Q2 2024 The Kroger Co Earnings Call

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Operator: Good morning, and welcome to The Kroger Co. Second Quarter 2024 Earnings Conference Call. If you'd like to ask a question, once the presentation has finished, please press star follow by one on your telephone keypad. Please note this event is being recorded.

Speaker Change: Good morning, and welcome to the Kroger co second quarter 2020 full earnings conference call.

Speaker Change: I'd like to ask a question once the presentation has finished please press star followed by one on your telephone keypad.

Rob Quast: Please note, this event is being recorded and I'd like to turn the conference over to Rob Quast, see in the senior director investigations. Please go ahead. Good morning.

Speaker Change: Please note this event is being recorded.

Rebekah Manis: I'd now like to turn the conference I've to raw cost seem to senior director Investor Relations. Please go ahead.

Speaker Change: Good morning, Thank you for joining us for Kroger's second quarter 2024 earnings call I'm joined today by Kroger's, Chairman and Chief Executive Officer, Rodney Mcmullin, and interim Chief Financial Officer, Todd fully 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.

Rob Quast: Thank you for joining us for a Kroger 2nd quarter, 2024 earnings call.

Rob Quast: I am joined today by Kroger's 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.

Speaker Change: Our predictions and actual events or results can differ materially.

Rob 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 filings. 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.

Speaker Change: A detailed discussion of the many factors that we believe.

Speaker Change: Do you have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger company assumes no obligation to update that information.

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

Rob Quast: I will now turn the call over to Rodney. Thank you, Rob.

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

Rodney: Thank you Rob good morning, everyone and thank you for joining us today.

Rodney Mcmullen: Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to provide an outline of our discussion topics this morning. I will start by sharing a recap of our 2nd quarter performance and highlight how we continue to advance our go-to-market strategy, which powers our value creation model and drives long-term sustainable growth for our shareholders.

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

I will start by sharing a recap of our second quarter performance and highlight how we continue to advance our go to market strategy.

Rodney: Which powers our value creation model and drives long term sustainable growth for our shareholders.

Rodney Mcmullen: Then Todd will cover our financial results for the second quarter. And finally, I will close with an update on our pending merger with Albertsons. Turning to our performance this quarter, we continue to execute our strategy and we are delivering solid financial results through the strength and diversity of our model. We are driving positive customer activity with a compelling combination of affordable prices and personalized promotions on great quality products all through a unique seamless experience.

Rodney: Then Todd will cover our financial results for the second quarter, and finally, I will close with an update on our pending merger with Albertsons.

Rodney: Turning to our performance this quarter, we continue to execute our strategy and we are delivering solid financial results through the strength and diversity of our model.

Rodney: We are driving positive customer activity with a compelling combination of affordable prices and personalized promotions on great quality products all through a unique seamless experience.

Rodney Mcmullen: Our strong customer trends also reflect our enhanced focus on elevating the customer experience through excellent store execution, which continued into the second quarter. Customers continue adjusting to the current economic environment. The reduction of excess savings built up during the pandemic, higher interest rates and the effect of inflation are pressuring customers ability to spend. This is especially true for our most budget conscious customers as we've been seeing for a while now, but we're now seeing other customer segments beginning to make changes as well.

Rodney: Our strong customer trends also reflect our enhanced focus on elevating the customer experience through excellent store execution, which continued into the second quarter.

Rodney: Customers continue adjusting to the current economic environment.

Speaker Change: The reduction of excess savings built up during the pandemic higher.

Higher interest rates and the effect of inflation are pressuring customers' ability to spend.

Speaker Change: This is especially true for our most budget conscious customers.

Speaker Change: As we've been seeing for a while now but we're now seeing other customer segments, beginning to make changes as well customer.

Rodney Mcmullen: Customers are purchasing lower-price cuts of meat, buying less and focusing on essentials. Budget-conscious customers are buying more at the beginning of the month to stock up on essential items and groceries, and then as the month progresses, they are more cautious with their spending. In response, we are supporting our customers by keeping prices low through promotions, including loyalty discounts, personalized offers and fuel rewards. We are also expanding our multi-tiered portfolio of our brand's products, which provides customer's exceptional alternatives to national brands, competing on quality while at a noticeable lower price point.

Speaker Change: Customers are purchasing lower price cuts of meat.

Find less and focusing on essentials.

Speaker Change: Budget conscious customers are buying more at the beginning of the month to stock up on essential items and groceries and then as the month progresses. They are more cautious with their spending.

Please note, this event is being recorded

And I'd like to turn the conference over to Rob Quast; Senior Director of Investor Relations. Please go ahead. Good morning.

And I'd like to turn the conference over to Rob Quast; Senior Director of Investor Relations. Please go ahead.

Speaker Change: In response, we are supporting our customers by keeping prices low through promotions, including loyalty discounts.

Good morning. Thank you for joining us for a Kroger's Second Quarter 2024 Earnings Call. I am joined today by Kroger's 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 Quast: Good morning. Thank you for joining us for a Kroger's Second Quarter 2024 Earnings Call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullen; and Interim Chief Financial Officer, Todd Foley.

Speaker Change: Arsenal is to offers and fuel rewards.

Speaker Change: We are also expanding our multi tiered portfolio of our brands products.

Speaker Change: Which provides customers exceptional alternatives to national brands competing on quality, while at a noticeable lower price point.

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.

Rodney Mcmullen: Our long-term model demonstrates that by consistently keeping prices low, we increase customer loyalty and grow share of wallet. While the food-at-home industry remains competitive, our model drives efficiencies that allow us to sustainably invest in value and maintain competitive price spreads with key competitors. In addition to lowering prices, we executed our go-to-market strategy through our pillars of Fresh, Our Brands, Personalization and Seamless. We are proud of our associates for bringing this strategy to life with another quarter of excellent store execution.

Speaker Change: Our long term model demonstrates that by consistently keeping prices low.

A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions. 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.

A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions.

Speaker Change: We increased customer loyalty and grow share of wallet.

Speaker Change: While the food at home industry remains competitive our model drives efficiencies that allow us to sustainably invest in value and maintain competitive price spreads with key competitors.

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.

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.

Speaker Change: In addition to lowering prices, we executed our go to market strategy through our pillars of fresh our brands personalization and seamless.

I will now turn the call over to Rodney.

W. Rodney McMullen: Thank you, Rob. Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to provide an outline of our discussion topics this morning. I will start by sharing a recap of our second quarter performance and highlight how we continue to advance our go-to-market strategy, which powers our value creation model and drives long-term sustainable growth for our shareholders.

Speaker Change: We are proud of our associates for bringing this strategy to life with another quarter of excellent store execution.

Rodney Mcmullen: This led to another quarter of strong customer trends, including total and loyal household growth and an increase in customer visits. Mainstream households are largest customer segment led our sales growth through more households and increased visits. By delivering a more consistent customer experience, we are moving customers up the loyalty ladder and positioning ourselves for long-term sales growth.

Speaker Change: This led to another quarter of strong customer trends, including total and loyal household growth and an increase in customer visits.

Speaker Change: Mainstream households, our largest customer segment led our sales growth through more households, and increased visits by.

Then Todd will cover our financial results for the second quarter. And finally, I will close with an update on our pending merger with Albertsons.

By delivering a more consistent customer experience.

Speaker Change: We are moving customers up the loyalty ladder and positioning ourselves for long term sales growth.

Turning to our performance this quarter, we continue to execute our strategy and we are delivering solid financial results through the strength and diversity of our model. We are driving positive customer activity with a compelling combination of affordable prices and personalized promotions on great quality products all through a unique seamless experience.

Rodney Mcmullen: I'd now like to cover how we are enhancing our go-to-market strategy, starting by leading with Fresh. Our Fresh for Everyone promise reflects our commitment that customers can trust the quality and freshness of every item they purchase. This promise is only possible through our strong relationships with farmers and suppliers, which enables Kroger to source the freshest products.

Speaker Change: I would now like to cover how we are enhancing our go to market strategy.

Speaker Change: Starting by leading with fresh or fresh for everyone promise reflects our commitment that customers can trust the quality and freshness of every item they purchase.

Speaker Change: This promise is only possible through our strong relationships with farmers and suppliers, which enables kroger to source the freshest products.

Rodney Mcmullen: Field & Vine, one of the newest Our Brands lines, offers regionally grown berries picked to peak freshness. We are very pleased with the initial customer response to this line. Our Brands is an important differentiator for our business, enabling us to offer innovative products at a great value. This combination of quality and value led to Our Brands sales growth outpacing national brand sales growth this quarter. More than 90% of our customer households purchased Our Brands products during that time.

Field and vine one of the newest our brands lines offers regionally grown berries picked a peak freshness.

Speaker Change: We are very pleased with the initial customer response to this line.

Speaker Change: Our brands is an important differentiator for our business.

Speaker Change: Enabling us to offer innovative products at a great value.

This combination of quality and value led to our brand sales growth outpacing national brand sales growth this quarter.

Speaker Change: More than 90% of our customer households purchased our brands products during that time.

Rodney Mcmullen: Across the portfolio of Our Brands, we are expanding into new categories and launching new products with almost 600 already introduced this year. Each of these new products is thoroughly tested and validated to earn its spot on our shelves, competing aggressively with national brands with no compromise on quality.

Speaker Change: Across the portfolio of our brands, we are expanding into new categories and launching new products with almost 600 already introduced this year.

Speaker Change: Each of these new products is thoroughly tested and validated to earn its spot on our shelves competing.

Speaker Change: Aggressively with national brands with no compromise on quality.

Rodney Mcmullen: Smart Way, one of our opening price point brands, is delivering exceptional value to customers on a budget. These are ultra-blow priced essentials and pantry staples that we know our customers need the most. We continue to expand the Smart Way lineup in the second quarter to meet our customer needs for more value.

Speaker Change: Smart way one of our opening price point brands is delivering exceptional value to customers on a budget.

Speaker Change: These are ultra low priced essentials, and pantry staples that we know our customers need the most.

Speaker Change: We continued expanding the smartway lineup in the second quarter to meet our customer needs for more value.

Rodney Mcmullen: We are also making progress on Our Brands refreshment rollout, with more of our Brands portfolio to be refreshed later this year. We are excited to see our customers respond to these new designs. As we innovate within the portfolio and expand to meet customer needs, we are improving our mix and driving better profitability. For example, our manufacturing plants allow us to make many of our own products, keeping costs lower as we pass those savings on to customers while preserving our ability to grow margins.

Speaker Change: We are also making progress on our brands refreshment rollout with more of our brands portfolio to be refreshed later this year.

Speaker Change: We are excited to see our customers respond to these new designs.

Speaker Change: As we innovate within the portfolio and expand to meet customer needs, we are improving our mix and driving better profitability.

Speaker Change: For example, our manufacturing plants allow us to make many of our own products Keith.

Speaker Change: Keeping costs lower as we pass those savings onto customers.

Keith: While preserving our ability to grow margins.

Rodney Mcmullen: Next is an update on personalization. Our loyalty program and personalized promotions enabled us to deliver value beyond the shelf price. We collect data and insights which enable us to enhance our personalization capabilities, delivering better product recommendations, and more effective promotions. As a result, we are generating greater unit lift on promotions compared to the industry. Boost, our paid membership program supports our personalization capabilities. This quarter we held a Boost Bonus Days event which provided Boost customers even more savings during the two week special event. This event went well above and beyond the incredible value the memberships already offers with daily savings, free delivery on orders of $35 or more and 2x fuel points.

Keith: Next is an update on personalization, our loyalty program and personalized promotions enabled us to deliver value beyond the shelf price.

Keith: We collect data and insights, which enable us to enhance our personalization capabilities.

Delivering better product recommendations and more effective promotions.

Keith: As a result, we are generating greater unit lift on promotions compared to the industry.

Keith: Boost our paid membership program supports our personalization capabilities.

Keith: This quarter, we held a boost bonus days event, which provided boost customers even more savings during the two week special event.

Keith: This event went well above and beyond the incredible value of the memberships already offers with daily savings free delivery on orders of $35 or more and two times fuel points.

Rodney Mcmullen: Now, turning to Seamless, digital sales grew 11% driven by an increase in both households and traffic. One of the many ways we move customers up the loyalty ladder is to convert digitally engaged households into e-commerce households. This means we are moving customers from simply using our app or website to making purchases through one of these digital channels. This work resulted in our teams growing e-commerce households 14% this quarter. Households who shop with us digitally and in our stores are important because they are our most loyal and increased retail media monetization opportunities.

Keith: Now turning to seamless.

Speaker Change: Digital sales grew 11% driven by an increase in both households and traffic.

Speaker Change: One of the many ways, we move customers up the loyalty ladder is to convert digitally engaged households into e-commerce households.

Speaker Change: This means we are moving customers from simply using our app or website to making purchases through one of these digital channels.

Speaker Change: This work resulted in our team's growing ecommerce households, 14% this quarter.

Speaker Change: Households, who shop with us digitally and in our stores are important because they are our most loyal and increase retail media monetization opportunities.

Rodney Mcmullen: Delivery solutions led our sales growth once again this quarter with pickup also showing very strong demand. Demand across our Kroger Delivery network which provides customers a premium shopping experience continues to grow. Customers tell us they love the convenience of on-time and refrigerated delivery right to their homes.

