Q1 2025 The Kroger Co Earnings Call
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Operator: Good morning and welcome to the Kroger Co First Quarter 2025 Earnings Conference Call. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. If you'd like to remove your question, that's star followed by two.
Good morning, and welcome to the Quaker Kai first quarter 'twenty to 'twenty five earnings conference call if.
If you'd like to ask a question at the end of the presentation. Please press star one on your telephone keypad.
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Operator: Please note, this event is being recorded.
Last night to this event is being recorded.
Rob Quast: I'd now like to turn the conference over to Rob Quast, Vice President, Investor Relations. Please go ahead. Good morning.
Speaker Change: I'd now like to turn the conference over to Bo Powell, Vice President Investor Relations. Please go ahead.
Speaker Change: Good morning, Thank you for joining us for Kroger's first quarter 2025 earnings call I'm joined today by Kroger's, Chairman and Chief Executive Officer, Ron Sargent, and Chief Financial Officer, David Candidly before.
Rob Quast: Thank you for joining us for Kroger's first quarter 2025 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Ron Sargent, and Chief Financial Officer, David Kennerly.
Rob Quast: 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. 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.
Speaker Change: Four 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: 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 that.
Speaker Change: The company assumes no obligation to update that information.
Rob Quast: 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.
Ron Sargent: After our prepared remarks, we look forward to taking your questions in order to cover a broad range of topics from as many of you as we can we ask that you. Please limit yourself to one question and one follow up question if necessary I will now turn the call over to Ron.
Rob Quast: I will now turn the call over to Ron. Thank you, Rob.
Ron Sargent: Thank you Rob good morning, everyone.
Ron Sargent: Good morning, everyone. Thank you for joining our call today. Before jumping into the results, I wanted to share a few thoughts since I last spoke to you in March. After nearly four months as CEO, I've been very impressed with the many talented associates I've met across the company. Kroger has a strong bench of experienced operators and dedicated associates who can move our company forward. After spending my career in retail, one thing's clear. Retail always starts with the customer. It's pretty simple. Our strategies, our focus, and our resources should be dedicated to how we can make the biggest impact on serving our customers.
Ron Sargent: Thank you for joining our call today.
Ron Sargent: Before jumping into the results I wanted to share a few thoughts since I last spoke to you in March.
Ron Sargent: After nearly four months CEO I've been very impressed with the many talented associates I'd met across the company.
Ron Sargent: Kroger has a strong bench of experienced operators and dedicated associates, who can move our company forward.
Ron Sargent: After spending my career in retail one thing is clear.
Ron Sargent: Retail always starts with the customer.
Ron Sargent: It's pretty simple.
Ron Sargent: Our strategies, our focus on our resources should be dedicated to how we can make the biggest impact on serving our customers.
Ron Sargent: Grounded in these principles, my priorities in this role are to position Kroger for long-term growth. Accelerate top-line sales and run great stores. We can do this by better focusing on our core business and by creating a growth culture in the company. Kroger has a long runway with many opportunities ahead and I'm grateful to be part of the team as we transition to our next phase of growth. In the past few months, we've made a number of changes to move faster and put increased focus on our customer. We're directing investments toward projects that will grow our core business, including plans to accelerate new store openings.
Ron Sargent: Grounded in these principles my priorities in this role are to position Kroger for a long term growth.
Ron Sargent: Accelerate topline sales and run great stores.
Ron Sargent: We can do this by better focusing on our core business and by creating a growth culture in the company.
Ron Sargent: Kroger has a long runway.
Ron Sargent: With many opportunities ahead, and I'm grateful to be part of the team as we transition to our next phase of growth.
Ron Sargent: In the past few months, we've made a number of changes to move faster and put increased focus on our customer.
Ron Sargent: We're directing investments toward projects that will grow our core business, including plans to accelerate new store openings.
Ron Sargent: We are reassessing our capital allocation strategy to make sure we are spending our capital on projects that offer the highest return. We are reviewing our non-core assets. We're aggressively looking for ways to reduce costs throughout the company. And we expect to reinvest those cost savings directly into lower prices and additional store hours for our associates so that they can better serve customers. Finally, we have restructured our leadership team to ensure we have the right talent in place. We created a new e-commerce business unit, aligning all areas of the online customer experience under Yale COSET, our chief digital officer.
Ron Sargent: We are reassessing, our capital allocation strategy to make sure we are spending our capital on projects that offer the highest returns.
Ron Sargent: We are reviewing our noncore assets.
Ron Sargent: We're aggressively looking for ways to reduce cost throughout the company.
Ron Sargent: And we expect to reinvest those cost savings directly into lower prices and additional store hours for our associates. So that they can better serve customers.
Ron Sargent: Finally, we have restructured our leadership team to ensure we have the right talent in place.
Ron Sargent: We created a new ecommerce business unit aligning all areas of the online customer experience under Yale costs at our Chief Digital Officer.
Ron Sargent: We continue to elevate great leaders across the company by appointing Joe Kelly as our Senior Vice President of Retail Divisions, as well as New Division Presidents in King Supers, Food for Less, and Texas, where we consolidated two divisions just last week. These changes put talented executives in roles where they can support our stores and improve the customer experience. We're making meaningful changes to the business to create a culture that benefits our customers and our associates while improving long term shareholder value.
Speaker Change: We continue to elevate great leaders across the company by appointing Joe Kelley as.
Speaker Change: As our senior Vice President of retail divisions, as well as New Division Presidents and King Soopers food for Lash, and Texas, where we consolidated two divisions just last week.
Speaker Change: These changes put talented executives and roles where they can support our stores and improve the customer experience.
Speaker Change: We are making meaningful changes to the business to create a culture that benefits our customers and our associates, while improving long term shareholder value.
Ron Sargent: In the first quarter, we're beginning to see the benefits of many of these changes. This morning, we announced solid first quarter results with strong sales in pharmacy, e-commerce, and fresh. Kroger identical sales excluding fuel and adjustment items increased 3.2 percent. An adjusted net earnings per diluted share was $1.49 in the first quarter, which was an increase of 4%.
Speaker Change: In the first quarter, we're beginning to see the benefits of many of these changes. This morning, we announced solid first quarter results with strong sales in pharmacy E Commerce and fresh.
Speaker Change: Kroger identical sales, excluding fuel and adjustment items increased three 2%.
Speaker Change: And adjusted net earnings per diluted share was $1 49 in the first quarter, which was an increase of 4%.
Ron Sargent: Now let's take a closer look at the quarter. Strong performance and fresh category supported our identical sales without fuel results. Fresh identical sales were better than center store sales. We know our customers want healthier options, and we are well-positioned to deliver them across our fresh department.
Speaker Change: Now, let's take a closer look at the quarter.
Speaker Change: Strong performance in fresh categories supported our identical sales without fuel results.
Speaker Change: Fresh identical sales were better than center store sales.
Ron Sargent: Our customers want healthier options, and we are well positioned to deliver them across our fresh departments.
Ron Sargent: turning to our brand. It's more customer search for value. We are excited about the potential for the Our Brands business. We are growing sales by offering high quality products to customers at all budget levels. This quarter, our brands grew faster than national brands for the seventh consecutive quarter. Simple Truth and Private Selection led our sales growth. highlighting that customers want premium products while also spending less. Our brand is also creating new products that support customers' healthier eating habits. For example, earlier this year, we identified protein as a major customer trend. And soon, Simple Truth will introduce 80 new protein products to our assortment.
Ron Sargent: Turning to our brands.
Ron Sargent: As more customers search for value. We are excited about the potential for the our brands business.
Ron Sargent: We are growing sales by offering high quality products to customers at all budget levels.
Ron Sargent: This quarter, our brands grew faster than national brands for the seventh consecutive quarter.
Ron Sargent: Simple truth in private selection led our sales growth.
Ron Sargent: Highlighting that customers want premium products, while also spending less.
Ron Sargent: Our brands is also creating new products that support customers healthier eating habits. For example earlier this year, we identified protein as a major customer trends.
Ron Sargent: And some simple truth will introduce 80, new protein products to our assortment.
Ron Sargent: Targeted directly at this important trend, these products include everything from bars and powders to shakes, all from a natural and organic brand that customers trust. This is just one way that Kroger and our brands are innovating to stay ahead of what our customers want.
Ron Sargent: Targeted directly at this important trend. These products include everything from bars, and powders to shakes all from a natural and organic brand that customers Trust.
Ron Sargent: This is just one way like Kroger and our brands are innovating to stay ahead of what our customers want.
Ron Sargent: eCommerce continues to be a key part of our business with 15% growth in the first quarter driven by strong demand and delivery. To keep improving the customer experience, we are working to deliver more accurate orders faster and reduce pickup wait times. These improvements are attracting new households to e-commerce and giving our current households more reasons to shop with us. As our e-commerce business grows, it represents a bigger impact on our results. Our teams are committed to growing both e-commerce sales and improving profitability. During the first quarter, we made good progress and delivered our best profit improvement yet on a quarter over quarter basis.
Ron Sargent: E Commerce continues to be a key part of our business with 15% growth in the first quarter driven by strong demand and delivery.
Ron Sargent: To keep improving the customer experience, we are working to deliver more accurate orders faster and reduce pick up wait times.
Ron Sargent: These improvements are attracting new households to ecommerce and giving our current households, more reasons to shop with us.
Ron Sargent: As our e-commerce business grows it represents a bigger impact on our results.
Ron Sargent: Our teams are committed to growing both ecommerce sales and improving profitability.
Ron Sargent: During the first quarter, we made good progress and delivered our best profit improvement yet on a quarter over quarter basis.
Ron Sargent: To continue driving improvements, our team is reviewing all aspects of our strategy and operations to improve the customer experience as well as the financial performance. David will share more on this topic later.
Ron Sargent: To continue driving improvements our team is reviewing all aspects of our strategy and operations to improve the customer experience as well as the financial performance David will share more on this topic later.
Ron Sargent: We know that our best customers shop with us through both e-commerce and in stores, which makes it important for us to continue building and running great stores. Today, we're on track to complete 30 major storing projects in 2025. And looking forward We expect to accelerate new store openings in 2026 and beyond in high-growth geographies, growing our overall square footage, and adding new jobs. As I mentioned earlier, we're simplifying our business and reviewing areas that will not be meaningful to our future growth. Unfortunately, today, not all of our stores are delivering the sustainable results we need.
Ron Sargent: We know that our best customers shop with us through both e-commerce and in stores, which makes it important for us to continue building and running great stores.
Ron Sargent: Today, we are on track to complete 30 major storing projects in 2025.
Ron Sargent: Looking forward.
Ron Sargent: We expect to accelerate new store openings in 2026 and beyond in high growth geographies growing our overall square footage and adding new jobs.
Ron Sargent: As I mentioned earlier, we're simplifying our business and reviewing areas that will not be meaningful to our future growth.
Ron Sargent: Unfortunately today not all of our stores are delivering the sustainable results we need.
Ron Sargent: It's also important to note, we paused our annual store review during the merger process.
Ron Sargent: It's also important to note we paused our annual store review during the merger process.
Ron Sargent: To position our company for future success, this morning we announced plans to close approximately 60 stores over the next 18 months. We don't take these decisions lightly. This will make the company more efficient. Kroger will offer roles in other stores to all associates currently employed at affected stores.
Ron Sargent: To position our company for future success. This morning, we announced plans to close approximately 60 stores over the next 18 months.
