect your line.

Speaker Change: Few months ago, I had the pleasure to meet Jeff Gregory Especial Nbn at King Soopers last year, Jeff was honored as Mel athlete of the year and I had a chance to meet Jeff and his parents and what an inspiration congratulations Chris and Jeff.

Speaker Change: So proud of all you do to and what you could continue to accomplish and all that you've done for our customers and communities and uplifting those around you. Thanks, everyone for joining us today and have a great day.

Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.