Speaker Change: Delivery solutions led our sales growth once again this quarter with pickup also showing very strong demand.

Speaker Change: Demand across our Kroger delivery network, which provides customers a premium shopping experience continues to grow.

Speaker Change: Customers tell us they love the convenience of on time and refrigerated delivery right to their homes.

Rodney Mcmullen: Profitability remains a key focus as we drive volume growth through our Customer Fulfillment Centers. Our teams are working hard to improve the shape of weekly and daily demand as well as refining trade areas to improve customer delivery density. By executing our go-to-market strategy we are building loyalty and creating more growth opportunities.

Speaker Change: Profitability remains a key focus as we drive volume growth through our customer fulfillment centers.

Speaker Change: Our teams are working hard to improve the shape of weekly and daily demand as well as refining trade areas to improve customer delivery density.

Speaker Change: By executing our go to market strategy, we are building loyalty and creating more growth opportunities.

Rodney Mcmullen: First, with alternative profit businesses which had a strong quarter led by growth in Kroger Precision Marketing. Their results were in line with internal expectations and keep us on track to deliver more than 20% media growth this year.

First with alternative profit businesses, which had a strong quarter led by growth in Kroger precision marketing.

Speaker Change: Their results were in line with internal expectations and keep us on track to deliver more than 20% media growth this year.

Rodney Mcmullen: Next is Health & Wellness. We continue to be optimistic about this area of our business. We know that grocery customers who are also pharmacy customers are more loyal to Kroger and spend more with us. While the pharmacy industry is going through a period of transformation and disruption, we have a unique opportunity to help our customers live healthier lives and grow share. Over the long-term, we remain confident and our teams are working hard to navigate industry challenges and position the company for future growth.

Next is health and wellness, we continue to be optimistic about this area of our business. We know that grocery customers, who are also pharmacy customers are more loyal to kroger and spend more with us.

Speaker Change: While the pharmacy industry is going through a period of transformation and disruption.

Speaker Change: We have a unique opportunity to help our customers live healthier lives and grow share.

Speaker Change: Over the long term, we remain confident and our teams are working hard to navigate industry challenges and position the company for future growth.

Rodney Mcmullen: During the quarter, sales outpaced internal expectations, profitability was similar to last year, but behind internal expectations due to product mixed pressures, specifically as a result of strong GLP-1 sales. We expect GLP-1s to have a similar impact on our results for the remainder of the year. Our vaccine efforts are ramping up now and should help offset some of the GLP-1 impact in the second half of the year.

Speaker Change: During the quarter sales outpaced internal expectations profitability was similar to last year, but behind internal expectations due to product mix pressures specifically as a result of strong G. L. P. One cells.

Speaker Change: We expect <unk> to have a similar impact on our results for the remainder of the year.

Rodney Mcmullen: Our vaccine efforts are ramping up now and should help offset some of the GLP-1 impact in the second half of the year. Turning to associates, our full-fresh and friendly commitment is our roadmap to achieving a best-in-class customer experience, and we appreciate our associates for delivering again this quarter. We are facilitating this improved customer experience through our commitment to be an employer of choice. We are achieving this by investing in associate wages and by continuing to create an outstanding supportive work environment.

Our vaccine efforts are ramping up now and should help offset some of the G. L. P. One impact in the second half of the year.

Speaker Change: Turning to associates are full fresh and friendly commitment is our roadmap to achieving a best in class customer experience.

Speaker Change: And we appreciate our associates for delivering again this quarter.

Speaker Change: We are facilitating this improved customer experience through our commitment to be an employer of choice.

Speaker Change: We are achieving this by investing in associate wages and by continuing to create an outstanding supportive work environment.

Rodney Mcmullen: It is great to see these efforts recognized with a perfect score on the 2024 Disability Inclusion Equality Index, making Kroger a Best Place to Work for Disability Inclusion for the fifth consecutive year.

Speaker Change: It is great to see these efforts recognized with a perfect score on the 2020 for disability inclusion and equality index, making Kroger a best place to work for disability inclusion for the fifth consecutive year.

Todd Foley: With that, I'll now turn it over to Todd to take you through our second quarter financial results. Todd? Thanks Rodney and good morning, everyone. Kroger's second quarter results reflect the resilience of our model as investments made to diversify our business are enabling us to navigate an environment of economic uncertainty. Our results through the first half of the year are in line with our expectations and with our improving sales momentum we are able to reaffirm our full-year guidance.

Speaker Change: With that I'll now turn it over to Todd to take you through our second quarter financial results Todd.

Speaker Change: Okay.

Todd: Thanks, Rodney and good morning, everyone.

<unk> second quarter results reflect the resilience of our model as investments made to diversify our business are enabling us to navigate an environment of economic uncertainty.

Todd: Our results through the first half of the year are in line with our expectations and with our improving sales momentum we are able to reaffirm our full year guidance.

Todd Foley: I'll now take you through our second quarter financial results. We achieved identical sales without fuel growth of 1.2%. As Rodney mentioned earlier, our identical sales were supported by several positive customer metric trends, including increases in total and loyal households and increased customer visits. We are encouraged by favorable unit trends as we continue to make progress toward achieving positive unit growth. As we saw in the first quarter, vendor support for promotions has been strong and we will continue to deliver on our long-term commitment of providing customers with exceptional value.

Speaker Change: I'll now take you through our second quarter financial results.

Speaker Change: We achieved identical sales without fuel growth of one 2%.

Speaker Change: As Rodney mentioned earlier, our identical sales were supported by several positive customer metric trends, including increases in total and loyal households, and increased customer visits.

Speaker Change: We are encouraged by favorable unit trends as we continue to make progress toward achieving positive unit growth.

As we saw in the first quarter.

Speaker Change: Vendor support for promotions has been strong and we will continue to deliver on our long term commitment of providing customers with exceptional value.

Speaker Change: Digital sales had a strong quarter led by 17% growth in delivery solutions.

Pickup is an important part of our seamless ecosystem and demand continues to be strong with pickup sales growing 10%.

Speaker Change: This reflects our digital teams relentless focus on delivering a great customer experience, resulting in increased fill rates a reduction in wait times and a 33% improvement in perfect orders, which are orders with both a 100% fill rate and that are completed within an appropriate wait time.

Todd Foley: Digital sales had a strong quarter led by 17% growth in Delivery solutions. Pickup is an important part of our Seamless ecosystem and demand continues to be strong, with Pickup sales growing 10%. This reflects our digital team's relentless focus on delivering a great costumer experience, resulting in increased filled rates, a reduction in wait times and a 33% improvement in perfect orders, which are orders with both a 100% fill rate and that are completed within an appropriate wait time. We are able to offer two hour lead times and pickup in all stores. These improvements in customer experience are being accompanied by productivity enhancements, resulting in an improvement in our cost to serve.

Speaker Change: With the help of AI enabled advancements and dynamic batching and routing.

Speaker Change: We're able to offer to our lead times and pickup in all stores.

Speaker Change: These improvements in customer experience are being accompanied by productivity enhancements, resulting in an improvement in our cost to serve.

Our vaccine efforts are ramping up now and should help offset some of the GLP-1 impact in the second half of the year.

Todd Foley: Turning to margins, I would like to spend a little more time today talking about our second quarter trends in gross margin and OG&A rates. As you know, our long-term model is designed to deliver consistent year-over-year gross margin rate and OG&A rates rates in a way that we deliver slightly expanding operating margins over time. So, there can be puts and takes in these measures from quarter-to-quarter. Over the long-term, our business model gives us the flexibility to balance investments in lower prices and higher associate wages with growth in margins through our brands and alternative profit businesses, as well as cost saving initiatives and productivity, all to ensure that we are consistently returning value to shareholders.

Speaker Change: Turning to margins.

Speaker Change: I would like to spend a little more time today talking about our second quarter trends in gross margin and <unk> rates.

Turning to associates, our full-fresh and friendly commitment is our roadmap to achieving a best-in-class customer experience, and we appreciate our associates for delivering again this quarter. We are facilitating this improved customer experience through our commitment to be an employer of choice. We are achieving this by investing in associate wages and by continuing to create an outstanding supportive work environment.

Speaker Change: As you know our long term model is designed to deliver consistent year over year gross margin rate and <unk> rates in a way that we deliver slightly expanding operating margins over time.

Speaker Change: So there can be puts and takes in these measures from quarter to quarter.

Speaker Change: Over the long term our business model gives us the flexibility to balance investments in lower prices and higher associate wages with.

Speaker Change: With growth in margins through our brands and alternative profit businesses as well as cost saving initiatives and productivity.

Speaker Change: All to ensure that we are consistently returning value to shareholders.

Todd Foley: This expectation is true for fiscal 2024 as well. For the full year, we now expect FIFO gross margin rate excluding fuel to be slightly positive, balanced by the OG&A rate without fuel, which will be slightly negative. This quarter, FIFO gross margin rate excluding fuel was 42 basis points favorable to last year and was slightly ahead of our expectations for the quarter. Conversely, the OG&A rate excluding fuel and adjustment items was 65 basis points unfavorable to last year, as well as unfavorable to our expectations, primarily due to several non-recurring charges during the quarter.

Speaker Change: This expectation is true for fiscal 2024 as well.

Speaker Change: For the full year, we now expect FIFO gross margin rate, excluding fuel to be slightly positive.

With that, I'll now turn it over to Todd to take you through our second quarter financial results. Todd?

Speaker Change: Balanced by the G&A rate without fuel, which will be slightly negative.

Todd Foley: Thanks, Rodney, and good morning, everyone. Kroger's second quarter results reflect the resilience of our model as investments made to diversify our business are enabling us to navigate an environment of economic uncertainty. Our results through the first half of the year are in line with our expectations and with our improving sales momentum we are able to reaffirm our full-year guidance. I'll now take you through our second quarter financial results.

Speaker Change: This quarter.

Speaker Change: FIFO gross margin rate, excluding fuel was 42 basis points favorable to last year and was slightly ahead of our expectations for the quarter.

Speaker Change: Conversely, <unk> rate, excluding fuel and adjustment items was 65 basis points unfavorable to last year as well as unfavorable to our expectations, primarily due to several nonrecurring charges during the quarter.

I'll now take you through our second quarter financial results.

We achieved identical sales without fuel growth of 1.2%. As Rodney mentioned earlier, our identical sales were supported by several positive customer metric trends, including increases in total and loyal households and increased customer visits. We are encouraged by favorable unit trends as we continue to make progress toward achieving positive unit growth. As we saw in the first quarter, vendor support for promotions has been strong and we will continue to deliver on our long-term commitment of providing customers with exceptional value.

Todd Foley: Looking in more detail at our quarterly results, gross margin was 22.6% of sales, the increase in FIFO gross margin rate excluding fuel was primarily attributable to favorable product mix in our grocery business, including Our Brands, lower shrink and sourcing benefits, partially offset by lower pharmacy margins. The result reflected Kroger's ability to improve margin while being competitive on price and helping customers manage their budgets. The improvement in shrink reflects the significant ongoing work from our operations team if they address this challenging issue.

Speaker Change: Looking in more detail at our quarterly results.

Speaker Change: Gross margin was 22, 6% of sales the.

Speaker Change: The increase in FIFO gross margin rate excluding fuel was.

Speaker Change: It was primarily attributable to favorable product mix in our grocery business, including our brands.

Speaker Change: Lower shrink and sourcing benefits, partially offset by lower pharmacy margins there.

Speaker Change: The result reflected kroger's ability to improve margin, while being competitive on price and helping customers manage their budgets.

Speaker Change: The improvement in shrink reflects the significant ongoing work from our operations team as they address this challenging issue.

Digital sales had a strong quarter led by 17% growth in Delivery solutions. Pickup is an important part of our Seamless ecosystem and demand continues to be strong, with Pickup sales growing 10%. This reflects our digital team's relentless focus on delivering a great costumer experience, resulting in increased filled rates, a reduction in wait times and a 33% improvement in perfect orders, which are orders with both a 100% fill rate and that are completed within an appropriate wait time. With the help of AI-enabled advancements in dynamic batching and routing,

Digital sales had a strong quarter led by 17% growth in Delivery solutions. Pickup is an important part of our Seamless ecosystem and demand continues to be strong, with Pickup sales growing 10%. This reflects our digital team's relentless focus on delivering a great costumer experience, resulting in increased filled rates, a reduction in wait times and a 33% improvement in perfect orders, which are orders with both a 100% fill rate and that are completed within an appropriate wait time.

Todd Foley: While we are pleased with the result this quarter, shrink related to theft remained high on a historical basis and we still have work to do to further mitigate the financial impact. The increase in OG&A rate excluding fuel and adjustment items was driven by investments in associate wages, increased incentive plan costs, and non-recurring costs, including hurricane expenses, and an increase in costs due to the severity of general liability claims, partially offset by continued execution of cost savings initiatives.

Speaker Change: While we are pleased with the result this quarter.

Speaker Change: Frank related to theft remains high on a historical basis, and we still have work to do to further mitigate the financial impact.

Speaker Change: The increase in G&A rate, excluding fuel and adjustment items was driven by investments in associate wages increased incentive plan costs and nonrecurring costs, including hurricane expenses and an increase in cost due to the severity of general liability claims partially offset by continued execution of cost savings.