Ron Sargent: We don't take these decisions lightly.
Ron Sargent: But this will make the company more efficient and.
Ron Sargent: And Kroger will offer roles in other stores to all associates currently employed at affected stores.
Ron Sargent: To recap, our top priorities are clear. We're going to move with speed. We're going to concentrate on our core business and we're going to run great stores. This is how we'll position Kroger for long-term performance.
Ron Sargent: To recap our top priorities are clear.
Ron Sargent: We're going to move with speed.
Ron Sargent: Concentrate on our core business and we're going to run great stores.
Ron Sargent: This is Hal will position Kroger for a long term performance.
Ron Sargent: Before David gets into more detail on our financial results, I'd like to talk a little bit about our broader operating environment. Customers continue to spend cautiously in an uncertain economic environment. Many customers want more value, and as a result, they're buying more promotional products and more our brand's products. They're also eating more meals at home. Kroger is well positioned to support our customers changing shopping habits. We offer compelling promotions and fuel rewards, outstanding Our Brands products. personalized promotions that offer families better savings on the products they use the most. We're simplifying our promotions to make it easier for customers to save.
Ron Sargent: Before David gets into more detail on our financial results I'd like to talk a little bit about our broader operating environment.
Ron Sargent: Okay.
Ron Sargent: Customers continue to spend cautiously and an uncertain economic environment.
Ron Sargent: Many customers want more value and as a result, they are buying more promotional products and more our brands products.
Ron Sargent: They were also eating more meals at home.
Ron Sargent: Kroger's, well positioned to support our customers' changing shopping habits.
Ron Sargent: We offer compelling promotions in fuel rewards outstanding our brands products and personalized promotions on offer families better savings on the products. They use the most.
Ron Sargent: We're simplifying our promotions to make it easier for customers to save.
Ron Sargent: and to see clear value at the shelf. In fact, we have lowered prices on more than 2,000 additional products so far this year. As part of our work to keep prices low, we're also watching the changing environment around tariffs. Our business model is flexible to respond to those kinds of shifts. And as a domestic food retailer, we expect a smaller business impact than some of our competitors. Where we do see potential tariff impact, we are proactively looking for ways to avoid raising prices for our customers, and we consider price changes as a last resort. Tariffs have not had a material impact on our business so far, and given what we know today, we do not expect them to going forward.
Ron Sargent: And to see clear value at the shelf.
Ron Sargent: In fact, we have lowered prices on more than 2000 additional products. So far this year.
Ron Sargent: As part of our work to keep prices low we're also watching the changing environment around tariffs.
Ron Sargent: Our business model is flexible to respond to those kinds of shifts and as a domestic food retailer, we expect a smaller business impact and some of our competitors.
Ron Sargent: Where we do see potential tariff impact we are proactively looking for ways to avoid raising prices for our customers and we consider price changes as a last resort.
Ron Sargent: Tariffs have not had a material impact on our business, so far and given what we know today, we do not expect them to going forward.
Ron Sargent: I'd like to spend a moment talking about our Our associates are the backbone of our company and are the people who create a great customer experience. One of our top operational priorities is improving in-stock levels, and we improved in-stock rates in every division this quarter. I appreciate our associates' hard work every day to make this happen. We continue to improve our associates' wages and benefits while investing in their development and well-being. These investments include hourly pay, plus health care and pensions, as well as technology that makes work easier in our stores, including a virtual AI assistant that is improving associate productivity and engagement.
I'd like to spend a moment talking about our associates.
Ron Sargent: Our associates are the backbone of our company.
Ron Sargent: And are the people who create a great customer experience.
Ron Sargent: One of our top operational priorities is improving in stock levels and we improved in stock rates in every division this quarter.
Ron Sargent: I appreciate our associates' hard work every day to make this happen.
Ron Sargent: We continue to improve our associate wages and benefits, while investing in their development and wellbeing.
Ron Sargent: These investments include hourly pay plus health care and pensions as well as technology that makes work easier in our stores, including our virtual AI assistant that is improving associate productivity and engagement.
Ron Sargent: This well-rounded approach is producing results, with both store and company retention rates reaching record levels this quarter. And when our associates stay longer, they learn more, take on additional responsibilities, and deliver a better customer experience, which leads to better sales.
Ron Sargent: This well rounded approach is producing results with both store and company retention rates, reaching record levels this quarter.
Ron Sargent: And when our associates stay longer they learn more take on additional responsibilities and deliver a better customer experience, which leads to better sales.
Ron Sargent: Yeah.
Ron Sargent: With that, I'm happy to welcome David Kennerly, Kroger's Chief Financial Officer, to our earnings call today. We're excited to have David with us, and I'm confident he will help us accelerate our growth and improve our capabilities in a number of areas. As part of this role, I've asked David to lead initiatives across several areas, including cost optimization, efficiency, and real estate, so we can put more investment in our stores as well as our customer experience.
Speaker Change: With that I'm happy to welcome David generally Kroger.
Speaker Change: Kroger's, Chief Financial Officer to our earnings call today.
Ron Sargent: Excited to have David with Us and I'm confident he will help us accelerate our growth and improve our capabilities in a number of areas.
Ron Sargent: As part of this role I've asked David to lead initiatives across several areas, including cost optimization efficiency in real estate. So we can put more investment in our stores as well as our customer experience.
David Kennerly: Now I'll turn it over to David, who will review our financial results in more detail. David. Thank you, Ron. Good morning, everyone.
Ron Sargent: Now I'll turn it over to David who will review our financial results in more detail David.
David: Thank you Ron and good morning, everyone.
David Kennerly: It's an honor to be here today for the first time as Kroger's chief financial Over the past few months, I've had the opportunity to meet teams all over Kroger, and I've been impressed by the breadth and depth of talent in this great organization. My immediate focus is to build upon Kroger's existing momentum, leveraging our collection of unique assets and financial strength to accelerate To achieve this, I'll be concentrating initially on a few key priorities. plus Capital Alloc will be highly disciplined in how we deploy capital, ensuring we invest in projects that generate strong returns. is a clear objective of improving ROICO.
Craig: And honestly to be here today for the first time as Craig as Chief Financial Officer.
Craig: Over the past few months I've had the opportunity to meet teams all over Kroger.
Craig: Been impressed by the breadth and depth of talent in this great organization.
Ron Sargent: My immediate focus is to build upon kroger's existing momentum.
Ron Sargent: Leveraging our collection of unique assets and financial strength to accelerate outperformance. So.
Craig: To achieve this I'll be concentrating initially on a few key priorities.
Ron Sargent: First capital allocation.
Ron Sargent: Be highly disciplined in how we deploy capital ensuring we invest in projects that generate strong returns with a clear objective of improving ROIC over time.
David Kennerly: second cost optimization. We will focus on optimizing our cost structure, ensuring it aligns with and supports our long-term financial targets and drives operation. We're going to modernize operations and ways of working across the board, from corporate to our stores and supply chain, to work smarter and more efficiently. Next, improving e-commerce profitability. While we've seen positive momentum here, my objective is to accelerate this. As Ron said, we plan to review all aspects of our business to drive greater efficiency within our e-commerce cost structure and support growth for higher margin. Finally, growing market share. Kroger's collection of assets positions us well to win and grow share.
Ron Sargent: Second cost optimization.
Ron Sargent: We will focus on optimizing our cost structure and showing it aligns with and supports our long term financial targets and drives operational efficiency.
Ron Sargent: We're going to modernize operations and ways of working across the board.
Ron Sargent: Cole pressed to our stores and supply chain to work smarter and more efficiently.
Ron Sargent: Next improving ecommerce profitability.
Ron Sargent: While we've seen positive momentum hit my objective is to accelerate this improvement.
Ron Sargent: As Ron said, we plan to review all aspects of our business to drive greater efficiency within our e-commerce cost structure and support growth of higher margin revenue.
Ron Sargent: Finally, growing market share progress collection of assets positions us well to win and grow share.
David Kennerly: My focus will be on ensuring we prioritize our resources to drive profitable market share growth, including an acceleration of storing projects and more Kroger is a world class retailer today, and we are well positioned for long term My objective as CFO is to ensure we appropriately allocate our resources to where we have the best opportunity to grow and win.
Ron Sargent: My focus will be uninsured, we prioritize our resources to drive profitable market share right.
Ron Sargent: Clothing, and acceleration of storing projects and more competitive pricing.
Ron Sargent: Kroger is a world class retailer today, and we are well positioned for long term growth.
Ron Sargent: My objective as CFO is to ensure we appropriately allocate our resources. So while we have the best opportunity to grow and win.
David Kennerly: while delivering strong financial I'll now walk through our financial results. We achieve identical sales without fuel growth of 3.2% excluding adjustment. Our sales growth was led by strong pharmacy, e-commerce and fresh. We are encouraged by organic script growth, including growth in non-GLP1. Over recent quarters, we've seen improvement in grocery volumes, particularly in the perimeter of the store, which contributed to our sales growth. Volume improvement remains a key priority for us, and we expect sequential improvement throughout. We saw inflation slightly below 2% in the first quarter, in line with our expectations at the beginning. Our FIFO gross margin rate, excluding rent, depreciation and amortization, fuel and adjustment items, increased 79 basis points in the first quarter, compared to the same period last year.
Ron Sargent: While delivering strong financial returns.
Ron Sargent: I'll now walk through our financial results for the quarter.
Ron Sargent: We achieve identical sales without fuel growth of three 2% excluding adjustment items.
Ron Sargent: Our sales growth was led by strong pharmacy E Commerce and fresh sales were.
Ron Sargent: We are encouraged by organic script growth, including growth in non G. L. P. One prescriptions.
Ron Sargent: I have a recent quarters, we've seen improvement in grocery volumes, particularly in the perimeter of the store, which contributed to our sales growth this quarter.
Ron Sargent: Volume in fragrance remains a key priority for us and we expect sequential improvement throughout the year.
Ron Sargent: We saw inflation slightly below 2% in the first quarter in line with our expectations at the beginning of the year.
Ron Sargent: FIFO gross margin rate, excluding rent depreciation and amortization fuel and adjustment items increased 79 basis points in the first quarter compared to the same period last year.
David Kennerly: The improvement in rate was primarily attributable to the sale of Kroger Speciality Pharmacy, lower shrink and lower supply chain costs, partially offset by the mixed effect from growth in pharmacy sales, which has lower margins. After excluding the effect from the sale of Kroger Speciality Pharmacy, a FIFO gross margin rate improved by 33%. The operating general and administrative rate, excluding fuel and adjustment items, increased 63 basis points in the first quarter compared to the same period last year. The increase in rate was primarily attributable to the sale of Kroger Specialty Pharmacy and an accelerated contribution to a multi-employer pension plan, partially offset by improved product .
Ron Sargent: The improvement in rate was primarily attributable to the sale of Kroger's speciality pharmacy.
Ron Sargent: Lower shrink and lower supply chain costs.
Ron Sargent: Firstly offset by the mix effect from growth in pharmacy sales, which has lower margins.
Ron Sargent: After excluding the effect from the sale of Kroger speciality pharmacy.
Ron Sargent: FIFO gross margin rate improved by 33 basis points.
Ron Sargent: The operating general and administrative rates, excluding fuel and adjustment items increased 63 basis points in the first quarter.
Ron Sargent: Back to the same period last year the.
Ron Sargent: The increase in rate was primarily attributable to the Senate Kroger speciality pharmacy and.
