Kroger Q2 2022 Earnings Report

Kroger EPS Results

• Actual EPS: $0.80
• Consensus EPS: $0.64
• Beat/Miss: Beat by +$0.16
• One Year Ago EPS: $0.73

Kroger Revenue Results

• Actual Revenue: $31.68 billion
• Expected Revenue: $30.69 billion
• Beat/Miss: Beat by +$990.28 million
• YoY Revenue Growth: +3.90%

Kroger Announcement Details

• Quarter: Q2 2022
• Date: 9/9/2021
• Time: Before Market Opens
• Conference Call Date: Friday, September 10, 2021
• Conference Call Time: 8:00AM ET

The Kroger (NYSE:KR) Co. (NYSE: KR) is one of the largest supermarket operators in the United States, offering a wide range of retail grocery and related services. Founded in Cincinnati in 1883 by Bernard Kroger, the company operates a portfolio of supermarket and multi-department store banners and provides customers with fresh foods, packaged groceries, deli and bakery items, meat and seafood, produce, and prepared foods. Kroger’s stores commonly include pharmacy services and fuel centers, positioning the company as a broad-based neighborhood retail destination for everyday needs.

In addition to traditional in-store retailing, Kroger manufactures and distributes a variety of private-label brands and operates its own food production and supply-chain facilities. The company has invested in e-commerce and omnichannel capabilities to support grocery pickup and delivery, digital promotions and loyalty programs, and other customer-facing technologies. Kroger’s product and service mix also extends to private-label offerings designed to address consumer preferences for value and specialty choices, as well as partnerships and initiatives aimed at improving supply-chain efficiency and fresh food sourcing.

Kroger’s operations are concentrated across the United States, where it serves customers through multiple regional banners and formats. The company has expanded its footprint over time through organic growth and acquisitions of regional grocery chains, while also pursuing investments in automation and digital fulfillment to adapt to changing consumer behavior. Rodney McMullen has served as Kroger’s chief executive officer since 2014, guiding the company through initiatives focused on technological modernization, customer loyalty, and competitive positioning within the U.S. grocery industry.

Kroger Q2 2022 Earnings Call Transcript

Key Takeaways

• Identical sales ex‐fuel declined 0.6% year‐over‐year but rose 14% on a two‐year basis, with triple‐digit digital growth, driving confidence in delivering 8–11% total shareholder returns.
• Customers seamlessly shifted between channels as part of Kroger’s seamless ecosystem, adding over 340,000 new digital households, cutting pickup wait times, and on track to launch 6 customer fulfillment centers by 2023.
• Kroger led with fresh and private brands, recording positive comps in produce, floral, deli and bakery, while Simple Truth and Private Selection brands gained share through new innovations like GOES Kitchen and the Go Fresh & Local Supplier Accelerator.
• Gross margin contracted 60 bps ex‐fuel due to price investments, shrink and supply chain costs, but Kroger tapped operational efficiencies to achieve a $1 billion cost savings goal and raised full‐year guidance despite higher inflation.
• With almost 500,000 associates, Kroger advanced its ESG and human capital priorities—administering 6.7 million vaccine doses, winning a Gold Award for COVID‐19 response, and investing $350 million in hourly wage increases for 2021.

Presentation

[Operator]

Good day, welcome to the Kroger Company second quarter earnings call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Robert Clark. Please go ahead.

[Robert Clark, Head of Investor Relations at Kroger]

Thank you, Sarah. Good morning. Thank you for joining us for Kroger second quarter 2021 earnings call. I am excited to be here today and look forward to working with all of you in my new role as Head of Investor Relations. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullen, and Chief Financial Officer, Gary Millerchip. 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. Our press release and supplemental information regarding the quarter can be found on our website at ir.kroger.com.

[Robert Clark, Head of Investor Relations at Kroger]

After our prepared remarks, we look forward to taking your questions. I will now turn the call over to Rodney.

[Rodney McMullen, Chairman and CEO at Kroger]

Thank you, Rob, and congratulations on your new role. I would also like to take a minute to thank Rebekah Manis for her service to the IR team. We wish her continued success in her new role as head of new geographies for our customer fulfillment centers. I would like to thank you all for joining us today. Our associates have done an incredible job operating our stores, pharmacies, supply chain, and manufacturing facilities through the COVID environment. Their unending commitment to serving our customers and communities continues to make a difference in Kroger's second quarter identical sales without fuel, grew 14% on a two-year stacked basis, ahead of our internal expectations. We saw triple digit growth in digital over the same time period and continued to drive costs out of the business through cost saving initiatives and operational efficiencies.