Todd Foley: Clans, Harsley Offset by Continued Execution of Cost Savings Initiatives. During the second quarter, we recorded a LIFO charge of $21 million, compared to a charge of $4 million for the same quarter last year. Adjusted FIFO operating profit was $984 million. Our adjusted EPS was 93 cents per limited share at the time of 3 percent compared to last year. FIFO is an important part of our total value proposition. It builds loyalty through our Kroger Plus program by offering customers another way to save and led to gallon sales outpacing the industry this quarter.

With the help of AI-enabled advancements in dynamic batching and routing, we are able to offer 2-hour lead times and Pickup in all stores. These improvements in customer experience are being accompanied by productivity enhancements, resulting in an improvement in our cost to serve.

Speaker Change: <unk>.

Speaker Change: During the second quarter, we recorded a LIFO charge of $21 million compared to a charge of $4 million for the same quarter last year.

We are able to offer two hour lead times and pickup in all stores. These improvements in customer experience are being accompanied by productivity enhancements, resulting in an improvement in our cost to serve.

Speaker Change: Adjusted FIFO operating profit was $984 million.

Speaker Change: Our adjusted EPS was <unk> 93 per diluted share a decline of 3% compared to last year.

Speaker Change: Fuel is an important part of our total value proposition.

Speaker Change: Builds loyalty through our Kroger plus program by offering customers another way to say and led the gallon sales outpacing the industry this quarter.

Todd Foley: Fuel profitability was stronger in the second quarter compared to last year on a cents per gallon basis. In the second half, we will be cycling stronger fuel results but expect margins to be relatively flat compared to last year.

Speaker Change: Fuel profitability was stronger in the second quarter compared to last year on a cents per gallon basis.

Speaker Change: In the second half, we will be cycling stronger fuel results, but expect margins to be relatively flat compared to last year.

Todd Foley: I wanted to provide a brief update on inflation, a topic I am asked about frequently. Inflation increased slightly in the second quarter from the first quarter, but is trending around 1%, which is consistent with our expectations since the start of the year.

Speaker Change: I wanted to provide a brief update on inflation a topic I'm asked about frequently.

Speaker Change: Inflation increased slightly in the second quarter from the first quarter, but is trending around 1%, which is consistent with our expectations since the start of the year.

Todd Foley: I'd now like to provide a brief update on associates and labor relations. During the second quarter, we ratified new labor agreements for our Food 4 Less warehouse stores in Southern California, Columbus Valley stores, Mid-Atlantic division stores, Anderson Bakery, Michigan, West Michigan, and New Market clerks, Central Peoria clerks, and Shelbyville warehouse, covering more than 13,000 associates. Kroger is working to reach an agreement with the UFCW for meet and grocery associates at 29 Fred Meyer stores in Portland.

Speaker Change: I would now like to provide a brief update on associates and labor relations.

Speaker Change: During the second quarter, we ratified new labor agreements for our food four less warehouse stores in Southern California, Columbus Valley stores mid Atlantic Division stores.

Speaker Change: Anderson Bakery, Michigan, West, Michigan, and new market clerks, central Peoria clerks, and sell beeville warehouse covering more than 13000 associates.

Speaker Change: Kroger is working to reach an agreement with the UFC W for meat in grocery associates at 29, Fred Meyer stores in Portland.

Todd Foley: We respect our associates' right to collectively bargain. Associates at these stores chose to strike for six days before returning to work last week. Negotiations continue this week and we remain open to constructive dialogue with the UFCW. We are also communicating to local unions that coming to the table with proposals that do not balance investing in associates with keeping groceries affordable for our customers and supporting a growing and profitable business model are untenable. It undermines our goal of growing the company in a way that helps to ensure job security and create more jobs and advancement opportunities for more associates.

Speaker Change: We respect our associates right to collectively bargain.

Speaker Change: Associates at these stores chose to strike for six days before returning to work last week.

Speaker Change: Negotiations continue this week and we remain open to constructive dialogue with the USW.

Speaker Change: We are also communicating to local unions are coming to the table with proposals that do not balanced investing in associates with keeping groceries affordable for our customers and supporting a growing and profitable business model are untenable.

Speaker Change: And reminds our goal of growing the company in a way that helps to ensure job security and create more jobs and advancement opportunities for more associates.

Todd Foley: Turning to cash flow. Kroger continues to generate strong adjusted free cash flow through consistent operating results. Consistent generation of free cash flow is an important part of our model and is enabling us to de-leverage in anticipation of our merger with Albertsons. At the end of the second quarter, Kroger's net total debt to adjusted EBITDA ratio was 1.24, compared to our target range of 2.3 to 2.5. Our strength and balance sheet provide us flexibility to pursue growth and enhance shareholder value.

Speaker Change: Turning to cash flow.

Speaker Change: Kroger continues to generate strong adjusted free cash flow through consistent operating results.

Speaker Change: Consistent generation of free cash flow is an important part of our model and is enabling us to deleverage in anticipation of our merger with Albertsons.

Speaker Change: At the end of the second quarter Kroger's net total debt to adjusted EBITDA ratio was 124 compared to our target range of two three to two five.

Speaker Change: Our strengthened balance sheet provides us flexibility to pursue growth and enhance shareholder value.

Clans, Harsley Offset by Continued Execution of Cost Savings Initiatives.

During the second quarter, we recorded a LIFO charge of $21 million, compared to a charge of $4 million for the same quarter last year. Adjusted FIFO operating profit was $984 million. Our adjusted EPS was $0.93 per diluted share, a decline of 3% compared to last year. Fuel is an important part of our total value proposition. It builds loyalty through our Kroger Plus program by offering customers another way to save and led to gallon sales outpacing the industry this quarter.

Todd Foley: We continue to take a disciplined approach to deploying capital prioritizing the highest growth opportunities that strengthen our business and deliver solid returns for shareholders. We're committed to maintaining our investment-grade at rating, increasing our dividend over time, subject to Board approval, and returning excess capital to shareholders when we are able to do so. The strength of our free cash flow gives us the ability to invest in the growth of our business.

Speaker Change: We continue to take a disciplined approach to deploying capital prioritizing the highest growth opportunities that strengthen our business and deliver solid returns for shareholders. We're.

Speaker Change: We're committed to maintaining our investment grade debt rating, increasing our dividend over time subject to board approval and returning excess capital to shareholders. When we are able to do so.

Speaker Change: The strength of our free cash flow gives us the ability to invest in the growth of our business.

Todd Foley: We are allocating more capital to our major and minor store projects this year. Our teams have done an excellent job completing projects ahead of schedule and year-to-date we have completed almost double the amount of store projects as we have completed last year at this time, which will position us to grow in the second half of 2024 and 2025. It also creates capacity later this year to work towards opening 2025 projects earlier in the year as well.

Speaker Change: We are allocating more capital to our major and minor store projects this year.

Speaker Change: Our teams have done an excellent job completing projects ahead of schedule and year to date, we have completed almost double the amount of store projects as we have completed last year at this time.

Speaker Change: Which will position us to grow in the second half of 2024 and 2025.

Speaker Change: It also creates capacity later this year to work towards opening 2025 projects earlier in the year as well.

Todd Foley: To reflect this, we are raising our guidance for full-year capital expenditures from a range of $3.4 billion to $3.6 billion to a range of $3.6 billion to $3.8 billion. Based on the strength of our free cash flow, the change to our CAPEX guidance does not affect our adjusted free cash flow guidance. In the second quarter, we raised our quarterly dividend by 10%, reflecting confidence and our ability to generate strong cash flow.

Speaker Change: To reflect this we are raising our guidance for full year capital expenditures from a range of $3 4 billion to $3 6 billion to a range of $3 6 billion to $3 8 billion.

Speaker Change: Based on the strength of our free cash flow.

Speaker Change: The change to our Capex guidance does not affect our adjusted free cash flow guidance.

Speaker Change: In the second quarter, we raised our quarterly dividend by 10%, reflecting confidence in our ability to generate strong cash flow.

Todd Foley: Our quarterly dividend has grown at a 13.5% compounded annual growth rate since being reinstated in 2006 and this marked the 18th consecutive year of dividend increases.

Speaker Change: Our quarterly dividend has grown at a 13, 5% compounded annual growth rate since being reinstated in 2006 and this marks the 18th consecutive year of dividend increases.

Todd Foley: I'd now like to provide some additional color on our outlook for the rest of the year. We are encouraged by our performance to the first half of the year, which led to results that were in line with expectation. Our solid sales results to the first two quarters of the year give us confidence to raise the low-end of our full-year identical sales without fuel guidance. We now expect identical sales without fuel to be in the range of 0.75% to 1.75%.

Speaker Change: I would now like to provide some additional color on our outlook for the rest of the year.

Speaker Change: We are encouraged by our performance through the first half of the year, which led to results that were in line with expectations.

Speaker Change: Our solid sales results through the first two quarters of the year give us confidence to raise the low end of our full year identical sales without fuel guidance. We now expect identical sales without fuel to be in the range of <unk>, 75% to 175%.

Todd Foley: We are cautiously optimistic about our sales outlook for the second half of the year and expect customers to continue prioritizing food and essentials. We have developed merchandising plans that are designed to enhance customer engagement, drive spending, and improve unit volumes. The strength of our model enables us to navigate an environment where customer spending is constrained by current economic pressures and we expect the various components of our model, including Grocery, Health & Wellness, fuel, and alternative profit businesses to provide us with flexibility in how we create shareholder value. As a result, we are reaffirming the rest of our full-year guidance.

Speaker Change: We are cautiously optimistic about our sales outlook for the second half of the year and expect customers to continue prioritizing food and essentials.

We have developed merchandising plans that are designed to enhance customer engagement drive spending and improved unit volumes.

Speaker Change: The strength of our model enables us to navigate an environment, where customer spending is constrained by current economic pressures and we expect the various components of our model, including grocery health and wellness fuel and alternative profit businesses to provide us with flexibility in how we create shareholder value. As a result, we are reaffirming the rest of <unk>.

Todd Foley: As a result, we are reaffirming the rest of our full-year guidance.

Our full year guidance.

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

Rodney Mcmullen: I'll now turn the call back to Rodney. Thanks Todd.

Rodney: Thanks, Todd before I open it up for Q&A I'd like to speak briefly about our pending merger with Albertsons.

Rodney Mcmullen: Before I open it up for Q&A, I'd like to speak briefly about our pending merger with Albertsons. First, I would like to express my appreciation for our associates and their incredible commitment. It has been a long journey and our associates have done an excellent job serving customers and running the day-to-day operations of our business while also preparing for the merger. Integration work continues to progress and our teams are laser-focused on ensuring a seamless transition for our customers and associates from day one.

Rodney: First I would like to express my appreciation for our associates and their incredible commitment.

Rodney: It has been a long journey and our associates have done an excellent job serving customers and running the day to day operations of our business. While also preparing for the merger integration.

Rodney: Integration work continues to progress and our teams are laser focused on ensuring a seamless transition for our customers and associates from day one.

Rodney: It is exciting to see the complementary strengths of both Kroger and Albertsons organizations and we look forward to combining these strengths to provide customers an even better experience.

Rodney Mcmullen: It is exciting to see the complimentary strengths of both Kroger and Albertsons organizations, and we look forward to combining these strengths to provide customers an even better experience. As part of our merger preparation, Kroger recently launched an exchange offering for Albertsons' notes, contingent upon the closing of the merger, as well as a successful new offering for $10.5 billion of senior unsecured notes, with the net proceeds expected to fund a portion of the cash consideration for the proposed merger.

Rodney: As part of our merger preparation Kroger recently launched an exchange offering for Albertsons notes contingent upon the closing of the merger as well as a successful new offering for $10 5 billion of senior unsecured notes with the net proceeds expected to fund a portion of the cash considered.

Rodney: <unk> for the proposed merger.

Rodney: A portion of the proceeds of this offering is subject to a special mandatory redemption at the merger does not close.

Rodney: As the preliminary injunction trial with the FTC nears. Its conclusion, we are confident in the facts and the strengths of our position.

Rodney Mcmullen: A portion of the proceeds of this offering is subject to a special mandatory redemption if the merger does not close. As the preliminary injunction trial with the FTC nears its conclusion, we are confident in the facts and the strengths of our position. The retail industry continues to be more competitive and we know how our customers shop. Every day they are making decisions on where to eat and where to buy their groceries.

Speaker Change: The retail industry continues to be more competitive and we know how our customers shop.

Speaker Change: Every day, they are making decisions on where to eat and where to buy their groceries.

A shop at a wide range of competitors from Costco to Amazon to dollar stores and they either restaurants, they shop digitally and brick and mortar.

Speaker Change: As I have said before we remain committed to closing the merger because it will provide meaningful and measurable benefits for customers associates and communities across the country.

Rodney Mcmullen: They shop at a wide range of competitors from Costco to Amazon to Dollar stores and they eat at restaurants. They shop digitally and brick-and-mortar. As I have said before, we remain committed to closing the merger because it will provide meaningful and measurable benefits for customers, associates and communities across the country. And we look forward to bringing these commitments to life. Regardless of the outcome of the trials, Kroger is operating from a position of strength and we are optimistic about our future.