Ron Sargent: In an accelerated contribution to a multi employer pension plan.
Ron Sargent: They offset by improved productivity.
David Kennerly: Consistent with our approach to managing future obligations, we made a strategic pension contribution fiscal. This allows us to pre fund future requirements and importantly help secure long term benefits for our Multi-employer pension contributions drove a 29 basis point increase in our OG&A rate in the After adjusting for the effects from the sale of Kroger Speciality Pharmacy and the multi-employer pension contributions, our OG&A rate was relatively flat on an underlying As I mentioned earlier, cost optimization is one of my top priorities. We will look for new ways to modernize work and operate more not only to fund investments in our customer experience, but also to deliver on our financial Looking out for the balance of the year, we expect both our FIFO gross margin rate and OG&A rate on an underlying basis to remain relatively flat as we balance price and wage investments with margin forecast.
Ron Sargent: Consistent with our approach to managing feature obligations, we made a strategic pension contribution this quarter.
Ron Sargent: This allows us to pre fund future requirements, and importantly helps secure long term benefits for our associates.
Ron Sargent: Multiemployer pension contributions drove a 29 basis point increase in our G&A rate in the quarter.
Ron Sargent: After adjusting for the effects from the sale of the Kroger specialty pharmacy, and the multi employer pension contributions or G&A rate was relatively flat on an underlying basis.
Ron Sargent: As I mentioned earlier cost optimization is one of my top priorities.
Ron Sargent: We will look for new ways to modernize what and operate more efficiently.
Ron Sargent: So I need to fund investments in our customer experience, but also to deliver on our financial commitments.
Ron Sargent: Looking out for the balance of the year, we expect both our FIFO gross margin rates and our G&A rate on an underlying basis to remain relatively flat as we balance price and wage investments with margin enhancement efforts.
David Kennerly: Our adjusted FIFO operating profit was $1.5 billion and adjusted EPS was $1.49 in Q1. Fuel is an important part of Kroger's strategy and offers an important way to build loyalty with customers through the fuel rewards in our Kroger Plus. Fuel results were behind expectations this quarter and a headwind to our results. Fuel sales were lower this quarter compared to last year, attributable to lower average retail price per gallon and fewer gallons sold. While gallons sold declined compared to last year, our gallon sales continue to outpace Fuel profitability was also behind the same period last year as a result of fewer gallons We expect fuel will be a headwind to our results for the remainder.
Ron Sargent: Our adjusted FIFO operating profit was one 5 billion and adjusted EPS was $1 49 in Q1.
Ron Sargent: Yeah.
Ron Sargent: Fuel is an important part of Kroger's strategy and offers an important way to build loyalty with customers through the <unk>.
Ron Sargent: <unk> rewards and at Kroger plus program.
Ron Sargent: Fuel results were behind expectations, this quarter and a headwind to our results.
Ron Sargent: Fuel sales were lower this quarter compared to last year attributable to lower average retail price per gallon and fewer gallons sold.
Ron Sargent: While gallons sold declined compared to last year, a gallon sales continue to outpace the industry.
Ron Sargent: Fuel profitability was also behind the same period last year as a result of fewer gallons sold we expect fuel will be a headwind to our results for the remainder of the year.
David Kennerly: As Ron shared earlier, our e-commerce business continued its strong performance. We grew e-commerce sales by 15 percent and increased a rate of profit improvement from our previous record improvement in the fourth quarter of 2020. We're pleased with our continued progress and confident we're on the right path. But our clear goal is to accelerate the To that end, a new e-commerce structure unifies all teams contributing to our e-commerce experience with a clear mandate to enhance our e-commerce operations for both improved profitability and a superior customer experience. Their efforts will centre on deploying new technology, improving density in our fulfilment operations and accelerating the growth of our retail media.
Ron Sargent: As Ron said earlier, our E Commerce business continued its strong performance. We grew e-commerce sales by 15% and increased our rate of profit improvement from our previous record of improvement in the fourth quarter of 2024.
Ron Sargent: We're pleased with our continued progress and confident we're on the right path.
Ron Sargent: Our clear goal is to accelerate this momentum.
Ron Sargent: So that and our new e-commerce structure unifies all teams contributing to our e-commerce experience with a clear mandate to enhance our e-commerce operations with improved profitability and a superior customer experience.
Ron Sargent: That FX will center on deploying new technology, and creating density in our fulfillment operations and accelerating the growth of our retail media platform.
David Kennerly: We expect these initiatives to be significant drivers of our e-commerce acceleration.
Ron Sargent: We expect these initiatives to be significant drivers of that e-commerce acceleration.
David Kennerly: I'd also like to provide an update on recent developments concerning our contract with Ocado. Last week, Ocado drew down the entire $152 million from its letter of credit under our existing agreement.
Ron Sargent: I'd also like to provide an update on recent developments and signing a contract with <unk>.
Ron Sargent: Last week, the court I drew down the entire $152 million from its letter of credit.
Ron Sargent: Under our existing agreement as mentioned earlier by Ron while undertaking a comprehensive review of our E Commerce operations and reviewing all aspects of the business to drive growth by improving the customer experience, while improving profitability.
David Kennerly: As mentioned earlier by Ron, we're undertaking a comprehensive review of our e-commerce operations and reviewing all aspects of the business to drive growth by improving the customer experience while improving profitability.
David Kennerly: I'd like to take a moment to provide a brief update on associate and labor relations. We made significant progress on agreements this quarter. Specifically, we ratified new labor agreements with more than 23,000 Since Q1 closed, we have ratified a new collective bargaining agreement for store associates in our Mid-Atlantic division and reached a fully recommended settlement for associates in Seattle.
Ron Sargent: I'd like to take a moment to provide a brief update on our sites, yet and labor relations.
Ron Sargent: We made significant progress on agreements this quarter.
Ron Sargent: Specifically, we ratified new labor agreements with more than 23000 associates.
Ron Sargent: Since Q1 closed we have ratified a new collective bargaining agreement for store associates in our mid Atlantic Division.
Ron Sargent: And reached a funny recommended settlement for associates in Seattle.
David Kennerly: In total, this covers approximately $16,000. Kroger is working to reach an agreement with the UFCW for store associates at approximately 80 King's Super store locations in Denver Metro, Pueblo, and Colorado Springs. Associates at these stores chose to strike for 14 days during the first quarter and negotiations are ongoing. We respect our associates right to collectively As Ron said earlier, we continue to meaningfully improve wages and The company's investment in associate wages has increased the average hourly rate to more than $19 per year. That figure grows to more than $25 with benefits like health care and pensions factored in, but many of our competitors do not.
Ron Sargent: In total this covers approximately 16000 associates.
Ron Sargent: Gregory is working to reach an agreement with the U S. <unk> for store associates at approximately 80, King Soopers store locations in Denver Metro we're below in Colorado Springs.
Ron Sargent: Associates at these stores chose to strike for 14 days during the first quarter and negotiations are ongoing.
Ron Sargent: We respect our associates right to collectively bargain.
Ron Sargent: As Ron said earlier, we continue to meaningfully improve wages and benefits the company's investment in associate wages has increased the average hourly rate to more than $19 50.
Ron Sargent: That figure grows to more than $25 with benefits like health care and pensions Frankfurt in many of our competitors do not offer we're proud to be a retailer, which offers fair wages and comprehensive benefits.
David Kennerly: proud to be a retailer which offers fair wages and comprehen Kroger's goal in every labor negotiation is to provide employees with stability and advancement opportunities. While working to reach a fair and balanced agreement that both rewards our associates and keeps groceries affordable for the millions of families we serve.
Ron Sargent: So far that's gone in every labor negotiation as to provide employees with stability and advancement opportunities, while working to reach a fair and balanced agreement.
Ron Sargent: Which rewards our associates and keeps groceries affordable and our millions of families. We serve.
David Kennerly: I'd now like to turn to capital allocation and financial strategy. Kroger generated strong adjusted free cash flow this quarter, driven by our operating results. Free cash flow is important to our model, providing liquidity to our operations and allowing us to maintain a strong balance. At the end of the first quarter, Kroger's net total debt to adjusted EBITDA was 1.69 compared to our net total debt to adjusted EBITDA target ratio range of 2.3 to 2.5. Our strong free cash loan balance sheet provide us flexibility to invest in our business and other opportunities to enhance shareholder value.
Ron Sargent: I'd now like to turn to capital allocation and financial strategy.
Greg: Greg It generated strong adjusted free cash flow this quarter driven by our operating results free.
Greg: Free cash flow is important to our model, providing liquidity to our operations and allowing us to maintain a strong balance sheet.
Greg: At the end of the first quarter Kroger's net total debt to adjusted EBITDA was 169 compared to a net total debt to adjusted EBITDA target ratio range $2 three to $2 five.
Greg: Our strong free cash flow and balance sheet provide us flexibility to invest in our business and other opportunities to enhance shareholder value.
David Kennerly: Capital allocation priorities remain consistent and are designed to deliver total shareholder return of 8 to 11% over time. We are focused on investing in projects that will maximize return on invested capital over time, while remaining committed to maintaining a current investment grade rating, growing our dividend, subject to board approval, and returning excess capital to shareholders.
Greg: Our capital allocation priorities remain consistent and are designed to deliver total shareholder return of 8% to 11% overtime.
Greg: We are focused on investing in projects that will maximize return on invested capital over time.
Greg: While remaining committed to maintaining our current investment grade rating growing our dividend subject to board approval and returning excess capital to shareholders.
David Kennerly: A key priority for Kroger is to improve ROH. We expect to do this by improving asset utilization and reallocating capital towards higher return projects, which will drive long term shareholder As Ron mentioned earlier, we have announced plans today to close roughly 60 underperforming stores across the country in an effort to optimize our store network. At the same time, we are actively investing for growth in new store projects. We expect to complete 30 major storing projects in 2025, focusing our investments in high growth areas. We will continue to prioritize new store growth and expect these to be a meaningful contributor to our long term growth.
Greg: A key priority for Kroger base to improve ROIC.
Greg: We expect to do this by improving asset utilization and reallocating capital towards high return projects, which will drive long term shareholder value.
Greg: As Ron mentioned earlier, we have announced plans today to close roughly 60 underperforming stores across the country in an effort to optimize our store network.
Greg: At the same time, we are actively investing for growth and you stole projects. We expect to complete 30 major storing projects in 2025, focusing our investments in high growth areas.
Greg: We will continue to prioritize new store growth and expect these to be a meaningful contributor to our long term growth model.
David Kennerly: We're delivering on our commitment to return excess capital to shareho rs. We expect our $5 billion ASR program to be completed by no later than the third fiscal quarter of 2025. The ASR is being completed under Kroger's $7.5 billion share repurchase authorization.
Greg: We are delivering on our commitment to return excess capital to shareholders.
Greg: We expect a $5 billion ASR program to be completed by no later than the third fiscal quarter of 2025.
Greg: The ASR is being completed under kroger's, seven $5 billion share repurchase authorization.
David Kennerly: After completion of the ASR program, Kroger expects to resume open market share repurchases under the remaining $2.5 billion authorized Kroger expects to complete these open market share repurchases by the end of the fiscal year, which is contemplated in full year I would now like to provide some additional detail on our outlook for the rest of the year. We are pleased with our first quarter sale. which reflects strength in pharmacy, e-commerce. As a result, we are raising our identical sales without fuel guidance to a new range of 2.25% to 3.25%. We expect second quarter identical sales without fuel to be roughly at the midpoint of our full year guidance.