[Rodney McMullen, Chairman and CEO at Kroger]

We remain confident in our positioning and our ability to deliver consistently attractive total shareholder returns of 8% to 11% over time. I'd like to spend the next few minutes discussing three key areas. First, customer behavior and how our seamless ecosystem is working. Second, I'll share examples of how we are Leading with Fresh and Accelerating with Digital. Finally, I will highlight how we continue to live our purpose to feed the human spirit through the associate experience and our work to advance Kroger's ESG commitments. Our strategic focus on Leading with Fresh and Accelerating with Digital continues to build momentum across our businesses. As we've operated through the pandemic, we've recognized that the structural shifts in our customers' eating and cooking habits. Customers are responding favorably to our value proposition and are enjoying the convenience of our seamless offerings.

[Rodney McMullen, Chairman and CEO at Kroger]

Early in the quarter, customers visited stores more frequently and many shifted from online to in-store. This highlights the relevance and convenience of our easily accessible footprint. Toward the end of the quarter, as COVID-19 cases increased in many geographies, customers began shifting back to our digital solutions. This further demonstrates the strength of our seamless ecosystem. Customers can choose how they want to shop. Our job is to be available in every channel so the customer does not have to compromise. Regardless of how they choose to shop, customers are eating more food at home because it's more affordable, convenient, and healthier than other options. While some food at home trends may be transitory, our research suggests those I highlighted are structural, and Kroger is uniquely positioned to address them.

[Rodney McMullen, Chairman and CEO at Kroger]

Through our assortment of fresh products, world-class digital platforms, and innovative meal solutions, we will continue to elevate our position as a food authority so that when customers think food, they think Kroger. We continued to advance our position as a leader in fresh during the second quarter. We saw positive identical sales in produce and floral and deli bakery, even as we lapped elevated sales in 2020. Our research shows how much our customers love our brands. Sales for both Simple Truth and Private Selection brands were strong as food at home trends remain sticky. We continue to innovate within fresh. For example, our expanded partnerships with Ghost Kitchens allow us to offer customers freshly prepared, on-demand restaurant food.

[Rodney McMullen, Chairman and CEO at Kroger]

This is especially relevant at a time when many customers are looking for inspiration, and 70% of our customers say convenience is important when cooking. We also announced our 2021 Go Fresh & Local Supplier Accelerator cohort, and are already bringing innovative, locally, and regionally sourced products to stores across the country, and helping many small entrepreneurs achieve their dreams. Earlier this week, Kroger announced our new brand icon. The Fresh Cart icon brings together the Kroger family of companies under one unifying visual and reinforces our brand promise, Fresh for Everyone. We are very proud of our growth in digital, which increased 114% over the last two years, similar to our first quarter growth. We remain on track to deliver against our 2023 digital growth and profitability targets introduced at our 2021 IR day.

[Rodney McMullen, Chairman and CEO at Kroger]

While digital sales decreased 13% during the quarter, almost all customers who reduced their online spend during the quarter continue to shop with us in store, highlighting the power of our ecosystem and our ability to create a meaningful customer experience across all channels. As a short reminder, Kroger has doubled our e-commerce household penetration, increasing the number of our brick-and-mortar customers that engage with our digital solutions since 2019. During the quarter, we added over 340,000 new customers to our digital platforms. We continue to expand capacity across our footprint, and we reduced wait times for Kroger Pickup. As we look ahead, our seamless ecosystem will remain a competitive advantage as we offer what customers need and want in a way that fits into their life, whether it's shopping in our stores, picking it up at our stores, or getting it delivered or shipped directly to their homes.

[Rodney McMullen, Chairman and CEO at Kroger]

We continue to enhance our seamless ecosystem. As we've shared last quarter, we currently have 2 customer fulfillment centers open, which are expanding our capabilities in Ohio and allowing us to expand into new geographies within Florida. We are happy with the performance thus far and are energized by the volume and growth in both sheds. In Ohio, our focus has been on evolving the customer proposition to maximize opportunities alongside our existing digital solutions. In Florida, we launched Delivery Savings Pass, offering customers unlimited deliveries for just $79 per year. We continue to see incredible Net Promoter Scores, and our customers tell us they love our friendly, professionally trained drivers and the refrigerated delivery vans that bring the freshest food directly to their doorsteps. Looking ahead, we remain on track to open six customer fulfillment centers over 2022 and 2023, which will further expand our seamless ecosystem.