Speaker Change: And we look forward to bringing these commitments to life.

Speaker Change: Regardless of the outcome of the trials.

Speaker Change: <unk> is operating from a position of strength and we are optimistic about our future.

Speaker Change: Our business is more diverse than ever and our value creation model provides us with multiple ways to drive sustainable growth.

Speaker Change: We are delivering strong free cash flow that allows us to invest in our business and drive attractive returns for our shareholders.

Speaker Change: With that Todd and I look forward to taking your questions.

Rodney Mcmullen: Our business is more diverse than ever and our value creation model provides us with multiple ways to drive sustainable growth. We are delivering strong free cash flow that allows us to invest in our business and drive attractive returns for our shareholders.

Because we are in litigation, we will not be taking questions on the merger this morning.

Speaker Change: As a reminder, if you'd like to ask a question you May press star followed by one on your telephone keypad.

I'll now turn the call back to Rodney.

Rodney Mcmullen: With that, Todd and I look forward to taking your questions because we are in litigation, we will not be taking questions on the merger this morning.

Thanks Todd. Before I open it up for Q&A, I'd like to speak briefly about our pending merger with Albertsons. First, I would like to express my appreciation for our associates and their incredible commitment. It has been a long journey and our associates have done an excellent job serving customers and running the day-to-day operations of our business while also preparing for the merger. Integration work continues to progress and our teams are laser-focused on ensuring a seamless transition for our customers and associates from day one.

W. Rodney McMullen: Thanks Todd. Before I open it up for Q&A, I'd like to speak briefly about our pending merger with Albertsons.

Our first question for today comes from Ed Kelly of Wells Fargo.

Speaker Change: Your line is now open. Please go ahead.

First, I would like to express my appreciation for our associates and their incredible commitment. It has been a long journey and our associates have done an excellent job serving customers and running the day-to-day operations of our business while also preparing for the merger. Integration work continues to progress and our teams are laser-focused on ensuring a seamless transition for our customers and associates from day one.

Operator: Thank you. As a reminder, if you would like to ask a question, you may press star follow by one on your telephone keypad. Our first question for today comes from Ed Kelly of Wells Fargo. The line is now open. Please go ahead.

Ed Kelly: Hi, good morning, everyone.

Operator: As a reminder, if you would like to ask a question, you may press Star Offload or one on your telephone keypad.

Ed Kelly: Mike there's been increased concern around the competitive backdrop.

Edward Kelly: Our first question for today comes from Ed Kelly of World's Fargo. The line is now open. Please go ahead.

Mike: Morning, methane increased concern about the competitive backdrop.

Speaker Change: Rising promotions across the industry can you just talk about what you are seeing from a promotional and competitive standpoint, and then what are your plans as you think about the back half of the year.

Edward J. Kelly: Hi. Good morning, everyone. There has been increased concern around the competitive backdrop, rising promotions across the industry. Can you just talk about what you are seeing from a promotional and competitive standpoint? And then what are your plans as you think about the back half of the year? I mean, you did raise the gross margin a bit today. So, it certainly seems like you believe you can manage it. But just thoughts around what's going on out there and your promotional plans?

Speaker Change: You did raise the gross margin guidance a bit today so.

Speaker Change: Certainly seems like you believe you can manage it back.

Just thoughts around what's going on out there and your promotional plans.

Speaker Change: If you look.

Speaker Change: I would say the promotions are getting back to pretty much normal and obviously during COVID-19 there.

Speaker Change: There was less promotions because supply chains were under tremendous pressure.

W. Rodney McMullen: If you look, I would say the promotions are getting back to pretty much normal and obviously during COVID, there was less promotions because supply chains were under tremendous pressure. The other thing that we would say on the promotions we are doing, we view the ones that we are doing are more effective and the CPG partners are increasing their support for some of those as well as they are trying to grow tonnage. If you look at--as Todd outlined, overall, we feel good about the balance of the year and balancing cost reductions and mixed changes that are helping gross and our continued investment in pricing, which we've been doing for, I think, close to 20 years now.

Speaker Change: The other thing that we would say on the promotions we are doing.

Speaker Change: We view the ones that we're doing are more effective.

Speaker Change: In the CPG partners are increasing their support.

Speaker Change: For some of those as well as theyre trying to grow tonnage.

Rodney Mcmullen: If you look at, as Todd outlined, overall, we feel good about the balance of the year and balancing cost reductions and mixed changes that are helping gross and our continued investment in pricing, which we've been doing for, I think, close to 20 years now.

Speaker Change: If you look at us.

Todd: As Todd outlined.

Todd: The.

Overall, we feel good about the balance of the year and balancing cost reductions and mix changes that are helping gross and.

Todd: Our continued investment in pricing, which we've been doing for I.

Todd: I think close to 20 years now.

Operator: Our next question comes from a Kelly Bania from BMO. Your line is now open. Please go ahead.

Speaker Change: Thank you.

Kelly Bania: Our next question comes from a Kelly Bania from BMO. Your life is out open.

Speaker Change: Our next question comes from Kelly Bania from BMO.

Speaker Change: Your line is now open. Please go ahead.

Rodney Mcmullen: Please go ahead. Hi, good morning. Thanks for taking our question. Just wanted to dive in a little bit more on Gross Margin. It was really quite strong and you called out some of the factors there but can you also just understand how digital is impacting Gross Margin? Is that included in your kind of mix category and just just a general update on digital profitability as you look forward really into the back half and next couple of years here.

Kelly Bania: Hi, Good morning, Thanks for taking our question just just wanted to dive in a little bit more on gross margin.

Chong: Really quite Chong and you called out some of the factors.

Speaker Change: There, but can you help us just understand how digital is impacting gross margin is that included in your kind of mix category and just a general update on digital profitability.

Speaker Change: Look forward really into the back half of next couple of years here.

Todd Foley: Yes, glad to, Kelly. Yes, you're right. As we went into the year, we talked about the expectations for our margins to be relatively flat and included in that expectation was a little bit of an increase in the second quarter year-over-year. But even on top of that, some of the strength that we saw in our brands, like we called out, added tremendous quarter in Our Brands, actually the sales growth there outpaced national brands quite meaningfully that helped drive it above our expectations. And also, we had a great shrink quarter.

Yes glad to Kelly.

Speaker Change: Yes, you are right as we went into the year, we talked about.

Speaker Change: The expectations for our margins to be relatively flat.

Speaker Change: And included in that expectation was a little bit of a.

Speaker Change: Increase in the second quarter year over year, so, but even on top of that.

Some of the strength that we saw in our brands like we call it out.

Speaker Change: Tremendous quarter in our brands actually.

Speaker Change: The sales growth outpaced national brands are quite meaningfully to help drive it above our expectations.

Speaker Change: And also we had a great shrink quarter, it's been a while since we've looked year over year on strength and seen positive results. So that was really exciting to see as we called out.

Rodney Mcmullen: It's been a while since we've looked year-over-year on strength and seemed positive results so that was really exciting to see as we called out, still a lot of work to do there on a go-forward basis. But so, it was a little bit better than our expectations which were to be up. So, and therefore for the balance of the year, we do expect for the full year margins to now be slightly favorable on a year-over-year basis. So, from a digital profitability standpoint, Rodney, if you want to add anything in that space?

Still a lot of work to do there on a go forward basis, but so it was a little bit better than our expectations, which were which were to be up some and therefore for the balance of the year, we do expect.

Speaker Change: For the full year margins to now be slightly favorable on a year over year basis. So from a digital profitability standpoint around if you want to add anything.

Speaker Change: Anything in that space, Yes, I'll just a couple of comments, we continue to make progress.

Rodney Mcmullen: So from a digital profitability standpoint, or any of you want to add anything in that space? Yeah, I'll just a couple of comments. We continue to make progress. If you look at over the next two or three years, we see the opportunity to to make significant progress. And we would hold ourselves accountable for doing that. The thing that's pretty special about the overall ecosystem that we're building is when you look at a customer that engages with us seamless, they actually still physically go into stores.

Speaker Change: If you look at over the next two or three years.

Speaker Change: We see the opportunity too significant to make significant progress and we would hold ourselves accountable for doing that.

Speaker Change: The thing Thats pretty special about the overall ecosystem that we're building is when you look at a customer that he engages with us seamless they.

Speaker Change: They actually still physically go into stores, sometimes they do delivery, sometimes they do pick up they also become more loyal and other aspects becoming boost members engaging in pharmacy. So as you look at it over the next two or three years.

Rodney Mcmullen: Sometimes they do delivery, sometimes they do pickup. They also become more loyal in other aspects, becoming Boost members, engaging in pharmacies. So, as you look at over the next two or three years, we're very excited about the potential of that and the continued progress. Obviously, the media business helps gross margin and the margins in that is significantly different than anything that we've ever sold in a supermarket store. Thanks, Kelly.

Speaker Change: We are very excited about the potential of that and the continued progress obviously.

Speaker Change: The media business helps gross margin and the margins and that is significantly different than anything that we've ever sold in a supermarket store.

Kelly Bania: Thanks Kelly.

Kelly Bania: Thank you.

Speaker Change: Our next question comes from John Hind Buckle of Guggenheim Partners.

Operator: Our next question comes from John Heinbockel of Guggenheim Partners. Your line is now open. Please go ahead.

Your line is now open. Please go ahead.

John Heinbockel: Our next question comes from John Hainbuckle of Guggenheim Partners. Your line is now open. Please go ahead.

anders layer: Good morning. This is anders layer on for John between the proactive cost reductions that the media growth and the moderating digital losses should we expect a greater amount of P&L benefits and they have been in recent years.

Please go ahead.

Kelly Bania: Hi, good morning. Thanks for taking our question. Just wanted to dive in a little bit more on gross margin. It was really quite strong and you called out some of the factors there. But can you help us just understand how digital is impacting gross margin? Is that included in your kind of mix category? And just a general update on digital profitability as you look forward really into the back half and the next couple of years here?

Anders S. Myhre: Good morning. This is Anders Myhre, on for John. Between the proactive cost reductions that the media growth and the moderating digital losses, should we expect a greater amount of P&L benefits than there have been in recent years? And if so, how much of this incremental benefit flows through to the bottom line versus reinvestment into other areas of the business? Thank you. Great question. The things that you call out are great examples of some of the margin enhancement programs that we've talked about in the past as well as some of the productivity improvements and cost improvements that we've realized over time.

Speaker Change: If so how much of this incremental benefit flows through to the bottom line versus reinvestment into other areas of the business. Thank you.

anders layer: Yes.

Speaker Change: Great question.

Speaker Change: The things that you call out are great. Examples of some of the margin enhancement programs that we've talked about in the past as well as some of the productivity improvements and cost improvements that.

Speaker Change: That we've realized over time and that's an important part of our overall business model.

Speaker Change: Being able to use that value that we create through the things that you called out to invest it back in the business know Rodney alluded to it we have a long history of taking that value and reinvesting it back in the business in a way that over time, our operating profit rate grows slightly overtime. So as we grow the top line as we're able to balance.

Todd Foley: That's an important part of our overall business model. Being able to use that value that we create through the things that you call out to invest it back in the business. You're probably alluded to it. We have a long history of taking that value and reinvesting it back in the business in a way that over time are operating profit rate grows slightly over time. So as we grow the top line, as we're able to balance the investments with the benefits that we get from those, that drives the bottom line over time.

Speaker Change: <unk>.

Speaker Change: Investments.

Speaker Change: With the benefits that we get from those.

Speaker Change: It drives the bottom line over time.

Speaker Change: I think it's always a good reminder, that our long term <unk> model is 8% to 11% a year.

Speaker Change: That long term <unk> model assumes.

W. Rodney McMullen: Yes. I think it's always a good reminder that our long-term TSR model is 8% to 11% a year. That long-term TSR model assumes that we continue to move and grow alternative profit businesses, continue to invest in wages, continue to invest in lower prices for our customers. As you know, unfortunately, we generate a tremendous amount of free cash flow. We would expect over time for more of that growth to come from the business as opposed to buying back stock. And then once the merger happens, obviously there's incremental accretion that will happen because of the merger for a period of time that once the merger happens, we'll give more insights into.

Speaker Change: We continue to move and grow alternative profit businesses continue to invest in wages continue invest in lower prices for our customers.

Speaker Change: As you know.

So from a digital profitability standpoint, or any of you want to add anything in that space?

W. Rodney McMullen: Yes, just a couple of comments. We continue to make progress. If you look at over the next two or three years, we see the opportunity to make significant progress. And we would hold ourselves accountable for doing that. The thing that's pretty special about the overall ecosystem that we're building is when you look at a customer that engages with us seamless, they actually still physically go into stores.

Speaker Change: Fortunately, we generate a tremendous amount of free cash flow.

Speaker Change: We would expect over time for more of that growth to come from the business as opposed to buying back stock and then what.

Speaker Change: Since the merger happens, obviously, there's incremental accretion that will happen because of the merger for us for a period of time that once the merger happens, we'll give more insights into.

Speaker Change: Thank you. Our next question comes from Atlanta.

Speaker Change: Children of Goldman Sachs. Your line is now open. Please go ahead.