Greg: After completion of the ASR program.
Greg: <unk> expects to resume open market share repurchases under the remaining $2 $5 billion authorization.
Greg: Kroger expects to complete these open market share repurchases by the ended the fiscal year, which is contemplated in full year guidance.
Greg: Okay.
Greg: I would now like to provide some additional detail on our outlook for the rest of the act.
Greg: We are pleased with our first quarter sales.
Greg: This reflects strength in pharmacy e-commerce and fresh.
Greg: As a result, we are raising our identical sales without fuel guidance to a new range of 2.25 to $3 two 5%.
Greg: We expect second quarter identical sales without fuel to be roughly at the midpoint of our full year guidance range.
David Kennerly: With respect to the store closes discussed earlier, we anticipate these will occur over the next 18 months. There is a modest financial benefit to closing these stores. However, we intend to reinvest the efficiencies back into the customer experience. And as a result, this will not impact a full year.
Greg: With respect to the store closures discussed earlier, we anticipate these will occur over the next 18 months.
Greg: There is a modest financial benefit to closing these stores. However, we intend to reinvest efficiencies back into the customer experience and as a result, this will not impact our full year guidance.
David Kennerly: While first quarter sales and profitability exceeded our expectations, the macroeconomic environment remains uncertain, and as a result, other elements of our guidance remain For more information visit www.FEMA.gov As such, we are reaffirming our four-year guidance for net operating profit and adjusted earnings per share.
Greg: While first quarter sales and profitability exceeded our expectations the macroeconomic environment remains uncertain and as a result other elements of our guidance remained unchanged at.
Greg: As such we are reaffirming our full year guidance for net operating profit and adjusted earnings per share I will now turn the call back to Ron.
Ron Sargent: I will now turn the call back to Ron. Thanks, David. We're off to a solid start in 2025. And we are optimistic about the rest of the year. While the broader environment continues to be uncertain, we're focused on serving our customers with great stores. Kroger is operating from a position of strength. Our strategy is flexible enough to allow us to navigate this changing environment. We're narrowing our priorities and we're moving with speed to deliver customers an even better experience. We are confident that by staying true to these priorities, we will generate long-term growth. and Attractive Shareholder Returns.
Ron Sargent: Thanks, David.
Ron Sargent: We're off to a solid start in 2025, and we are optimistic about the rest of the year.
Ron Sargent: While the broader environment continues to be uncertain, we're focused on serving our customers with great stores.
Ron Sargent: Kroger's operating from a position of strength our strategy is flexible enough to allow us to navigate this changing environment.
Ron Sargent: We are narrowing our priorities and we are moving with speed to deliver customers, an even better experience.
Ron Sargent: We're confident that by staying true to these priorities, we will generate long term growth.
Ron Sargent: And attractive shareholder returns.
Ron Sargent: Before we open it up for questions, I wanted to provide a brief update on the ongoing CEO search. The board has a search committee in place and is working with a nationally recognized search firm. The board is fully engaged, but we have no specific updates at this time.
Ron Sargent: Before we open it up for questions I wanted to provide a brief update on the ongoing CEO search.
Ron Sargent: The board has a search committee in place and is working with a nationally recognized search firm. The board is fully engaged but we have no specific updates at this time.
Operator: We'll now open it up for questions. Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad.
Ron Sargent: We will now open it up for questions.
Ron Sargent: As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Ed Kelly: Our first question for today comes from Ed Kelly of Wales Fargo. Good morning, Ed. Please go ahead. Hi, good morning, everyone. And David, welcome. I wanted to start just with a question around pricing and, you know, your your your value perception with customers. I think there's, you know, it sounds like an increased focus around trying to improve the value perception.
Speaker Change: Our first question for today comes from Edward Kelly of Wells Fargo.
Speaker Change: Ed. Please go ahead.
Edward Kelly: Hi, good morning, everyone and David welcome.
Edward Kelly: I wanted to start just with a question around.
Edward Kelly: Pricing and your value perception with customers I think there is it sounds like an increased focus around trying to improve the value perception I was curious if you could maybe talk about how youre thinking about price gaps. The plan here going forward. What you are looking to accomplish and then most importantly.
Ron Sargent: I was curious if you could maybe talk about, you know, how you're thinking about price gaps, the plan here going forward, what you're looking to accomplish, and then most importantly, you know, can you do all this in a you know, margin? http://TheBusinessProfessor.com Sure.
Edward Kelly: Can you do all this in a margin neutral sort of way going forward.
Ron Sargent: Let me take that one, David. I don't know if you have anything to add. But, you know, overall, when you look at our competitive pricing environment, it remains, you know, very rational. You know, as we mentioned in the comments, we do intend to continue to invest in lower prices. In fact, we Lowered prices and an extra 2,000 items during the quarter. But this is much like we've done in prior years also. We're also working to make sure that our promotional offers are simpler. They're easier to access by all customers. And those promotional offers have to offer great value as well.
Edward Kelly: Sure let.
Edward Kelly: Let me, let me take that one David I don't know if you will have anything to add but overall when you look at our competitive pricing environment remains very rational.
Edward Kelly: As we mentioned in the comments, we do intend to continue to invest in lower prices in fact, we.
Edward Kelly: Lower prices and an extra 2000 items during the quarter.
Edward Kelly: But this is much like we've done in prior years also.
Edward Kelly: We're also working to make sure that our promotional offers.
Speaker Change: Our simpler.
Speaker Change: They're easier to access by all customers and those promotional offers offers have to offer great value as well.
Ron Sargent: And I can't comment on others, but I do believe that we were more competitive in Q1 than in Q4 versus our EDLP competitors. I think the positive news is that these pricing investments resulted in better sales, better gross margin, and happier customers. So I think this would be probably a good example of us continuing to invest in pricing while expanding our gross margin rate.
Edward Kelly: I can't comment on others, but I do believe that we were more competitive in Q1 than in Q4.
Edward Kelly: Versus our competitors.
Edward Kelly: I think the positive news is that these pricing investments.
Edward Kelly: Ah resulted in better sales better gross margin and happier customers. So I think this would be probably a good example of us continuing to invest in pricing, while expanding our gross margin rate. Yeah. Just maybe a couple of things to add Ron I think the other thing that we're focused on is making price is easier to get.
David Kennerly: Yeah, just maybe a couple of things to add, Ron. I think the other thing that we're focused on is making prices easier to get. So rather than a customer having to get out their phone to get a digital coupon in store, we're trying to make the customer experience in store much easier for them to access the good prices that Kroger has. And then just on the gross margin comment, I think this quarter's a good example. We've got decent gross margin performance. And as we look to improve our price perception through the balance of this year and beyond, we expect to do this on a margin.
Edward Kelly: So rather than a customer having to get out there.
Speaker Change: Coupon install.
Edward Kelly: I'm trying to make customer experience installed much easier.
Edward Kelly: Good prices.
Edward Kelly: Yes.
Edward Kelly: And then just on the gross margin comment.
Edward Kelly: I think this quarter's a good example, decent gross margin performance.
Edward Kelly: And as we look to.
Edward Kelly: Improve our price perception.
Edward Kelly: The balance of this year and beyond.
Edward Kelly: We expect to do this on a margin neutral basis.
David Kennerly: Great.
Ed Kelly: And then just maybe a quick follow up, you know, looks to be a bit more focused on, you know, econ, profitability. Improving the impact on the P&L there, could you just maybe provide a little bit more color around the road map? The size of the opportunity, I'm not sure how big the losses are at the moment in e-comm, but any color there that you could share?
Edward Kelly: Great and then just maybe a quick follow up.
Edward Kelly: Looks to be a bit more of a focus on E com profitability in <unk>.
Edward Kelly: Improving the.
Edward Kelly: The impact on the P&L there could you just maybe provide a little bit more color around the roadmap.
Edward Kelly: The size of the opportunity I'm not sure how big the losses are at the moment and E comm, but any color there that you could share.
Ron Sargent: Sure, Ed. Let me try to provide a little more color. You know, we have made good progress on e-commerce top line and bottom line during the quarter.
Speaker Change: Sure Ed let me.
Speaker Change: Try to provide a little more color we have.
Edward Kelly: Made good progress on e-commerce topline and bottom line during the quarter.
Ron Sargent: As we mentioned in the in the notes, we combined all the elements of our e-commerce business under Yale Cossett. Yale's doing a great job. This allows us a lot better focus on our e-commerce business than we've had in the past. It also very clearly allows us to have ownership of the business.
Edward Kelly: As we mentioned in the in the notes, we combined all of the elements of our ecommerce business under Yale costs. It.
Edward Kelly: Yeah, I was doing a great job. This allows us a lot better focus on our ecommerce business than we've had in the past. It also very clearly allows us to have ownership of the business.
Ron Sargent: Thank you very much. We're taking a look at every single aspect of our e-commerce strategy as well as our e-commerce operations. We're looking at every market, every element, and we're working on a plan to address the performance in each one of those. I think the good news is that we are seeing continued growth in the business, up 15% this quarter. Households in e-commerce are growing. Our we are seeing improvements in profitability at an increasing rate.
Edward Kelly: We're taking.
Edward Kelly: Taking a look at every single aspect of our e-commerce strategy as well as our E Commerce operations.
Edward Kelly: We're looking at every market every element and we're working on a plan to address the.
Edward Kelly: And each one of those I think the good news is that we are seeing continued growth in the business up 15% this quarter households, and e-commerce are growing.
Edward Kelly: Customers are embracing the whole digital model of our business and we are seeing improvements in profitability at an increasing rate.
Ron Sargent: But to be clear on the profitability, we're not profitable at this point, and we must become profitable in e-commerce business, and we've got a lot of work to do. We will keep you updated throughout the year, but we don't disclose a specific profitability by sub-business.
Edward Kelly: But to be clear on the profitability, we're not profitable at this point.
Edward Kelly: And we must become profitable on your ecommerce commerce business. When we've got a lot of work to do we will keep you updated throughout the year, but we don't disclose the specific profitability by sub business segments.
Edward Kelly: Yeah.
Operator: Thank you.
Speaker Change: Thank you. Our next question comes from John Hind Buckle.
John Heinbockel: Our next question comes from John Heinbockel of Guggenheim. Your line is now open. Please go ahead.
Speaker Change: Yes.
Speaker Change: Your line is from Jonathan Please go ahead.
Ron Sargent: Hey, so I want to start with Ron, what do you how do you look at what is noncore? And that could be non-retail, it could be retail, I guess it could be in stores, obviously the 60 stores, it could be retail divisions, I suppose. How do you look at that?
Speaker Change: Okay. So.
Speaker Change: I wanted to start with.
Ron Sargent: Ron what do you how do you look at what is noncore.
Speaker Change: And that could be non retail it could be retail I guess it could be its stores, obviously, the 60 stores it could be retail divisions I suppose.
Speaker Change: How do you look at that and then on capital allocation right.
David Kennerly: And then on capital allocation, right? high return projects, where to where to remodel. sit in that prioritization relative to new stores.
Edward Kelly: High return projects, where do where do remodels.
Edward Kelly: In that.
Edward Kelly: And that the prioritization relative to new stores.
Ron Sargent: Yeah, first of all, let me talk to core versus non core. I mean, the core of the things that exist in our company that dedicated to serving our customers. And it would certainly include stores, it would certainly include e-commerce, it would certainly include all the alternative revenue streams that those generate. That's how I would define core for the Kroger company. And I think that's what we need to focus on going forward.
Speaker Change: Yes first of all let me, let me talk to core versus noncore I mean, the core of the things that.
Edward Kelly: <unk> exists in our company that are <unk>.
Edward Kelly: <unk> to serving our customers and.
Edward Kelly: It certainly includes stores or would certainly include ecommerce. It would certainly include all the alternative revenue streams that those generate that's how I would define core for the company and I think that's what we need to focus on going forward.
David Kennerly: Hey, and, John, let me just cover the the capital allocation comment. You know, listen, as we think about where we spend capital, you know, one of the reasons we've talked about investing in storing projects is that, you know, these projects typically offer higher returns than our average rate of return.
Speaker Change: And John Let me just cover the capital allocation comment and Edison as we think about where we spend capital.
Speaker Change: One of the regions, we've talked about investing in starting projects.
Edward Kelly: These projects typically.
Edward Kelly: Higher returns than our average rate of return.
David Kennerly: You know, and I would say remodels sit somewhere in the middle of our average All right and then maybe as a follow-up right David, Cost Optimization. Right, so I think you've had eight years in a row of a billion dollars of cost out. How are you attacking that this differently? Things you might be looking at processes versus what you've done over the past couple of years? Yeah, I think, you know, obviously, the advantage that Ron and I have is that, you know, it's bringing a fresh set of eyes to, to the business. You know, and I think my conclusion from, you know, my first few months, and I know Ron feels the same, is, you know, listen, I think we've got a really good foundation.
Edward Kelly: And I would say remodels set somewhere in the middle of our average per ton rate.
Edward Kelly: Alright.
Edward Kelly: Maybe as a follow up right.
Edward Kelly: David.
Edward Kelly: Cost optimization.
Edward Kelly: Alright, So I think you've had eight years in a row of $1 billion of cost out how are you attacking that differently.
Edward Kelly: Things you might be looking at processes versus what you've done over the past couple of years.
Ron Sargent: Yes, I think obviously the advantage that Ron and I have is is that it's bringing a fresh set of eyes to.
Edward Kelly: To the business.
Edward Kelly: And I think my conclusion from my first few months on in Iran and feels the same.
Edward Kelly: Listen I think we've got a really good foundation. So I see this is operating from a position of strength.
David Kennerly: And so I see this as operating from a position of strength, And I think I see this is about going from from good to great. I think there are a lot of areas where we can improve from a cost perspective, you know, whether that be on the direct costs or cost of goods sold, whether that be on what I call indirect costs or goods not for resale, you know, whether that be on the G&A line and our corporate expenses. And I think we are looking to tackle this in a number of different ways than we've looked at in the past.
Edward Kelly: And I, saying I see this is about going from from good to great.
Edward Kelly: I think there are a lot of areas, where we can improve from a cost perspective.
Edward Kelly: Whether that be on the direct.
Edward Kelly: Costs cost of goods sold whether that be on the iqos indirect cost of goods not for resale.
Edward Kelly: Whether that be on the G&A line in that corporate expense saves and I think we are looking to tackle this in a number of different ways than we've looked at in the past I think the other thing that will also contribute towards.
David Kennerly: I think the other thing that will also contribute towards, you know, better cost performance. is what I call kind of ways of working, you know, and processing And I think there's a lot of opportunity here to kind of work smarter, more efficiently, more tech enabled, and we've already got some good proof points on that. But we're going to do more of that kind of work.
Edward Kelly: Better cost performance.
Edward Kelly: Is what I call kind of ways of working.
Edward Kelly: Process improvement.
Edward Kelly: And I think there's a lot of opportunity here to kind of what smarter more efficiently more tech enabled and we've already got some good proof points on that but we're going to do more of that kind of work.
David Kennerly: So I think that roadmap, John, I think we've got some things that we're going to look to get some early wins on the board. You know, but I think this is a pretty significant medium term opportunity.
Speaker Change: So I think that right, Matt John I think we've got some some things that we're going to look to get somebody wins on the board.
Edward Kelly: But I think this is a pretty significant medium term opportunity.
Edward Kelly: Okay.
Edward Kelly: Yeah.
Robert Ohmes: Thank you. Our next question comes from Robert Ohmes of Bank of America. Your line is open, please go ahead. Oh, hey, good morning, David and Ron. Thanks for taking my question.
Edward Kelly: Thank you our next.
Speaker Change: Next question comes from Robert <unk> of Bank of America.
Speaker Change: Robert Please go ahead.
Robert: Hey, good morning, David and Brian Thanks for taking my question.
Ron Sargent: I was hoping, you know, you guys could parse out more the sort of tailwinds to ID sales that you saw in the first quarter, and how we should think about, you know, some of those things, you know, for the for the rest of the year. So, you know, I think I think some of the tailwinds, you know, there was there was, you know, inflation, I think, obviously, in the in the first quarter, can you parse out, you know, how much of that was driven by fresh and what the inflation outlook is like? I think also the GLP one tailwind, can you remind us what that tailwind is?
Speaker Change: I was hoping you guys could parse out more the sort of tailwind to sales.
Speaker Change: Sales that you saw in the first quarter and how we should think about some of those things for the rest of the year. So I think I think some of the tailwind.
Speaker Change: There was inflation I think obviously in the first quarter can you parse out how much of that was driven by fresh in and what the inflation outlook is like.
Speaker Change: I think also the G. L. P. One tailwind can you remind us what that tailwind is and does that continue do you think for the rest.
Ron Sargent: And does that continue? Do you think for the, you know, rest of the year? And then I think you guys did make some comments on volume, sounds like own brands volume is, is pretty strong is is national brands volume, a negative for you guys? And is that a trend that, you know, continues as well?
Speaker Change: Rest of the year and then I.
Speaker Change: Thank you guys did make some comments on volume it sounds like owned brands volume is is pretty strong is national brand volume and negative for you guys and is that a trend that continues as well.
Ron Sargent: Yeah, let me let me let me start this I'll give you some some headlines and and David can fill in the blanks. As we said, you know, identical sales were really driven by by pharmacy. They were driven by fresh categories around the perimeter of our store, e commerce, as well as our brands and our brands continue to grow faster than the national brands. I think, you know, our identical sales improvement also reflects some of the continued sales momentum in our in our core grocery business. We saw that beginning in Q4 and that continued in Q1.
David: Yeah, Let me let me let me start this I'll give you some some headlines and David can fill in the blanks.
Speaker Change: As we said identical sales were really driven by pharmacy, they were driven by fresh categories around the perimeter of our store E Commerce.
Speaker Change: As well as our brands and our brands have continued to grow faster than the national brands.
Speaker Change: I think you know our identical sales improvement also reflects some of the continued sales momentum in our core grocery business. We saw that beginning in Q4 and that continued in Q1.
David Kennerly: And, you know, finally, you know, we should give some credit to the divisions. I mean, there was really strong execution on the part of our stores team to better serve our customers. And all of those things certainly help drive identicals as well. And given the the increase in our identicals guidance, you know, we expect to see continued improvement in grocery volumes throughout the year. And David, I don't know if you want to add anything.
Speaker Change: And.
Speaker Change: Finally, we should give some credit to the divisions I mean, there was really strong execution on the part of our stores team to better serve our customers and all of those things certainly help drive identical as well.
Speaker Change: And then given the increase in our identical guidance, we expect to see continued improvement in grocery volumes throughout the year and David I don't know if you want to add a couple of things to add so just on the inflation outlook. So.
Speaker Change: We saw inflation, yes, just on that 2% for the quarter.
Speaker Change: We guided to one and a half to two and a half for the year. So we're well within the guidance range.
Speaker Change: And absent any major disruption, we expect to continue to be in that range and then just on pharmacy, just a couple of points I think important to know that.
Speaker Change: ESI had a very minimal impact to the quarter less than 10 basis points.
David Kennerly: Less than 10 basis points. Yeah, and we continue to see good growth from GLP-1. That's really helpful.
Speaker Change: Yes, and we continue to see good growth from <unk>.
Speaker Change: That's really helpful and just a quick follow up would be 100, K plus customer versus low income customer anything you can share on what youre seeing there.
Ron Sargent: And just a quick follow up would be 100k plus customer versus low income customer, anything you can share on what you're seeing there? Um, you know, what we're seeing is, you know, different shopping, you know, behaviors and different shopping patterns, um, you know, for example, uh, you know, we are seeing, you know, Both, I think, shopping more at Kroger stores and grocery stores compared to eating away. They're making for frequent trips to the store. The average basket is less. When you look at the spend in total, I think it's been very stable. You know, one factor that's kind of interesting is that inflation.
Speaker Change: What we're saying is different shopping behaviors and different shopping patterns.
Speaker Change: For example, we are seeing.
Speaker Change: Both I think.
Speaker Change: Shopping more asset.
Speaker Change: At Kroger stores, and grocery stores compared to eating away.
Speaker Change: They're making for frequent trips.
Speaker Change: To the store the average basket.
Speaker Change: Is less.
Speaker Change: When you look at the spend in total I think it's been very stable.
Speaker Change: One factor was kind of interesting is that the inflation.
Ron Sargent: has been higher for food away from home or restaurants. Inflation in restaurants has been higher for 27 consecutive months versus food consumed at home. I think both in high and low income levels, they're navigating a significant uncertainty. I think consumer confidence is down. Customers are looking for value. And I think when you look at how we've responded to that, we're always looking for ways to deal with the environment and bring value to our customers. And whether that's our brands, Having the right promotions, having the right promotional pricing, you know, we are kind of seeing a shift into larger pack sizes and increased use of coupons.
Speaker Change: It has been higher for food away from home or restaurants.
Speaker Change: Inflation and restaurants have been higher for 27 consecutive months versus our food consumed at home I think both in high and low income levels, they're navigating.
Speaker Change: Significant uncertainty I think consumer confidence down customers are looking for value.
Speaker Change: And I think.
Speaker Change: When you look at how we respond to that we're always looking for ways to deal with the environment and bring value to our customers and whether thats.
Speaker Change: Our brands whether it's.
Speaker Change: Having the right promotions of having the right promotional pricing.
Speaker Change: We are kind of seeing a shift into larger pack sizes and increased use of coupons.
Ron Sargent: We're seeing some discretionary spend that's a little softer in areas like snacks and adult beverages, pet, general merchandise categories. So I think in terms of the consumer, we expect the consumer to remain cautious throughout the year. And we're responding to that with simpler promotions, coupons, lower prices, and a lot of own brand choices.
Speaker Change: We're seeing some discretionary spend.
Speaker Change: That's a little softer in areas like snacks, and adult beverages pet general general merchandise categories.
Speaker Change: So I think in terms of the consumer we expect the consumer to remain cautious throughout the year.
Speaker Change: And we are responding to that with simpler promotions coupons lower prices and a lot of owned brand choices.
Speaker Change: Yeah.
Simeon Gutman: Thank you. Our next question comes from Simeon Gutman of Morgan Stanley.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Simeon Gutman of Morgan Stanley Your.
Ron Sargent: The line is now open, please go ahead.
Speaker Change: Your line is now open. Please go ahead.
Ron Sargent: Hey, guys, good morning. Follow up on sales and market share. Curious if you when you look at market share, how you viewed the performance in the quarter, realize that the national data we I'm curious how you view it, what would you attribute to the inflection? and was it e-commerce and was it broad...