Operator: Our next question comes from Leah Jordan of Goldman Sachs. Your line is open. Please go ahead.

Speaker Change: Good morning. Thank you for taking my question, Steve If you could comment on your market share trends in the quarter and especially interested in any color on what youre seeing in fresh specifically as I know that's been a big area of investment for you.

Rodney Mcmullen: Good morning. Thank you for taking my question. Seeing if you could comment on your market share trends in the quarter, and especially interested in any color on what you're seeing in Fresh specifically, as I know that's been a big area of investment for you? Yes. If you look at our fresh trends, overall, they would be stronger than the center store. Overall, I would say that we feel okay about where we are, but if you look going forward, we continue to see improvement and we would expect to see improvement throughout the balance of the year.

Speaker Change: Yes, if you look at our fresh trends.

Speaker Change: Overall, they would be stronger than the center store overall.

Speaker Change: Overall, I would say that we're we feel okay about where we are but if you look going forward, we continue to see improvement and we would expect.

Speaker Change: To see improvement throughout the balance of the year. So it's one of those areas where we're not.

Rodney Mcmullen: So it's one of those areas where we're not satisfied. We are gaining strong household growth and strong loyal household household growth as well, which also also in the past always leads the future progress as well. So I would say that we feel okay where we are. We're more excited about what we see where the trends are and where we see for the balance of the year. And next year because we're also incrementally adding storing as well, which helps on market share as well. Thanks Leah.

Speaker Change: <unk>.

We are gaining strong household growth and a strong loyal household household growth as well, which also also in the past always leads to future progress as well so I would say that we.

Anders S. Myhre: Good morning. This is Anders Myhre, on for John. Between the proactive cost reductions that the media growth and the moderating digital losses, should we expect a greater amount of P&L benefits than there have been in recent years? And if so, how much of this incremental benefit flows through to the bottom line versus reinvestment into other areas of the business? Thank you.

Speaker Change: We feel okay, where we are we're more excited about what we see where the trends are and where we see for the balance of the year and next year, because we're also incrementally, adding storing as well which helps on market share as well.

Anders S. Myhre: Thank you. Great question. The things that you call out are great examples of some of the margin enhancement programs that we've talked about in the past as well as some of the productivity improvements and cost improvements that we've realized over time.

Anders S. Myhre: Thank you.

Todd Foley: Yes. Great question. The things that you call out are great examples of some of the margin enhancement programs that we've talked about in the past as well as some of the productivity improvements and cost improvements that we've realized over time. That's an important part of our overall business model. Being able to use that value that we create through the things that you call out to invest it back in the business. Rodney alluded to it. We have a long history of taking that value and reinvesting it back in the business in a way that over time are operating profit rate grows slightly over time. So, as we grow the top line, as we're able to balance the investments with the benefits that we get from those, that drives the bottom line over time.

Leah: Thanks Leah.

Operator: Our next question comes from Simeon Gutman of Morgan Stanley. The line is now open. Please go ahead.

Thank you. Our next question comes from Simeon Gutman of Morgan Stanley.

Simeon Gutman: Our next question comes from a semi-enegutement of Morgan Stanley. The lights are open. Please go ahead. Good morning everyone, two-parter, first, if you look at the second quarter and the second half, the difference in comp that you're guiding to, how is it changing between units and inflation? I heard the inflation piece but curious how the guidance reflects, it looks like a slightly better than consensus. The second part is, if this environment stays, and I know you're trying to improve shape, but if we stay in this low, very low single-digit environment, do you spend the same way in the business next year and you think you can keep the core EBIT dollars, roughly flat or margin flat in this backdrop? Thank you.

Speaker Change: Your line is now open. Please go ahead.

Speaker Change: Okay.

Simeon Gutman: Good morning, everyone. Two parter first if you look at the second quarter and the second half.

Simeon Gutman: The difference in comp that youre that youre guiding to how is it changing between units and inflation I heard the inflation piece, but curious how the guidance reflects this it looks like a slightly better than consensus.

Speaker Change: Second part is if this environment stays and I know youre not youre trying to.

Keith: Improved share and grow comps, but if we stay in this low very low single digit environment Keith.

Speaker Change: Do you spend the same way.

Speaker Change: And the business next year and you think you can keep the core EBIT dollars roughly flat or margin flat in this in this backdrop. Thank you.

Todd Foley: Good question, Simeon. Let me start with the differences in comp. We did update our sales guidance for the year, taking up the bottom end of that range, as you saw, from 25 basis points to 75 basis points. We kept the top end of the range at 1.75 basis points. And I think that was our thought process around that was really to take the low end off the table. If you think about where we came into the year, and there was quite a bit of disinflation last year, that was still kind of hitting us early in the year, and wanted to make sure that we were navigating through that uncertainty.

Keith: Yes. Good question Simeon, let me start with the differences in <unk>.

Speaker Change: Tom.

Speaker Change: We did update our sales guidance for the year taken up the bottom end of that range. As you saw from 25 basis points to 75 basis points are kept the top end of the range.

Speaker Change: At 175 basis points and I think that was our thought process around that was really to take the low end off the table you think about where we came into the year and there was quite a bit of disinflation last year that was still kind of hitting us early in the year and wanted to make sure that we were navigating through that uncertainty our view at the time was the Q.

Todd Foley: Our view at the time was that Q1 would be the low point of the year, and we would consistently grow our sales as we went through the year on a backdrop of inflation that was 1%-ish, as we go throughout the year. And that's really, certainly through the first half, it's played out as we expected in the first half of the year, and our expectations for the back half are very similar to the way that we thought about it back then.

Speaker Change: One would be the low point of the year and we would we would consistently grow our sales as we went through the year on a backdrop of inflation that was one percentage.

Leah Jordan: Good morning. Thank you for taking my question. Seeing if you could comment on your market share trends in the quarter, and especially interested in any color on what you're seeing in Fresh specifically, as I know that's been a big area of investment for you?

As we go throughout the year and that's really certainly through the first half. It's played out as we expected in the first half of the year.

Speaker Change: And our expectations for the back half are very similar to the way that we thought about it back then so so I would say both our expectations on the sales and the inflation environment.

W. Rodney McMullen: Yes. If you look at our Fresh trends, overall, they would be stronger than the center store. Overall, I would say that we feel okay about where we are, but if you look going forward, we continue to see improvement and we would expect to see improvement throughout the balance of the year. So, it's one of those areas where we're not satisfied. We are gaining strong household growth and strong loyal household growth as well, which also in the past always leads the future progress as well. So, I would say that we feel okay where we are. We're more excited about what we see, where the trends are and where we see for the balance of the year, and next year because we're also incrementally adding storing as well, which helps on market share as well. 

Todd Foley: So, I would say both our expectations on the sales and the inflation environment backdrop against which it hasn't really changed a whole lot, and we expect that growth to flow. From a unit standpoint, we've talked about that a little bit. Rodney alluded to the fact that we continue to be encouraged by the trends there were still a little negative on the unit side, but we continue to be encouraged by the progress that we're making in that space. And think that will be part of the contribution to the sales trend that we see for the back half of the year.

Speaker Change: The backdrop against which.

It hasn't really changed a whole lot and we expect that growth to flow from a unit standpoint, we've talked about that a little bit Rodney Rodney alluded to the fact, we continue to be encouraged by.

Rodney: The trends there were still a little negative on the unit side, but we continue to be encouraged by the progress that we're making in that space and think that will be part of the contribution to the sales trend that we see for the back half of the year, yes.

Rodney: Yes, we are seeing progress on units, we would expect to continue to see progress on units.

Speaker Change: You didn't really ask but the thing that's right now what we're seeing is and I mentioned it earlier in the first of the month. Our business is really strong holidays are strong and then when you get to the end of the month, they're weaker because of that.

W. Rodney McMullen: Yes. We are seeing progress on units, we would expect to continue to see progress on units. You didn't really ask, but if the thing that's right now what we're seeing is, and I mentioned it earlier in the first of the month, our business is really strong, holidays are strong, and then when you get to the end of the month, they're weaker because of the people being constrained on a budget. So far in the third quarter, we're tracking a little bit better than where we were in the second quarter. So, fundamentally, we believe all the programs we're doing is making improved connection.

Our next question comes from a semi-enegutement of Morgan Stanley. The lights are open. Please go ahead.

Speaker Change: People being constrained on a budget.

Speaker Change: So far in the third quarter, we're tracking a little bit better than where we were in the second quarter. So we fundamentally.

Good morning everyone, two-parter, first, if you look at the second quarter and the second half, the difference in comp that you're guiding to, how is it changing between units and inflation? I heard the inflation piece but curious how the guidance reflects this. It looks like a slightly better than consensus. The second part is, if this environment stays, and I know you're trying to improve shape, but if we stay in this low, very low single-digit environment, do you spend the same way in the business next year and you think you can keep the core EBIT dollars, roughly flat or margin flat in this backdrop? Thank you.

Simeon Gutman: Good morning everyone, two-parter, first, if you look at the second quarter and the second half, the difference in comp that you're guiding to, how is it changing between units and inflation? I heard the inflation piece but curious how the guidance reflects this. It looks like a slightly better than consensus.

Speaker Change: Fundamentally we believe all of the programs that we're doing and that is making improved connection.

Speaker Change: Question relative to 2025, I would say, it's still early for us to start sharing guidance on 2025, and I would just the comments I made earlier about our long term business model.

Todd Foley: Your question relative to 2025, I would say it's still early for us to start sharing guidance on 2025, and I would just--the comments I made earlier about our long-term business model really would apply to 2025. Obviously, we would expect to be in a position of where we've just completed a merger, and we would also need to update where we are relative to merger and the integration, and the merger and those that factors as well. So thanks, Simeon, for the question.

The second part is, if this environment stays, and I know you're trying to improve share, and grow comps, but if we stay in this low, very low single-digit environment, do you spend the same way in the business next year, and you think you can keep the core EBIT dollars, roughly flat or margin flat in this backdrop? Thank you.

Speaker Change: Really would apply to 2025, obviously.

Speaker Change: We would expect to be in a position of where we've just completed a merger and we would also need to update where we are relative to the merger and the integration of the merger and those factors as well. So thanks Simeon for the question.

Mike <unk>: Thank you. Our next question comes from Mike <unk> of Evercore ISI.

Speaker Change: Your line is now open. Please go ahead.

Speaker Change: Great. Thank you for taking the question. It seems that the guide is implying stable or even slightly up EBIT margin in the back half of the year and I just wanted to understand a little bit if you could parse out the drivers behind that.

Michael Montani: Our next question comes from Michael Montani of Evercore ISI. Your line is now open. Please go ahead. Great. Thank you for taking the question.

Speaker Change: In particular with relation to shrink if there is favorable compares coming up that give you confidence.

Todd Foley: It seems that the guide is implying a stable or even slightly up the EBIT margin in the back half of the year, and I just wanted to understand a little bit if you could parse out the drivers behind that, in particular, you know, with relation to shrink if there's favorable compares coming up that give you confidence, and or if there's certain one-time costs, you know, that you could quantify for us on OGNA that wouldn't come up again. Yeah, we'll do Michael.

Speaker Change: And or if there's certain one time costs that you could quantify for us on O G&A that wouldn't come up again.

Speaker Change: Yes.

Speaker Change: Michael.

Speaker Change: Alright.

Michael: Great Callouts and as we look at the back half of the year, we talked about.

Given the trends that we saw in the second quarter, our view for the year on gross margin with the that will be slightly favorable year over year and on G&A.

Michael: The annual trend will be only slightly unfavorable.

Michael: Year over year, but we do expect those to reasonably balanced.

Speaker Change: Ill come out we talked a little bit about shrink earlier.

Todd Foley: You're right. Great call-ups. We look at the back half of the year. You know, we talked about, given the trends that we saw in the second quarter, our view for the year on gross margin would be that we'll be slightly favorable year-over-year, and on OGNA, the annual trend will be to be slightly unfavorable year-over-year, but we do expect those to reasonably balance as they all come out. We talked a little bit about shrink earlier, and again, we're really excited about the result that we saw in the shrink, but I mentioned the cost that we have there.

Speaker Change: We're really excited about the results that we saw in shrink, but I mentioned in the caution that we have there there is a lot of work to do that.

Speaker Change: That issue is still out there.

Speaker Change: And our shrink costs are.

Is high relative to history on where we finish our team continues to work in that space and continues to drive. It you can't have a trial until you have a data point and so we're excited to see where we're at but.

Speaker Change: We're kind of cautiously optimistic about the opportunities in shrink.

Speaker Change: For the balance of the year relative to some of the other cost before you move on.

Michael: One addition, shrink Michael that you might that everyone might find helpful is if you look at the our fresh side of our business, we've made meaningful progress on improving shrink over several quarters now when you look at the center store with organized retail crime and other things you couldn't see it.

Todd Foley: There is a lot of work to do. That issue is still out there, and our shrink costs are high, relative to history on where we've been. Our team continues to work in that space and continues to drive it. You can't have a trend until you have a data point. And so, we're excited to see where we're at, but we're kind of cautiously optimistic about the opportunities for shrink for the balance of the year. Relative to some of the other costs...

There's been tremendous changes by using technology AI processes, and our teams have done a nice job of improving the fresh side on shrink.