Speaker Change: Hey, guys good morning.
Speaker Change: Follow up on sales and market share curious if you when you look at market share how you viewed the performance in the quarter.
Speaker Change: Realized that the national.
Speaker Change: Data, we see it's not perfect because national but it did look like you inflected in the first quarter you mentioned the ESI was pretty minimal. So curious how you view it what what would be what would you attribute to the inflection.
Speaker Change: And what the E Commerce and was broad based.
Speaker Change: Yeah.
Ron Sargent: Well, good morning, Simeon. I think I've known you long enough to for you to understand that no good retailer is ever happy with their market share. You know, it's really a critical metric in any retail business. And the goal has got to be to improve market The biggest driver of market share for us relates to opening new stores. We have seen very modest store growth over the last several years during the merger process. We did see significant improvements in Q1 and we saw market share gains in markets where we have added stores. Again, I don't wanna discount the other driver in market share gain, and that's in-store experience.
Simeon: Well good morning Simeon.
Speaker Change: I think I've known you long enough to for you to understand that no. Good retailer is ever happy with their market share.
Speaker Change: It's really a critical metric in any retail business and the goal has got to be to improve our market share.
Speaker Change: The biggest driver of market share for us relates to opening new stores.
Speaker Change: We have seen very modest store growth over the last several years during the.
Speaker Change: Merger process.
Speaker Change: We did see significant improvements in Q1.
Speaker Change: We saw market share gains in markets, where we have added stores.
Speaker Change: Again, I don't want to discount the other driver and market share gain in that.
Speaker Change: In store experience.
David Kennerly: Customer service getting better, competitive pricing getting better, simpler promotions, in-store conditions, and we're starting to see some progress there. And then finally, when you're growing your e-commerce business at 15%, that will help your market share as well as accelerated growth in our Kroger Brands portfolio as well. I don't know, anything else you wanna add?
Speaker Change: Customer service getting better a.
Speaker Change: Competitive pricing getting better simpler promotions and store conditions, and we're starting to see some progress there and then finally.
Speaker Change: When you when Youre growing your ecommerce business at a 15% that will help your market share as well as.
Speaker Change: Accelerated growth in our Kroger brands portfolio as well I don't know anything else you want to.
David Kennerly: No, nothing, I think you covered it.
Speaker Change: Got it wrong.
Simeon Gutman: Okay, a follow-up, different topic, e-commerce. I don't know if it's too early, but... Tell us, if you look at the investments that this company's made.
Speaker Change: Okay.
Speaker Change: Follow up different topic e-commerce.
Speaker Change: I don't know if its too early but.
Speaker Change: Can you tell us if you look at the investment that this company has made.
Ron Sargent: I think you need to step them up in order to scale quicker or accelerate growth, or they'll be funded, and you don't think that's a question. And then connected to it, I'm trying to understand the way you position the Ocado pulling down the revolver and then talking about how you need to evaluate what this looks like.
Speaker Change: Do you think you need to step them up in order to scale quicker.
Speaker Change: Or accelerate growth or they'll be funded and you don't think that question and then connected to it.
Speaker Change: I'm trying to understand the way you position the ocado pulling down the revolver and then talking about how you need to evaluate what this looks like so.
Ron Sargent: So thinking about how you deal with e-commerce over the next several years, could there be another big step up in investment to allow you to reduce cost of serve and accelerate speed, or you think you have the foundation? Well, you know, I think we have a terrific foundation in place in our e-commerce business. And we have invested, you know, heavily in our e-commerce business over the last several years. We are, I think, offering a better customer experience. We're improving things like, you know, wait times, we're delivering faster. The number of households is growing, particularly in the delivery side.
Speaker Change: Thinking about how you deal with e-commerce over the next several years it could there be another big step up in investment to allow you to reduce cost of serve and accelerate speed or you think you have the foundation in place today.
Speaker Change: Well I think we have a terrific foundation in place and our ecommerce business and we have invested heavily in our ecommerce business over the last several years.
Speaker Change: We are I think offering a better customer experience.
Speaker Change: We're improving things like.
Speaker Change: Wait times were delivering faster.
Speaker Change: The number of households is growing particularly in the delivery side.
Ron Sargent: And, you know, the nice thing about sales, it improves your density for your delivery route. So there's a lot of, you know, goodness coming.
Speaker Change: And the nice thing about sales it improves your density for your delivery routes. So there's a lot of goodness coming but I think it's a little early to say.
Ron Sargent: But I think it's a little early to say, you know, exactly, you know, what we're going to decide on each one of these. But the investments that we've made have been helpful. But, you know, going forward, we're going to look at, you know, every investment that we have made or will be making. I don't know.
Speaker Change: Exactly what we're going to decide on each one of these but the investments that we've made have been helpful. But.
Speaker Change: Going forward, we're going to look at every investment that we have made or will be making I don't know if you want to talk about economy. Let me cover the <unk> question. So.
David Kennerly: You want to talk about Ocado? Let me cover the Ocado question. So the Ocado contract had a clause in it on the seventh anniversary. They were able to draw down the remaining balance on the letter of credit that had been provided. And they chose to do that. So I think it's a contractual thing and nothing.
Speaker Change: Carter contracts had a clause on the seven.
Speaker Change: <unk> right.
Speaker Change: They were.
Speaker Change: Able to draw down the remaining balance on the lesser of credit that had been provided and they chose to do that.
Speaker Change: So I think it's a contractual thing and nothing more.
Speaker Change: Yeah.
Paul Ojuez: Thank you. Our next question comes from Paul Ojuez of Citigroup. Your line is now open, please go ahead.
Amit: Thank you Amit.
Speaker Change: Our next question comes from <unk> of Citigroup.
Speaker Change: Your line is now open. Please go ahead.
Ron Sargent: Morning Paul. Thanks, guys. Good morning.
Speaker Change: Paul.
Speaker Change: Thanks, guys. Good luck.
Ron Sargent: Can you talk a little bit more about the All Brands portfolio, the growth you saw in that segment of the business versus the rest of the store and how the gaps between the two are trending?
Speaker Change: Good morning can you talk a little bit more about the <unk> brand portfolio. The growth you saw in that.
Speaker Change: Segment of the business versus the rest of the store.
Speaker Change: GAAP between the two are trending and then I'm also curious if you could talk about any regional differences that you might have seen this past quarter.
Ron Sargent: And then I'm also curious, if you could talk about any regional differences that you might have seen this past quarter, whether any certain regions stand out as getting more or less promotional or rational, however you want to frame it. Yeah, I start with our brands. As we noted, we you know, we had another strong quarter in our brands, I believe. And I'm an optimist, understand that, but I believe there's a big opportunity for our brand products that, you know, could accelerate this even further in the years ahead. You know, the quality is terrific. It creates great value, you know, to our customers.
Speaker Change: Whether any certain region stand out and getting more or less promotional or rational.
Speaker Change: In frame.
Speaker Change: Yes.
Speaker Change: With our brands as we noted we had another strong quarter and our brands I believe.
Speaker Change: And I'm, an optimist understand that but I believe there's a big opportunity.
Speaker Change: For our brand products that you know.
Speaker Change: Could accelerate this even even further in the years ahead the quality is terrific.
Speaker Change: Great it's great value to our customers. It allows us to lead the pack I think in product innovation and I referenced the simple truth protein line, but I think that's a great example of that.
Ron Sargent: It allows us to lead the pack, I think, in product innovation. And, you know, I referenced the simple truth protein line, but I think that's a great example of that. You know, people are eating healthier, so we're going to jump on that trend. I think high protein products also ties into customers using GLP-1 medications. And, you know, the best part about, you know, our brands is that it differentiates us, you know, from our competitors. There's only one place you can get, you know, Kroger brand or simple truth or natural selection, all of it just at Kroger.
Speaker Change: People are eating healthier so we're going to jump on that trend.
Speaker Change: High protein products also ties into customers using <unk> medications.
Speaker Change: And the best part about our brands is it a differentiates us from our competitors Theres only one place you can get.
Speaker Change: Kroger brand or simple truth or natural flex it all of it just a kroger in terms of.
Ron Sargent: In terms of. regional differences, I really can't, you know, point to anything that jumps out at me that, you know, specifically different, I think we saw, you know, kind of good performance across the chain. I mean, maybe the only thing you highlighted is we saw better share performance in those markets where we were building new stores. Sure.
Speaker Change: Regional differences I really.
Speaker Change: Can't point to anything that jumps out at me that specifically different I think we saw good.
Speaker Change: Performance across the chain.
Speaker Change: And maybe anything you highlights it is as we shall better share performance in those markets, where we were building new stores sure.
Ron Sargent: I think this was asked earlier, but the higher income consumer, can you talk about the performance with your 100,000 plus customer? I'm not sure if you quantified where you're seeing the greater growth. I don't know that we did quantify specifically. I think nothing other than to say that, you know, the higher income consumer continues to behave what we would call kind of rationally, I don't think any big disconnects versus previous quarters, continue to see, you know, premium wines, that kind of stuff, you know, you know, sort of increased spend on fresh, normal trends, I don't think anything unusual to note on the higher income.
Speaker Change: And I think this was asked earlier.
Speaker Change: The higher income consumer can you talk about the performance.
Speaker Change: 100000, plus customer I'm not sure if you quantified where are you seeing that.
Speaker Change: Greater growth.
Speaker Change: I don't know that we did quantify.
Speaker Change: Specifically.
Speaker Change: I think nothing other than to say that.
Speaker Change: The higher income consumer continues to behave.
Speaker Change: What we would call kind of rationally add anything any big disconnect versus previous quarters continued to say and our premium lines on our staff.
Speaker Change: No.
Speaker Change: Sort of increased spend on fresh.
Speaker Change: Normal trends auditing anything unusual to note on the higher income consumer.
Speaker Change: Okay.
Ron Sargent: Thank you.
Speaker Change: Thank you next.
Michael Lasser: Our next question comes from Michael Lasser of UBS. Your line is now open. Please go ahead. Hey, Michael. Good morning. Thank you so much. Morning, Ron. Thank you so much for taking my question.
Speaker Change: Next question comes from Michael Lasser of UBS. Your line is now open. Please go ahead Hey, Mike.
Speaker Change: Paul.
Speaker Change: Good morning, Thank you.
Speaker Change: Morning, Ron. Thank you so much for taking my question, if we put a picture of what Kroger is experiencing together, perhaps theres, a case, where the growth in e-commerce as well as the growth in pharmacy are cannibalizing the center of the store.
Ron Sargent: If we put a picture of what Kroger is experiencing together, perhaps there's a case where the growth in ecommerce, as well as the growth in pharmacy are cannibalizing the center of the store. If this continues, is there a point at which the net result of this creates an overall challenge on ID sales? And to what degree is Kroger planning for that potential outcome today? in the event that it happens in the future.
Speaker Change: If this continues is there a point at which the net result of this creates an overall challenge on I'd sales.
Speaker Change: To what degree.
Speaker Change: Kroger planning for that potential outcome today.
Speaker Change: In the event that it happens in the future. Thank you.
Ron Sargent: Thank you. Yeah, I don't know that we've spent a lot of time thinking about that. In fact, you know, we're seeing, you know, improved grocery center store trends. We saw that, certainly in the first quarter, and we expect to see that through the continue, you know, every quarter, this year. Yeah, I don't know, there's a specific strategy around that, other than, you know, running great stores and, you know, taking great care of our customers, I think will benefit whether it's e commerce, whether it's pharmacy, or whether, you know, it's the walk in shopper. I don't, David, anything you want to add?
Speaker Change: Yes, I don't know that we spent a lot of time thinking about that in fact, we're seeing improved grocery center store trends, we saw that certainly in the first quarter and we expect to see that through the continue every quarter. This year.
Speaker Change: Yeah, I don't know there is a specific strategy around that other than running.
Speaker Change: Running great stores and.
Speaker Change: Taking great care of our customers I think will benefit whether it's e-commerce, whether it's pharmacy or whether it's the walk in shopper.
David: David anything you want to add nothing to add I agree.
David Kennerly: Nothing to add, I agree.
Michael Lasser: Thank you very much.
David: Thank you very much and my follow up question is.
Michael Lasser: And my follow-up question is, you stepped up price investments on the 2000 items, yet what sounds like the selling margin was positive. So where are you finding the offsets within the selling margin to make the additional price investments even as your gross margin, FIFO gross margin is positive?
Speaker Change: You stepped up price investments on the 2000 items.
Speaker Change: Yet the what sounds like the selling margin was positive so where are you finding offsets.
Speaker Change: Within selling margin to make it.
David: Additional price investments even as.
David: Your gross margin FIFO gross margins positive. Thank you Yeah, let me take that one Michael.
David Kennerly: Thank you. Yeah, let me take that one, Michael. So listen, I think we've got a number of levers that helped us with our gross margins. And I think these are the kind of things that we're going to try to do going forward. So our brands mix obviously helps with that. And we also saw good performance from a sourcing savings perspective. So I think that's just a couple of examples of positive contribution to our gross margin. I think we're going to have to, that's how we're going to deal with this going forward.
David: I think we've got a number of <unk>.
David: That helps us with our gross margins and I think needs of the kind of things that we're going to try to do going forwards at brands mix, obviously helps with that and we also saw good performance from our sourcing savings perspective side I think that's just a couple of examples of.
David: A positive contribution to gross margin I think we're going to have that and that's how we're going to how we're going to deal with this going forward.
David Kennerly: So, you know, we want to, so I'd expect sort of a flat gross margin expectation for balance of year as we look to balance those price investments.
Speaker Change: We want to say I would expect sort of a flat gross margin expectation for the balance of year as we look to balance those price investments with nice positive contributors.
Speaker Change: Okay.
Speaker Change: Yeah.
Operator: Thank you.
Speaker Change: Thank you.
Leah Jordan: Our next question comes from Leah Jordan of Golden Saks. The line's now open. Please go ahead. Morning. Good morning.
Speaker Change: Next question comes from Jordan <unk> of Goldman Sachs.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thank you.
David Kennerly: Seeing if you could provide more detail on the growth trends in retail media. How has engagement from partners trended, given the dynamic macro backdrop? And just how should we think about the relative impact of profit as we move through the year versus what you realized in the past?
Edward Kelly: And Dan if you could provide more detail on the growth trends in retail media how has engagement from partners trended given the dynamic macro backdrop and just how should we think about the relative impact of profit as we look through the year versus what you realized in the first quarter.
David Kennerly: Leah, let me take that one. So I think a couple of things. So first of all, I mean, we really like our offering in retail media. We've got a great suite of products that we see good engagement from brands on. And I think what we feel really good about that we think is differentiated for Kroger is our ability to do what we call kind of closed loop , which is not only obviously understanding where we spend, but really tracking the measurement through to understand how that directly impacts sales and also customer behavior. So we think we've got a good product.
Dan: Yeah, let me take that one so I think a couple of things. So first of all I mean, we really like our offering in retail media.
Speaker Change: We've got a great suite of products.
Speaker Change: We see good engagement from brands on.
Speaker Change: And I think what we feel really good about that we think is differentiated for Kroger is our ability to do what we call kind of closely measurement.
Speaker Change: She is not only obviously understanding where we spend really tracking the measurements trades you understand how that directly impacts sales.
Speaker Change: And also customer behavior. So we think we've got a good product.
David Kennerly: And certainly, as you know, having spent a long time on the brand side, brands are wanting to understand how they get the best returns for their dollars. And so for me, that is a very, very powerful set of tools. Now, I think what we talked about in Q4 talked about some spend sort of pullback in CPG spending. We did see continued, you know, sort of similar trends in Q1 where CPGs are being cautious with their spending. But I want to reinforce that the business continues to grow at a healthy rate. And we do expect to continue to see healthy growth in the business through the balance .
Speaker Change: As you know having spent.
Speaker Change: It's been a long time on the brand side, yes.
Speaker Change: Brands are wanting to understand how they get the best returns for that and so.
Speaker Change: For me that is a very very powerful set of tools.
Speaker Change: And I think when we talked about in Q4, you talked about some spend sort of pull backing in CPG spending we.
Speaker Change: We did see continued.
Speaker Change: Yes sort of similar trends in Q1 were cpg's are being cautious with their spending but I want to reinforce that the business continues to grow at a healthy rate.
Speaker Change: And we do expect to continue to see healthy growth from the business through the balance of the year.
Speaker Change: Yeah.
David Kennerly: Very helpful.
Speaker Change: That's very helpful. Thank you I just wanted to have one follow up on shrink I mean, it continues to be a tailwind for several quarters and you called out again this quarter could you talk about the magnitude of the impact to gross margin. This quarter, what's the key driver for the shrink improvement and how how much more opportunity as we go throughout the year.
David Kennerly: Thank you. I just want to have one follow-up on shrink. I mean, it continues to be a tailwind for several quarters and called out again this quarter.
David Kennerly: Could you talk about the magnitude of the impact to gross margin this quarter? What's the key driver for the shrink improvement? And how much more opportunity do you see as we go forward?
David Kennerly: So let me talk, I'll take that one. So let me talk about shrink. Yeah, you're right, we've seen good progress. And we've seen good progress across both fresh, and we've seen good progress on center store. And I think what we really attribute this to is we've made some investments in some AI enabled technology, and deployed new processes around that technology as well. And that's really allowing us to much have much better visibility of industry, the inventory we've got in store, best by date, and allows us therefore to be much more sophisticated in the ordering that we're making.
Speaker Change: So let me I'll take that one so let me talk about shrink, yes, you're right. We've seen good progress and we've seen good progress across both fresh and we've seen good progress on center store.
Speaker Change: And I think what we really attribute this to is we've made some investments in.
Speaker Change: <unk> AI enabled technology and deployed new prices around that technology, as well and that's really allowing us to march have much better visibility of.
Speaker Change: The inventory we've got installed.
Speaker Change: Best buy dates and allows us therefore to be much more sophisticated in the ordering that we're making so.
David Kennerly: So our expectation is we're going to continue to see good shrink performance through the balance of the year. And we'll continue to make investments in this space, provided we will continue to see the good returns that we're seeing. Just just one addition is, you know, sales sales help shrink, and more hours in stores help shrink, and more focused employees help shrink. So I think there's a lot of things going on to improve our shrink . Thank you.
Speaker Change: Our expectation is we're going to continue to see good shrink performance through the balance of the year and we will continue to make investments in this space provided we will continue to see good returns that we're seeing.
Speaker Change: And.
Speaker Change: Just one addition is.
Speaker Change: Sales channels help shrink.
Speaker Change: And more hours in stores helps shrink and more focused employees help shrink so.
Speaker Change: I think theres, a lot of things going on to improve our shrink results.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the repurchase of Oppenheimer. Your line open. Please go ahead morning refresh good morning, and thanks for taking my question. So I guess I just want to start with express scripts I was curious how that ramp is going versus expectations and then related express scripts, just curious if youre actually building in <unk>.
Rupesh Parikh: Our next question comes from Rupesh Parikh of Oppenheimer. Your line is now open. Please go ahead.
David Kennerly: Morning, Rupesh. Good morning. Thanks for taking my question. So I guess I just want to start with Express Scripts. I was curious how that ramp is going versus expectations. And then related to Express Scripts, just curious if you're actually building in benefits for the remaining quarters on the top line. Yeah, Rupesh, let me take that one. So as we said, ESI had a very minimal impact on the quarter, so less than 10 basis point impact on sales. The reason we didn't include it in the guide for the year is because we knew it would be, you know, difficult to predict, because, you know, you've got these big commercial contracts, the timing of which, you know, they sort of come back on screen is difficult to predict.
Speaker Change: That's for the remaining quarters on the top line.
Speaker Change: Yes, let me take that one so as we said ESI had a very minimal impact on the quarter. So less than 10 basis point impact on sales. The reason we didn't include it in the guide for the year and sequence we knew it would be.
Speaker Change: Difficult to predict because you've got these big commercial contracts, the timing of which they sort of come back on strain is difficult to predict so I would say we were on track.
David Kennerly: So I'd say we're, we're on track.
David Kennerly: But specifically, the guide for the balance of the year continues to exclude ESI.
Speaker Change: But specifically the guide for the balance of the year continues to exclude ESI.
Speaker Change: Yeah.
David Kennerly: Okay, great.
David Kennerly: And then maybe just one follow up, just just on just on trends. Just share us on quarter date in terms of what you got to seeing so far. Yeah, you know, I would say that the we're happy with the way the quarter started. And it's in line with the guidance that we communicated in the pre prepared remarks. Thank you.
Speaker Change: Okay, Great and then maybe just one follow up just on just on trends.
Speaker Change: Just curious on quarter to date in terms of what you're seeing so far.
Speaker Change: Yeah.
Speaker Change: Yes, I would say that they were happy with the way the quarter started.
Speaker Change: And it's in line with the guidance that we communicated in the prepared remarks.
Speaker Change: Thank you. Our next question comes from Chuck Cerankosky with Northcoast research.
Chuck Cerankosky: Our next question comes from Chuck Cerankosky of North Coast Research. The line is now open. Please go ahead.
Speaker Change: Open. Please go ahead.
Speaker Change: Chuck.
Ron Sargent: Good morning, everyone. In looking at your storing strategy and investments in stores, could you give us sort of an overall view of what you're doing there in terms of what you're closing, where you're closing, where you're opening? What type of formats are you favoring? And in the context of other competitors changing their stores, not the least of which are the drug chains, and also the use of pharmacy and fuel in this in this strategy?
Speaker Change: Good morning, everyone.
Speaker Change: And looking at your storing strategy and investments in stores could you give us sort of an overall view of what you're doing there in terms of what Youre closing, where you are closing where you're opening what type of formats.
Speaker Change: Favoring.
Speaker Change: And in the context of.
Speaker Change: Other competitors changing their stores not the least of which are the drug chains and also the use of pharmacy and fuel in this in this strategy. Thank you.
Ron Sargent: Thank Let me start on store closures. As we noted, we plan to close roughly 60 stores, and we'll do that over the next 18 months. We usually evaluate individual store performance on an annual basis, and we continue to do that, but we deferred closing any stores due to the merger process. So we see this as an opportunity to move these closed store sales to other stores, and we think that should improve profitability. There's really minimal financial impact on company results as a result of these store closures. The geography is spread really around the country. It's kind of ones and twos by division, and all the associates who are affected will be offered jobs in their other stores.
Speaker Change: Sure let me.
Speaker Change: Let me start on the store closures is as we noted we plan to close roughly 60 stores and we'll do that over the next 18 months.
Speaker Change: We usually evaluate individual store performance on an annual basis, and we continue to do that but we deferred closing any stores do.