Michael: It's not subject to as much theft, but its really process oriented. So now Todd I'll, let you go and talk about some of the color I appreciate that.

Todd Foley: Relative to some of the other costs, before you move on. One addition, shrink, Michael, that you might, that everyone might find helpful, is if you look at our fresh side of our business, we've made a meaningful progress on improving shrink over several quarters. Now, when you look at the center store with organized retail crime and other things, you couldn't see it, but there's been tremendous changes by using technology, AI processes, and our teams have done a nice job of improving the fresh side on shrink. That's not subject to as much theft, but it's really process oriented.

Todd: Talking a little bit on the cost side.

There are we did see in the second quarter and part of our lives.

Todd: A little bit worse than our expectations. Some some nonrecurring type of items. The main one was.

Todd: Yes, some costs related to hurricane barrel.

Todd: That came through obviously that was that was event driven relative to that the second and we've talked a little bit about as we've talked about incentives being a little bit higher than our expectations. We do think for the second half of the year that will have less of an impact on a year over year G&A.

Operator: Our next question comes from Michael Montani of Evercore ISI. Your line is now open. Please go ahead.

Todd: And then what we've seen in the past as well. So I think those are a couple of examples of things that we don't expect to continue.

Continue in second half.

Great. Thank you for taking the question. It seems that the guide is implying a stable or even slightly up EBIT margin in the back half of the year, and I just wanted to understand a little bit if you could parse out the drivers behind that, in particular, with relation to shrink if there's favorable compares coming up that give you confidence, and/or if there's certain one-time costs that you could quantify for us on OG&A that wouldn't come up again? Yeah, we'll do Michael.

Michael Montani: Great. Thank you for taking the question. It seems that the guide is implying a stable or even slightly up EBIT margin in the back half of the year, and I just wanted to understand a little bit if you could parse out the drivers behind that, in particular, with relation to shrink if there's favorable compares coming up that give you confidence, and/or if there's certain one-time costs that you could quantify for us on OG&A that wouldn't come up again?

Michael: Thanks, Michael.

Michael: Okay.

Speaker Change: Thank you. Our next question comes from Ken Goldman of Jpmorgan.

Your line is now open. Please go ahead.

Speaker Change: Okay.

Ken Goldman: Hi, Thank you and good morning.

Todd Foley: So now to Patata, I want you to go and talk about some of the other stuff. I appreciate that. Something a little bit on the cost side. You know, there are, you know, we did see in the second quarter, and part of why there's a little bit worse than our expectations, some non-recurring type of items, the main one was, you know, some costs related to Hurricane Barrel that came through, obviously, that was a bad driven relative to that.

Ken Goldman: I wanted to dig in a little bit deeper into inflation just in light of the CPI and <unk>.

Speaker Change: PPI numbers that came out this morning, usually the two rates of change, they're not perfectly correlated but theyre somewhat correlated in right now.

Todd Foley: Yes, we'll do, Michael. You're right. Great call out. And as we look at the back half of the year, we talked about, given the trends that we saw in the second quarter, our view for the year on gross margin would be that we'll be slightly favorable year-over-year, and on OG&A, the annual trend will be to be slightly unfavorable year-over-year. But we do expect those to reasonably balance as they all come out. We talked a little bit about shrink earlier, and again, we're really excited about the result that we saw in the shrink, but I mentioned the caution that we have there.

Speaker Change: PPI food is increasing.

Speaker Change: The faster clip and CPI. So I just wanted to get a sense for.

Speaker Change: How you think about balancing the need to pass on inflation I know that PPI is not a perfect proxy for that but it is somewhat of a proxy.

Speaker Change: Balance of that with a desire to continue to appeal to a budget conscious consumers.

Todd Foley: The second, and we've talked a little bit about this. We've talked about incentive being a little bit higher than our expectations. We do think for the second half of the year, that'll have less of an impact on our year-over-year, OG&A than what we've seen in the past as well. So, I think this are a couple of the examples of things that we don't expect to continue the second half. Thanks, Michael.

Speaker Change: And then how do we reconcile all of that with the fact that your GM growth was so good when PPI is growing so much faster than CPI.

Speaker Change: Yes.

Speaker Change: As you've mentioned I mean, youre always trying to balance all the pieces.

Speaker Change: Part of the PPI is its some.

Speaker Change: Certain parts of it are a commodity driven.

And we will.

Speaker Change: If we think something is a permanent cost increase then we try to pass that along as fast as we can if it's a short term blip then we'll manage that based on what's going on in the market and.

Rodney Mcmullen: Thank you. Our next question comes from Kenneth Goldman of JP Morgan. The line's out open. Please go ahead. Hi, thank you and good morning. I wanted to dig in a little bit deeper into inflation, just in the light of the CPI and PPI numbers that came out this morning. Usually the two rates have changed, they're not perfectly correlated, but they're somewhat correlated, and right now, PPI food is increasing in a faster clip than CPI, so I just wanted to get a sense for how you think about balancing the need to pass on inflation.

Speaker Change: It's as difficult now estimating where inflation is going to be is probably in a period of time, but we are seeing it being reasonably stable. If you look out in terms of <unk>.

Relative to some of the other costs,

W. Rodney McMullen: Before you move on, one additional shrink, Michael, that everyone might find helpful, is if you look at our Fresh side of our business, we've made a meaningful progress on improving shrink over several quarters. Now, when you look at the center store with organized retail crime and other things, you couldn't see it. But there's been tremendous changes by using technology, AI processes, and our teams have done a nice job of improving the Fresh side on shrink. That's not subject to as much theft, but it's really process oriented.

Speaker Change: Rice increases that.

Speaker Change: Cpg's.

Speaker Change: <unk> shared with us because obviously.

Speaker Change: We will see that in advance of it happening.

Speaker Change: It would certainly still be in the range of where we said we think overall inflation will be around 1% and we don't see anything that's causing us to see that be much different than that over time, we do find the two kind of line up pretty close.

Rodney Mcmullen: I know that PPI is not a perfect proxy for that, but it's somewhat of a proxy. Balance that with a desire to continue to appeal to budget conscious consumers, and then how do we reconcile all of that with the fact that your GM growth was so good when PPI is growing so much faster than CPI? As you mentioned, you're always trying to balance all the pieces. Part of the PPI is it's certain parts of it are commodity driven, and we will, if we think something's a permanent cost increase, then we try to pass that along as fast as we can.

So, now, Todd, I'll let you go and talk about some of the other stuff.

Speaker Change: The other thing that we are seeing is inflation on food away from home is meaningfully higher than food at home.

Todd Foley: Great color. I appreciate that. Talking a little bit on the cost side, there are--we did see in the second quarter, and part of why it was a little bit worse than our expectations, some non-recurring type of items. The main one was some costs related to Hurricane Barrel that came through. Obviously, that was a bad driven relative to that.

Speaker Change: We are beginning to see customers move.

Speaker Change: Move back from restaurants to food at home because you again.

Speaker Change: And prepare a meal at home for about a fourth of the cost of going out and getting a meal. So that is something that we are beginning to see a little bit of as well I don't know Todd anything else you want to add on inflation setup. Thanks.

The second, and we've talked a little bit about this. We've talked about incentive being a little bit higher than our expectations. We do think for the second half of the year, that'll have less of an impact on our year-over-year, OG&A than what we've seen in the past as well. So, I think this are a couple of the examples of things that we don't expect to continue the second half.

Todd: Thanks, Rob.

Todd: Thank you.

Speaker Change: Our next question comes from refresh of Pyrite from Oppenheimer.

Rodney Mcmullen: If it's a short-term blip, then we'll manage that based on what's going on in the market. And it's difficult how estimating where inflation is going to be is probably any period of time, but we are seeing it being reasonably stable. If you look out in terms of price increases that CPGs have already shared with us, because obviously we'll see that in advance of it happening. It would certainly still be in the range of where we said we think overall inflation will be around 1%, and we don't see anything that's causing us to see that be much different than that.

Speaker Change: Your line is now open. Please go ahead good morning.

Rufus: Good morning, Good morning, good morning, Thanks for taking my questions. So first on Capex, So higher range for this year. So I just wanted to get a sense of if we should think of it I think about this level of spend is more of a normal going forward and then secondly, I'm not sure. If you if you're giving any clarity in terms of how to think about the EPS growth cadence between Q3 and Q4 as I know you're lapping the 50 <unk> week later this year.

W. Rodney McMullen: Thanks, Michael.

Operator: Our next question comes from Kenneth Goldman of JP Morgan. The line is now open. Please go ahead.

Kenneth B. Goldman: Hi, thank you and good morning. I wanted to dig in a little bit deeper into inflation, just in the light of the CPI and PPI numbers that came out this morning. Usually the two rates have changed, they're not perfectly correlated, but they're somewhat correlated, and right now, PPI food is increasing in a faster clip than CPI. So, I just wanted to get a sense for how you think about balancing the need to pass on inflation?

I know that PPI is not a perfect proxy for that, but it's somewhat of a proxy. Balance that with a desire to continue to appeal to budget conscious consumers, and then how do we reconcile all of that with the fact that your GM growth was so good when PPI is growing so much faster than CPI?

Speaker Change: Yeah.

Speaker Change: Yes, great great color on the Capex, Yes, I think we talked about.

Speaker Change: We've been working really hard to take the opportunity to get these starting projects open as quickly as we can to be able to serve customers and so so shifting spend from late in 2004 to early in 'twenty. Four you saw our capex here, they feel a bit higher.

Speaker Change: That's going to create some capacity to help us coal early what might've been early 'twenty five construction process in the late 2004. So we can open next year's projects early too. So I think given the strong cash flow in the business. If we're able to continue to execute that but I think what we'll see.

Rodney Mcmullen: Over time, we do find the two kind of line up pretty close. The other thing that we are seeing is inflation on food away from home is meaningfully higher than food at home, and we are beginning to see customers move back from restaurants to food at home, because you can prepare a meal at home for about a fourth of the cost of going out and getting a meal. That is something that we are beginning to see a little bit of as well.

W. Rodney McMullen: Yes. As you mentioned, you're always trying to balance all the pieces. Part of the PPI is certain parts of it are commodity-driven, and if we think something's a permanent cost increase, then we try to pass that along as fast as we can.

Speaker Change: A lift in our spend.

Speaker Change: And our capital plan over time.

Speaker Change: And where is the money that we're investing we're seeing good performance to budget.

Speaker Change: As well and operationally its a lot easier to open up.

Todd Foley: I don't know, Todd, anything else you want to add on inflation? No, you're right on. Thanks, Rodney.

Remodel or new store expansion earlier in the year or versus later in the year as well.

Operator: Our next question comes from Rupesh Parikh from Oppenheimer. Your line is now open. Please go ahead.

Speaker Change: Okay and then just.

Speaker Change: Talking to your EPS comment repass.

Rupesh Parikh: Good morning. Thanks for taking my question. So first on CAPEX, so, higher range for this year. So, I just want to get a sense of if we should think about this level, spend more of a normal going forward. And then secondly, I'm not sure if you're giving any clarity in terms of how to think about the EPS growth cadence between Q3 and Q4, as I know you're lapping the 53rd week later this year.

Speaker Change: Yes for the balance given where we landed in the first quarter and our actual results for the.

Speaker Change: First half of the year, sorry, first half kind of landed where we expected it to.

Speaker Change: Quarters played out a little bit differently than we thought but the first or first half landed where we expected and reaffirming the rest of the year.

Todd Foley: And then secondly, you know, I'm not sure if you're giving any clarity in terms of how to think about the EPS growth cadence between Q3 and Q4. As I know, you're lapping the 53rd week later this year. Yeah, great, great call, Rupesh. On the catbacks. Yeah, I think we've been working really hard to take the opportunity to get the storing projects open as quickly as we can to be able to serve customers.

Speaker Change: Back half, we think is right on par with where we've been guiding as well within that we do think that the third quarter will be probably slightly ahead of where we were year over year in the fourth quarter only slightly behind on a 52 week basis. When you compare at 52 to 52, but.

Speaker Change: That's probably how the trend will play out for the balance of the year.

Speaker Change: Okay.

Speaker Change: Thank you our.

Speaker Change: Our next question comes from Michael Lasser of UBS. Your line is now.

Speaker Change: Now open. Please go ahead.

Mark Carden: Good morning, it's Mark Carden on for Michael Lasser. This morning. Thanks, So much for taking my question. So you talked about some of the trade down it has accelerated in Q Q2, additional income cohorts and also highlight some of the pressures that budget customers are facing what kinds of behavior changes are you seeing in your middle income and above cohorts.

Todd Foley: And so shifting spend from late in 24 to early in 24, you saw our catbacks here. They feel a bit higher. That's going to create some capacity to help us pull early, what might have been early 25 construction process in the late 24 so we can open next year's projects early too. So I think given the strong cash flow on the business, if we're able to continue to execute that, but I think we'll see should be a lift in our spend in our capital plan over time, and the money that we're investing, we're seeing good performance to budget as well and operationally it's a lot easier to open up, you know, a remodel or a new story or expansion earlier in the year versus later in the year as well.

Speaker Change: And when did you see these become more pronounced.

Mark Carden: Yes.

Throughout the year and it's as I mentioned before we're seeing it more at the end of the month and the beginning of the month.