Speaker Change: Due to the merger process. So we see this as an opportunity to move these closed store sales to other stores and we think that we should should improve profitability. There is really minimal financial impact on the company results as a result of the store closures the geography is spread really.
Speaker Change: Around the country, its kind of ones and twos.
Speaker Change: By Division and <unk>.
Speaker Change: All of the associates, who are affected will be offered jobs and their other stores.
Ron Sargent: And I'm not sure I got the second point of that. That was about the strategy, how we think about opening new stores. Yeah. I mean, I think, obviously, new store openings are the biggest driver of market share gains, and we're continuing to look at that. And I think we'll be investing to accelerate store openings going forward. We don't have a number to share with you this morning, but it'll be north of the 30 that we open this year.
Speaker Change: Not sure I got the second point of that was about the strategy. How we think about opening new stores, yes, I mean, I think obviously new store openings, though with our the biggest driver of our market share gains and we're continuing to look at that and I think we will be investing to accelerate.
Speaker Change: More openings going forward, we don't have a number to share with you. This morning.
Speaker Change: But it will be north of the 30 that we open this year.
Ron Sargent: Could you comment on the geography of those openings and the format you're favoring? Yeah, you know, as you know, it takes a while to open a big Kroger store. And, you know, we're looking at, you know, geography across the country, there's no specific, you know, area, we are probably going to favor areas of the country, they're growing faster than others. We're going to look at, you know, where we have, you know, competitive opportunities or, you know, growth and within cities that we operate in. But it's, it's really scattered around the country. And there'll be a variety of store formats, although, you know, the marketplace store is a is a terrific format.
Speaker Change: Hey, could you comment on the geography of those openings and their formats your favorite.
Speaker Change: Yes, as you know it takes a while to open a big a kroger store.
Speaker Change: And we're looking at geography across the country. There is no specific.
Speaker Change: Area, we are probably going to favor areas of the country that are growing faster than others.
Speaker Change: Look at where we have competitive opportunities or.
Speaker Change: Growth in within cities that we operate in.
Speaker Change: But it's it's really scattered around the country and there'll be a variety of store formats. Although.
Speaker Change: The marketplace store is is a terrific format.
Ron Sargent: And, and, you know, many of them will be marketplace stores.
Speaker Change: Many of them will be marketplace stores.
Kelly Bania: Thanks. Our next question comes from Kelly Bania from BMO. Your line is now open, please go ahead. Good morning, thanks for taking our question. Good morning. I'm wondering if we could go back to to digital sales, and the nice acceleration there sequentially. I'm just curious if you have any specific strategies or factors that you would attribute that to. And also, in that, you noted strong demand and delivery. And I was wondering if you could clarify how much of that is more same day kind of Instacart driven delivery versus Ocado. Enabled delivery and and I just want to make sure if there's any consideration with respect to Ocado and any broader changes, just want to make sure I understood that commentary clearly.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kelly Bania BMO.
Speaker Change: Your line is now open. Please go ahead.
Kelly Bania: Good morning, Kelly Good morning, Thanks for taking our question.
Speaker Change: Wonder if we could go back to digital sales and a nice acceleration there sequentially. I was just curious if you have any specific strategies or factors that you would attribute that to.
Speaker Change: And also in that you noted strong demand and delivery and I was wondering if you could clarify how much of that is.
Speaker Change: More same day kind of into the cart driven delivery versus ocado.
Speaker Change: Enabled delivery and and I just want to make sure if theres any consideration with.
Speaker Change: With respect to Ocado and any broader changes just want to make sure I understood that commentary clearly.
Ron Sargent: Yeah, I don't know if I can point to any specific strategy, and if I had a specific strategy, I probably wouldn't announce that publicly. But I think it is good, you know, good growth really, you know, across the board. I think it's in all geography, it's, it relates to, you know, the entire assortment of our product line. And, you know, they, they always say retail is detail. And, and, you know, this is really basically about, you know, chopping wood and doing all little things. I think before we consolidated everything under Yale, there were a lot of different parts of our business that were, you know, trying to optimize.
Speaker Change: Yes, I don't know if I can point to any specific strategy and if I had a specific strategy I, probably wouldn't announce that publicly but I think it is good.
Speaker Change: Good growth really across the board I think it's and all geography, it's a it relates to the entire assortment of our product line and you know they they always say retail is detail and this is really basically about chopping wood and doing all the little things.
Speaker Change: Before we consolidated everything under Yale there were a lot of different parts of our business that we're trying to optimize.
Ron Sargent: That doesn't work unless you have kind of, you know, one owner. And I think structurally, that really helped our business because somebody's got responsibility for not only the top line in total, but the bottom line in total and every line in the, on the income statement in between.
Speaker Change: That doesn't work unless you have kind of one owner and I think structurally.
Speaker Change: That really helped our business because somebody's got responsibility for not only the top line in total but the bottom line in total and every line in the <unk> on the income statement in between.
David Kennerly: Yeah, maybe Kelly, let me add a couple of things to Ron's comments. I mean, really, our metrics on eCommerce were pretty good across the board. I mean, we grew households, we grew order volume, orders per household grew. So I think, you know, we saw a number of the metrics that are important to eCommerce, you know, continue or really saw favorable performance. So I thought we were, we were very pleased with that.
Edward Kelly: Maybe let me add a couple of things to Ron's comments.
Speaker Change: I mean really I metrics on e-commerce with a pretty good across the board I mean, we grew households, we grew <unk> oldest and households through so I think we saw a number of the metrics that are important to e-commerce.
Speaker Change:
Speaker Change: Continue.
Speaker Change: Already saw favorable performance. So I thought we were very pleased with that on the <unk> I think just to clarify.
David Kennerly: On the Ocado thing, just to clarify, just on your other question. Yeah, listen, it's a contractual thing. We had a, a clause in the contract that said on the seventh anniversary of the signing of the contract, they were able to draw down the remainder of the letter of credit and Ocado chose Thank you.
Speaker Change: Just on your other question yes.
Speaker Change: Listen it's a contractual thing we had a clause in the contract that sat on the seventh anniversary of the signing of the contract.
Speaker Change: They were able to draw down the remainder of the lesser of credit and a court.
Speaker Change: Is to do that.
Speaker Change: Thank you.
Scott Marks: Our final question for today comes from Scott Marks of Jefferies. Your line is now open. Please go ahead. Morning, Scott. Hey, good morning. Thanks so much. Morning. Thanks so much for taking our questions. I wanted to just ask, you know, you made some commentary around our brands kind of outperforming the national brands for, I believe it was the seventh quarter in a row. Have you seen any change in strategy from your branded suppliers, whether it be promotional or otherwise? I'm not the merchant here, but I think the answer is really not, you know, I think there The selling strategies of our suppliers continue like they have been for several quarters.
Speaker Change: Final question for today comes from Scott <unk> of Jefferies.
Speaker Change: Please go ahead good morning, Scott.
Scott: Thanks, so much.
Speaker Change: Thanks, so much for taking my questions.
Speaker Change: Wanted to just ask you made some commentary around our brands kind of outperforming the national brands for I believe it was the seventh quarter in a row have you seen any change in strategy from your branded suppliers, whether it be promotional or otherwise.
Speaker Change: I'm not the merchants here, but I think the answer is really not.
Speaker Change: Thank you.
Speaker Change: There.
Speaker Change: The selling strategies of our suppliers continue like they have been for several quarters, we're not seeing them being more aggressive on pricing or promotion I think it's kind of a bit of a steady state with most of our CPG partners.
Ron Sargent: We're not seeing them being more aggressive on pricing or promotion. I think it's kind of a bit of a steady state with most of our CPG partners. Got it.
Speaker Change: Got it and then just as a follow up.
Ron Sargent: And then just as a follow up, in light of some of the political backdrop with, you know, ban on some artificial food dyes and other potential regulatory changes down the pipe, wondering if if you've thought about how that might impact, you know, the center store part of your business, especially in any kind of, you know, discussions with with some of those branded suppliers. Well, I think there's certainly a trend going on in Washington to eliminate, you know, anything artificial and, you know, particular in the area of dyes. I mean, I think many CPGs are reformulating their products to address that and deal with that.
Speaker Change: <unk> of some of the political backdrop with.
Speaker Change: Ban on some artificial dyes and other potential regulatory changes down the pipe wondering if you've thought about how that might impact the center store part of your business, especially.
Speaker Change: And any kind of.
Speaker Change: Discussions with with some of those branded suppliers.
Speaker Change: Well I think Theres, certainly a trend going on in Washington to eliminate anything artificial and.
Speaker Change: Particular in the area of dies.
Speaker Change: I think many CPG or reformulated their products to address that and deal with that and certainly we're all over that for Kroger brands and our brands I think you know from.
Ron Sargent: And certainly we're all over that for Kroger brands and our brands. I think, you know, from a regulatory standpoint, I think we're spending a little more time on tariffs than we are on kind of artificial food ingredients, although, you know, our customers are looking to, you know, eat healthier and buy healthier products. And I think we are trying to respond to that. But in terms of tariffs, and the question hasn't come up, but we've really seen very minimal impact from tariffs, you know, and where we do see impacts in areas like, I don't know, produce, flowers.
Speaker Change: From a regulatory standpoint, I think we're spending a little more time on tariffs than we are on kind of artificial fuel food ingredients, although our customers are looking to eat healthier and by healthier products and I think we are trying to respond to that but.
Speaker Change: In terms of tariffs and the question hasn't come up but.
Speaker Change: We've really seen very minimal impact from tariffs.
Speaker Change: And where we do see impacts in areas like I don't know produce flowers.
Ron Sargent: We are working very hard to mitigate that impact. And we're pushing back on any suppliers who would like to, you know, pass along the additional cost. We're looking at, you know, some of the country of origin stuff. And we're even discontinuing some items where it doesn't make sense for our customers. Thank you.
Speaker Change: We're working very hard to mitigate that impact and we're pushing back on any suppliers, who would like to.
Speaker Change: Pass along the the additional costs.
Speaker Change: We're looking at some of the country of origin stuff and we're even discontinuing some items, where it doesn't make sense for our customers.
Speaker Change: Yeah.
Ron Sargent: I'll now turn it back to Ron for any further remarks. Well, thanks, everybody. I appreciate all the questions today is, as you know, before we conclude our earnings call, we'd like to share a couple of comments with our associates listening in. To them, I say thank you. I thank you for all your efforts, which made our strong quarter possible. We still have a lot of work to do, and we appreciate your continued commitment to running great stores and taking great care of our customers. So thanks everybody for joining us on the call this morning. We look forward to speaking with all of you again soon, and we hope to see you all in our stores.
Ron Sargent: Thank you I'll now turn it back to Ron for any further remarks.
Ron Sargent: Well, thanks, everybody I appreciate all the questions today as you know before we conclude our earnings call.
Speaker Change: We'd like to share a couple of comments with our associates listening in.
Speaker Change: To them I say, thank you I. Thank you for all your efforts, which made our strong quarter possible.
Speaker Change: We still have a lot of work to do and we appreciate your continued commitment to running great stores and taking great care of our customers.
Speaker Change: So thanks, everybody for joining us on the call. This morning, we look forward to speaking with all of you again soon and we hope to see you all in our stores.
Operator: Thank you all for joining today's call.
Speaker Change: Thank you all for joining today's call you may now disconnect your lines.
Operator: You may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.