I don't know, Todd, anything else you want to add on inflation?

Todd Foley: No, you're right on. Thanks, Rodney.

Speaker Change: And people continue to be.

Speaker Change: Aggressive or whatever the right term is on celebrating holidays now I think one of the things that's always important to remember is those changes are.

Speaker Change: Many of those changes are beneficial to us.

Speaker Change: So if you think about people moving from eating at a restaurant to cooking at home that's beneficial from us.

Todd Foley: And then talking to your EPS comment, Rupesh. Yes, for the balance of--given where we landed in the first quarter in our actual results for the first half of the year--sorry, our first half kind of landed where we expected it to, of course, played out a little bit differently than we thought, but the first half landed where we expected. And reaffirming the rest of the year, the back half we think is right on par with where we've been guiding as well.

And then secondly, you know, I'm not sure if you're giving any clarity in terms of how to think about the EPS growth cadence between Q3 and Q4. As I know, you're lapping the 53rd week later this year.

Speaker Change: We look at.

Speaker Change: Customers changing segments.

That's good for us because they typically will.

Speaker Change: We will buy more.

Speaker Change: Our brands products, and they'll buy smaller packages and some of those things as well. So when we look it's been really throughout but I would say over the last few months its been more pronounced as you get towards the end of the month.

Todd Foley: Yes, great color, Rupesh. On the CAPEX, yes, I think we've been working really hard to take the opportunity to get the storing projects open as quickly as we can to be able to serve customers. And so, shifting spend from late in '24 to early in '24, you saw our CAPEX year-to-date be a little bit higher. That's going to create some capacity to help us pull early, what might have been early '25 construction process in the late '24 so we can open next year's projects early too. So, I think given the strong cash flow on the business, if we're able to continue to execute that. But I think what we'll see should be a lift in our spend in our capital plan over time.

And so shifting spend from late in 24 to early in 24, you saw our catbacks here. They feel a bit higher. That's going to create some capacity to help us pull early, what might have been early 25 construction process in the late 24 so we can open next year's projects early too. So I think given the strong cash flow on the business, if we're able to continue to execute that, but I think we'll see should be a lift in our spend in our capital plan over time,

Speaker Change: But all.

All of those things are things that.

Todd Foley: Within that, we do think that the third quarter will be probably slightly ahead of where we were year-over-year and the fourth quarter probably slightly behind on a 52-week basis when you compare it 52 to 52, but that's probably how the trend will play out for the balance of the year.

Speaker Change: Obviously, you're changing your promotional approach.

Speaker Change: Your connection with the customers, but offers you make at different times of the month and all of those things. So overall the customer as we've said all along are understood.

Speaker Change: Strength tremendous strain, especially customers on a budget.

Operator: Our next question comes from Michael Lasser of UBS. The lines are now open, please go ahead.

That was the reason why I want to say it was probably a year and a half ago or two years ago, we saw that coming and we introduced our smart way product.

Michael Lasser: Our next question comes from Michael Lasser of UBS. The lines are open, please go ahead.

W. Rodney McMullen: And the money that we're investing, we're seeing good performance to budget as well. And operationally, it's a lot easier to open up a remodel or a new story or expansion earlier in the year versus later in the year as well.

Rodney Mcmullen: Morning, it's Mark Carden on for Michael Lasser this morning. Thanks so much for taking the question. So, you talked about some of the trade down that's accelerated in 2Q to additional income cohorts and also highlights some of the pressures that budget customers are facing. What kinds of behavior changes are you seeing in your middle income and above cohorts? And when did you see these become more pronounced? Yeah, it's throughout the year and as I mentioned before, we're seeing it more at the end of the month and the beginning of the month.

Speaker Change: To be much more aggressive on having an entry price point item because that was a trend that we saw coming and trying to be proactive.

Speaker Change: On addressing that and we continue to add product and that but for us.

Speaker Change: We're going to do everything we can to help a customer be able to have a great meal without compromising and eating as a family.

Speaker Change: And so far.

Speaker Change: The changes the customer is experiencing we're making changes to trying to support the customer and the customers connecting well with that so.

Rodney Mcmullen: And people continue to be aggressive or whatever the right term is on celebrating holidays. Now, I think one of the things that's always important to remember is those changes aren't many of those changes are beneficial to us. So if you think about people moving from eating at a restaurant to cooking at home, that's beneficial from us. If we look at customers changing segments, that's good for us because they typically will buy more or are brands products and they'll buy smaller packages and some of those things as well.

Speaker Change #100: You feel for people.

Speaker Change #100: In terms of where they are and they're going to do everything we can to try to help support them on what their particular situation is.

Speaker Change #100: Okay.

Robert <unk>: Our next question comes from Robert <unk> of Bank of America.

Speaker Change #102: Your line is now open. Please go ahead.

Robert <unk>: Oh, Thanks for taking my question, maybe Todd for you can we get even you gave some color already on the <unk> line for the back half maybe.

Mark Carden: Morning, it's Mark Carden on for Michael Lasser this morning. Thanks so much for taking the question. So, you talked about some of the trade down that's accelerated in 2Q to additional income cohorts and also highlights some of the pressures that budget customers are facing. What kinds of behavior changes are you seeing in your middle income and above cohorts? And when did you see these become more pronounced?

Speaker Change #103: Maybe a little more.

Speaker Change #103: How.

Speaker Change #104: There is kroger on the wage pressure in the back half of the year say versus the front half and also you guys called out general liability claims youre not the only retailer to call that out this quarter, if we can get some.

Rodney Mcmullen: So, when we look, it's been really throughout, but I would say over the last few months, it's been more pronounced as you get toward the end of the month. But all of those things are things that--obviously, you're changing your promotional approach, your connection with the customers, what offers you make at different times of the month and all those things. So, overall, the customer as we've said all along are under tremendous strain, especially customers on a budget. That was the reason why I want to say it was probably a year and a half ago or two years ago, we saw that coming and we introduced our smart way product to be much more aggressive on having an entry price point item because that was a trend that we saw coming and trying to be proactive on addressing that. And we continue to add product in that.

Speaker Change #104: How much pressure was that in the second quarter and is that is that an issue or a pressure in the back half. Thanks.

W. Rodney McMullen: Yes, it's throughout the year. And as I mentioned before, we're seeing it more at the end of the month and the beginning of the month. And people continue to be aggressive or whatever the right term is on celebrating holidays. Now, I think one of the things that's always important to remember is those changes aren't many of those changes are beneficial to us. So if you think about people moving from eating at a restaurant to cooking at home, that's beneficial from us. If we look at customers changing segments, that's good for us because they typically will buy more or are brands products and they'll buy smaller packages and some of those things as well.

W. Rodney McMullen: Yes, it's throughout the year. And as I mentioned before, we're seeing it more at the end of the month and the beginning of the month. And people continue to be aggressive or whatever the right term is on celebrating holidays.

Speaker Change #104: Yes.

Speaker Change #105: Calls relative to second half SG&A again.

Speaker Change #106: Given what we saw in the second quarter our guidance on the year is now will be slightly.

Speaker Change #106: Unfavorable to where we were a year ago and so.

W. Rodney McMullen: Now, I think one of the things that's always important to remember is those changes aren't--many of those changes are beneficial to us. So, if you think about people moving from eating at a restaurant to cooking at home, that's beneficial from us. If we look at customers changing segments, that's good for us because they typically will buy more Our Brands products and they'll buy smaller packages and some of those things as well.

Speaker Change #106: But beyond that I think our trends will be as expected in the second half of the year you talked about wage pressure one thing to keep in mind on on our wage pressures because so many so many of our wages come through collective bargaining agreements.

Rodney Mcmullen: That was the reason why I want to say it was probably a year and a half ago or two years ago, we saw that coming and we introduced our smart way product to be much more aggressive on having an entry price point item because that was a trend that we saw coming and trying to be proactive on addressing that. And we continue to add product in that. But for us, you know, we're going to do everything we can to help a customer be able to have a great meal without compromising and eating as a family.

We've got 300 or so of those but at any point in time, probably 75%.

Speaker Change #106: Our wages are locked in and I'll, let the collective bargaining agreement, we have maybe a third or a quarter of those that are that are up.

So, when we look, it's been really throughout, but I would say over the last few months, it's been more pronounced as you get toward the end of the month. But all of those things are things that--obviously, you're changing your promotional approach, your connection with the customers, what offers you make at different times of the month and all those things. So, overall, the customer as we've said all along are under tremendous strain, especially customers on a budget.

Speaker Change #106: Each year that we constantly negotiate so so the guidance that we have out there reflects.

Speaker Change #106: Those expectations and where we're at from a wage perspective, because because most of those are are known to us going into the year.

Speaker Change #107: Your comment on GL claims.

Rodney Mcmullen: And so far, the changes that customer is experiencing, we're making changes to trying to support the customer and the customer is connecting well with that. So, you know, you feel for people in terms of where they are and they're going to do everything we can to try to help support them on what their particular situation is.

Speaker Change #108: There's really two pieces to general liability. The incident rate piece is actually our results are phenomenal when you look at it through the lens of Osha incident rates.

Speaker Change #108: We're very much below where the industry averages are at and even as a company.

That was the reason why I want to say it was probably 1.5 years ago or 2 years ago, we saw that coming and we introduced our Smart Way product to be much more aggressive on having an entry price point item because that was a trend that we saw coming and trying to be proactive on addressing that. And we continue to add product in that.

That was the reason why I want to say it was probably a year and a half ago or two years ago, we saw that coming and we introduced our smart way product to be much more aggressive on having an entry price point item because that was a trend that we saw coming and trying to be proactive on addressing that. And we continue to add product in that.

Speaker Change #108: At.

Speaker Change #108: We're in that kind of record record both territory there at least in modern history.

Operator: Our next question comes from Robert Ohmes of Bank of America. The line is now open, please go ahead.

Robert Ohmes: On the next question comes from Robert Ohmes of Bank of America, the line is now open, please go ahead. Oh thanks for taking my question. Maybe Todd for you. Can we get even, you gave some color already on the OG and A line for the back half. Maybe a little more, you know, how, where is Kroger on the wage pressure in the back half of the year, say, versus the front half?

Speaker Change #108: So we're extremely excited about the work that the teams do to manage the incidents from from that standpoint. The number of claims what we saw as we were going through our analysis. This time was around the average cost of the claim and what we're seeing relative to the cost to settle some of these claims being being much higher given the environment that's out there.

But for us, we're going to do everything we can to help a customer be able to have a great meal without compromising and eating as a family. And so far, the changes that customer is experiencing, we're making changes to trying to support the customer and the customer is connecting well with that. So, you feel for people in terms of where they are and we're going to do everything we can to try to help support them on what their particular situation is.

Speaker Change #108: We're seeing more and more pressure on the average cost to settle those claims and so as we evaluated what we had outstanding for reserves in that space given that trend. We thought it was it was wise to update it.

Speaker Change #108: We have done a nice job in the past trying to mitigating those claims and a variety of strategies to put into place and will continue to be able to put more of those types of items in place to be more effective in keeping that average cost down.

Robert Ohmes: And also you guys called out general liability claims you're not the only retailer to call that out this quarter. If we get some, you know, how much pressure was that in the second quarter? And is that, is that an issue or a pressure in the back half? Thanks.

Speaker Change #108: But I think the analysis that we did I think has as comfortable with where we need to be now and don't expect that to recur in the back half of the year.

Todd Foley: Yes. No, great call out. Relative to second half of OG&A again, given what we saw in the second quarter our guidance on the year is now we slightly unfavorable to where we were a year ago. And so--but beyond that, I think our trends will be as expected in the second half of the year. You talk about wage pressure. One thing to keep in mind on our wage pressure is because so many of our wages come through collective bargaining agreements.

On the next question comes from Robert Ohmes of Bank of America, the line is now open, please go ahead.

Robert Ohmes: Thanks for taking my question. Maybe, Todd, for you. Can we get--even you gave some color already on the OG&A line for the back half. Maybe a little more where is Kroger on the wage pressure in the back half of the year, say, versus the front half? And also you guys called out general liability claims. You're not the only retailer to call that out this quarter. If we get some--how much pressure was that in the second quarter? And is that an issue or a pressure in the back half? Thanks.

Speaker Change #108: One other comment.

Comment I would add to Ravi T. J O G&A comment that Todd was talking about.

Speaker Change #109: As we feel like we've developed a good skill on being able identify cost reductions over time, and we would expect that's a skill that we will have also as you look out in the second half and forward in next year as well the other thing that our teams have done a nice job on is continuing defined process changes to be.

Todd Foley: We've got 300 or so of those. But at any point in time, probably 75% of our wages are locked in, in a collective bargaining agreement. We have maybe 1/3 or 1/4 of those that are up each year that we constantly negotiate. So, so the guidance that we have out there reflects those expectations and where we're at from a wage perspective is because most of those are are known to us going into the year you're coming on GL claims.

Speaker Change #109: <unk> to operate a store with less labor and simplify the store to run.

Speaker Change #109: And it's one of those where.

Speaker Change #109: We've made good progress, but we still think we have plenty of opportunity to get better going forward. So really appreciate the question.

Speaker Change #109: Yeah.

Speaker Change #110: Thank you.

Speaker Change #110: Next question comes from Chuck Cerankosky from Northcoast Research your.

Todd Foley: It's there's really two pieces to general liability that the incident rate piece is actually our results are phenomenal. We look at it through the lens of OSHA incident rates. We're very much below where the industry averages are at and even as a company where we're at, you know, we're in that kind of record record boat territory there, at least in in modern history. And so we're extremely excited about the work that the teams do to manage the incidents from from that standpoint, the number of claims.

Speaker Change #111: Your line is now open. Please go ahead.

Chuck Cerankosky: Good morning, everyone.

Chuck Cerankosky: Good morning, Rodney when you look at the sales growth challenges you mentioned.

We've got 300 or so of those. But at any point in time, probably 75% of our wages are locked in, in a collective bargaining agreement. We have maybe 1/3 or 1/4 of those that are up each year that we constantly negotiate.

Chuck Cerankosky: You mentioned, the economic factors, putting pressure on consumers and it seems to be a wider range of consumers, but you also have non traditional competitors put pressure on the supermarket channel can you sort of compare where the what the strength of those difficult.

So, the guidance that we have out there reflects those expectations and where we're at from a wage perspective is because most of those are known to us going into the year. Your comment on GL claims. There's really two pieces to general liability. The incident rate piece is actually our results are phenomenal. We look at it through the lens of OSHA incident rates. We're very much below where the industry averages are at. And even as a company where we're at, we're in that kind of record low territory there, at least in modern history. And so, we're extremely excited about the work that the teams do to manage the incidents from that standpoint, the number of claims.

Speaker Change #113: Headwinds are as you're trying to accelerate sales at Kroger.

Chuck Cerankosky: Yes.

Todd Foley: What we saw as we were going through our analysis, this time was around the average cost of the claim, and what we were seeing relative to the cost to settle, some of these claims being much higher given the environment that's out there, we're seeing more and more pressure on the average cost to settle those claims. And so, as we evaluated what we had outstanding for for reserves in that space, like given that trend, we thought it was it was wise to update it.

Speaker Change #114: The increase in the non traditional competitors.

Speaker Change #115: Obviously has been a 20 year trend and when you look at Amazon and Costco and Wal Mart and I could go on and on for the litany.

Speaker Change #114: Those.

Speaker Change #114: Those in terms of how do you be successful against them.

Speaker Change #114: Really is how do you continue to change your basic offering to the customer and supporting the customers changes and we felt good about those changes that we've made but we still need to continue to make them.

Todd Foley: We have done a nice job in the past trying to mitigating those claims and have a variety of strategies to put into place and we'll continue to be able to put more of those types of items in place to be more effective in keeping that average cost down. But I think the analysis that we did, I think has us comfortable with where we need to be now and don't expect that to recur in the back half of the year.

Speaker Change #114: And it's one of those things, where if you ever think you've figured it out it's it I would say that it's not good you need to change.

Speaker Change #114: So we feel good about our ability to compete we will have to continually change. It's the reason why we've invested so much in staying connected with the customer on a seamless perspective, continuing invest in wages continuing to invest in promotion, but making up some of those things with alternative profit growth and <unk>.

W. Rodney McMullen: Well, one other comment I would add to Robby to the OG&A comment that Todd was talking about is, we feel like we've developed a good skill on being able to identify cost reductions over time. And we would expect that's a skill that will have also as you look at the second half and forward in next year as well. The other thing that our teams have done a nice job on is continuing to find process changes to be able to operate a store with less labor and simplify the store to run. And it's one of those where we've made good progress, but we still think we have plenty of opportunity to get better going forward. So, really appreciate the question.

Speaker Change #114: Mix and over time, we would hope food away.

Speaker Change #114: In a more stronger competitor on food away from home because half of the money. That's spent on food as food away from home and we see no reason why we shouldnt be able to get a share of that.

If you look at the economic pressures so far.

Speaker Change #114: We feel.

Speaker Change #114: Confident in our ability to deal with it or manage it or whatever.

Speaker Change #114: Because.

Speaker Change #114: Fortunately, we have a large business and there's a lot of moving parts.

Operator: Our next question comes from Chuck Cerankosky from North Coast Research. Your line is now open, please go ahead.

And our brands, obviously had a strong quarter, we think the opportunity is even stronger in our brands and things like that which helps support the customer thats under that economic pressure.

Chuck Cerankosky: Good morning, everyone. Rodney, when you look at the sales growth challenges, you mentioned the economic factors putting pressure on consumers and it seems to be a wide range of consumers. But you also have non-traditional competitors put pressure on the supermarket channel. Can you sort of compare what the strengths of those difficult or headwinds are as you're trying to accelerate sales in Kroger? The increase in non-traditional competitors obviously has been a 20-year trend and you know when you look at Amazon and Costco and Walmart and you know I could go on and on for the litany.

Speaker Change #116: As well so on those so far I mean, if you had a depression I wouldn't I.

I would give a different answer but so far on the things that we're seeing.

Speaker Change #116: Comfortable or confident in our ability to deal with those changes.

Chuck Cerankosky: Thanks Chuck.

Speaker Change #116: Yeah.

Speaker Change #116: Yeah.

Speaker Change #117: Thank you.

Speaker Change #118: Our next question comes from Joe Feldman from Telsey Advisory Group. Your line is now open. Please go ahead.

Joe Feldman: Hey, good morning, guys. Thanks for taking the question good morning.

Chuck Cerankosky: Good morning, everyone. Rodney, when you look at the sales growth challenges, you mentioned the economic factors putting pressure on consumers and it seems to be a wide range of consumers. But you also have non-traditional competitors put pressure on the supermarket channel. Can you sort of compare what the strengths of those difficult or headwinds are as you're trying to accelerate sales in Kroger?

Joe Feldman: Wanted to ask about the inventory level, which.

Joe Feltman: Those in terms of how do you be successful against them really is how do you continue to change your basic offering to the customer and supporting the customers changes and we felt good about those changes that we've made but we still need to continue to make them. And you know it's one of those things where if you ever think you've figured it out, it's I would say that it's not good. You need to change.

Speaker Change #120: Was down a little bit and down I think almost 3%, which was really good shape I'm wondering.

How are you guys are thinking about inventory going forward and what drove that was it you guys is it fewer units is it because of the prices of just come down a bit year over year, so you've been able to be lower inventory levels because of that maybe you could just share a little more color around that.

W. Rodney McMullen: The increase in non-traditional competitors, obviously, has been a 20-year trend. And when you look at Amazon and Costco and Walmart and I could go on and on for the litany. Those in terms of how do you be successful against them really is how do you continue to change your basic offering to the customer and supporting the customers' changes. And we felt good about those changes that we've made, but we still need to continue to make them. And it's one of those things where if you ever think you've figured it out, I would say that it's not good. You need to change.

Speaker Change #120: <unk>.

Speaker Change #120: Yes, great Great question, Joe and I think you hit on some of the keys I think it's it's a variety of things inventory.

Joe Feltman: So, we feel good about our ability to compete. We'll have to continually change. It's the reason why we've invested so much in staying connected with the customer on a seamless perspective, continuing to invest in wages, continuing to invest in promotion. But making up some of those things with alternative profit growth and mix and over time we would hope food in a more stronger competitor on food away from home because half of the money that's spent on food is food away from home. And we see no reason why we shouldn't be able to get a share of that.

Speaker Change #121: And a part of it is we're seeing less cost inflation. So the average cost of an item on the shelf is a little bit less but we have also been very laser focus relative to working capital and working capital management and we talk about our strong cash flow generation. That's also an important part of that.

Speaker Change #121: As balancing our working capital and it's.

Speaker Change #121: No both of those going together, it's always having the right tension between making sure we're in stock for our customers and have and what our customers need, but but making sure. They wanted too much there. So that we're being a good steward of working capital and so I think what youre seeing on the balance sheet is the combination of lower cost per item relative inflation year over year.

Joe Feltman: If you look at the economic pressures so far, we feel confident in our ability to deal with it or manage it or whatever because there's fortunately we have a large business and there's a lot of moving parts. And Our Brands, obviously, had a strong quarter. We think the opportunities even stronger in Our Brands and things like that which helps support the customer that's under that economic pressure as well. So, on those so far, I mean if you had a depression, I would give a different answer, but so far on the things that we're seeing, we feel comfortable or confident in our ability to deal with those changes. Thanks, Chuck.

Speaker Change #121: And the right level of working capital management to make sure we're in some of our customers.

Speaker Change #121: Yeah.

Speaker Change #122: Thank you.

Speaker Change #122: Tom will take that I've had the questions for today, So I'll hand, it back to Rodney for any further remarks.

Rodney: Thanks, Alex and thank you until all for all your questions and as you know before we conclude our call. We always like to we have many of our associates listening in and we always like to share a couple of comments with them and I would like to take a moment to acknowledge our 2020 for Kroger scholars.

Speaker Change #122: <unk>.

Kroger's scholars program was launched in 2008, we've awarded more than 3300 scholarships totaling almost $5 million to children of our associates.

Operator: Our next question comes from Joe Feldman from Telsey Advisory Group. The lines are open, please go ahead.

Todd Foley: Our next question that comes from a Joe Feltman from a tellsy advisory group. The lines are open, please go ahead. Hi, good morning guys. Thanks for taking the question. Morning, you know, why don't I ask about inventory level, which you know was down a little bit and down I think almost 3%, which is really good shape. I'm wondering how you guys are thinking about inventory going forward and what drove that was it you guys, is it fewer units?

Speaker Change #122: These recipients were selected based on a broad range of criteria, including all engineering activities Civic service extracurricular activities academic performance and work experience and it's always fun to be able to help a little on their education and congratulations to our 120 winters.

Speaker Change #123: This year and thanks to everyone for joining us today and I know, it's early but it will be December before we talked to everyone. I hope everyone has a beginning great holiday season as wells and thank you very much.

Todd Foley: Is it because of the prices have just come down a bit year over year so you've been able to be lower inventory levels because of that maybe you could just share a little more color around that. Howard.

Speaker Change #124: Thank you all for joining today's call you may now disconnect your lines.

Our next question that comes from a Joe Feltman from a tellsy advisory group. The lines are open, please go ahead.

Joe Feldman: Hi, good morning, guys. Thanks for taking the question. I wanted to ask about inventory level, which was down a little bit and down, I think almost 3%, which is really good shape. I'm wondering how you guys are thinking about inventory going forward and what drove that? Was it you guys, is it fewer units? Is it because of the prices have just come down a bit year-over-year, so you've been able to be lower inventory levels because of that? Maybe you could just share a little more color around that going forward.

Speaker Change #124: Okay.

Speaker Change #124: Yeah.

Speaker Change #124: [music].

Todd Foley: Yes, great question, Joe. And I think you hit on some of the keys. I think it's a variety of things. Inventory it's part of it, is we're seeing less cost inflation. So, the average cost of an item on the shelf it's a little bit less. But we have also been very laser-focused relative to working capital and working capital management. We talked about our strong cash flow generation, that's an important part of that, is balancing our working capital.

Todd Foley: That's an important part of that is balancing our working capital. And it's, you know, both of those going together is always having the right tension between making sure we're in stock for our customers and having what our customers need, but, but making sure they don't have too much there so that we're being a good steward of working capital. So I think what you're seeing on the balance sheet is the combination of lower cost for item, relative inflation year over year. And, and the right level of working capital management to make sure we're in stock for customers. Thank you.

That's an important part of that is balancing our working capital.

And both of those go together. It's always having the right tension between making sure we're in stock for our customers and having what our customers need, but making sure they don't have too much there so that we're being a good steward of working capital. So, I think what you're seeing on the balance sheet is the combination of lower cost for item, relative inflation year-over-year, and the right level of working capital management to make sure we're in stock for customers.

Rodney Mcmullen: At this time, we'll take no further questions for today. So, I'll hand back to Rodney for any further remarks. Thanks, Alex. And thank you to all for all your questions. And as you know, before we conclude our call, we always like to, we have many of our associates listening in. We always like to share a couple of comments with them.

Operator: At this time, we'll take no further questions for today. So, I'll hand back to Rodney for any further remarks.

W. Rodney McMullen: Thanks, Alex. And thank you to all for all your questions. And as you know, before we conclude our call, we always like to--we have many of our associates listening in, and we always like to share a couple of comments with them.

Rodney Mcmullen: And I'd like to take a moment to acknowledge our 2024 Kroger Scholars. Since the Kroger scholars program was launched in 2008, we've awarded more than 3,300 scholarships, totaling almost $5 million to children of our associates. These recipients were selected based on a broad range of criteria, including their volunteering activities, civic service, extracurricular activities, academic performance and work experience. And it's always fun to be able to help a little on their education and congratulations to our 120 winners this year.

Operator: And thanks to everyone for joining us today. And I know it's early, but it will be December before we talk to everyone. I hope everyone has a beginning, great holiday season as well. And thank you very much. Thank you all for joining us today. You may now disconnect your lines. Thank you.

And thanks to everyone for joining us today. And I know it's early, but it will be December before we talk to everyone. I hope everyone has a beginning, great holiday season as well. And thank you very much.

Operator: Thank you all for joining us today call. You may now disconnect your lines.