[Rodney McMullen, Chairman and CEO at Kroger]

Before I share some specifics on how we are using data and personalization to grow the business, I thought it would be helpful to remind you about our rewards program and how it works. Our rewards program has been active for over two decades. It captures data from 60 million households and 96% of our sales. Customers clearly see the value of our program, which drives sales and builds loyalty. As an example, nearly 60% of all items in a digital basket were added through our personalization science, highlighting our ability to make meaningful suggestions that surprise and delight customers. Furthermore, when we personalize recommendations for our customers, we can reduce their time to shop by nearly 70%. Overall, one in three people have noted that groceries have gotten more expensive in the past month.

[Rodney McMullen, Chairman and CEO at Kroger]

Kroger customers benefit from our personalization as we offer highly relevant savings at a household level, allowing them to further stretch their food dollars. Our associates continue to deliver a full, fresh, and friendly customer experience every day, every time, while also supporting our communities through the pandemic. We remain urgently focused on keeping people safe in our stores and facilities. Our teams were recently recognized with the Gold Award for excellence in human capital management from the Brandon Hall Group for our people-centered COVID-19 response. Obviously, we're especially proud of that recognition. During the quarter, we introduced new technology to elevate our associate experience. Kroger launched Fresh Start, a new personalized training program to foster greater associate engagement and retention. We also launched our Feed app, which provides associates easy access to company communications and resources from their smartphones.

[Rodney McMullen, Chairman and CEO at Kroger]

We are incredibly proud that during the quarter, we saw an improvement in retention as we strive to be an employer where associates can come for a job and stay for a career. Turning now to the Live Our Purpose, we continue to believe that customers, associates, and investors are increasingly choosing where to shop, where to work and where to invest in companies that are taking meaningful steps to improve our communities and work to build a more sustainable planet. We recently published our 2021 ESG report on thekrogerco.com. It outlines our progress over the last several years. It further outlines our aspiration to further integrate ESG performance into lines of business, and our commitment to creating shared value that benefits all stakeholders.

[Rodney McMullen, Chairman and CEO at Kroger]

We imagine a world where everyone is thriving together, and Kroger is helping millions of people live healthier, more sustainable lifestyles, protecting and restoring natural resources, and contributing to more responsible and inclusive global systems. One of the many ways we bring our ESG vision to life is through our work that our Kroger Health team has been doing to serve and support our customers and communities through the pandemic. During the quarter, we worked with Lyft to provide rides to COVID-19 vaccine appointments, teamed up with local sports icon to drive awareness and access in the underserved communities, and we concluded our Community Immunity Giveaway. To date, we have provided over 6.7 million doses of the vaccine and continue to drive availability and education.

[Rodney McMullen, Chairman and CEO at Kroger]

Yesterday, President Biden noted that Kroger is one of three national partners who have agreed to make the rapid COVID tests available to customers at cost for the next 100 days. Kroger is committed to helping people live healthier lives while safeguarding the communities we serve. Our ESG goals are ambitious, and with a team of almost 500,000 dedicated and driven associates, they are also achievable. Since we first introduced our commitment to delivering strong and sustainable total shareholder return in 2019, our teams have been laser-focused on execution. This focus has resulted in tangible results, allowing us to deliver this quarter and for the long term. Now, I would like to turn it over to Gary to discuss our second quarter financial results. Gary?

[Gary Millerchip, CFO at Kroger]

Thanks, Rodney, and good morning, everyone. Kroger is delivering strong results and continues to build momentum as we execute on our priorities of leading with fresh and accelerating with digital. During the quarter, adjusted FIFO operating profit grew by a compounded annual growth rate of 23% over 2019, and adjusted EPS grew by a compounded annual growth rate of 35% over the same two-year period. This reflects our disciplined approach to executing our strategy, balancing investments in our associates and customers with strong cost management and accelerating growth in our alternative profits business. It also provides a further proof point of how we are successfully navigating the pandemic and emerging stronger as a business. I will now provide additional details on our second quarter results. Identical sales without fuel declined 0.6%. On a two-year stack basis, identical sales without fuel increased 14%.

[Gary Millerchip, CFO at Kroger]

Each period during the quarter was stronger than the last, and I'm delighted to say we returned to positive identical sales without fuel during the final period of the quarter. Our digital platform remains a key strength in our model, and we were pleased with the triple-digit growth achieved over 2019. We remain on track with our plans to double our digital business by 2023 and would expect continued investments in the customer experience, scaling of new fulfillment centers, and several new innovations which we will announce throughout the year to drive future growth. As shared last quarter, we would not expect future digital growth to be linear, especially as we cycle COVID-19 in 2021.

[Gary Millerchip, CFO at Kroger]

During the quarter, we also made further progress in improving digital profitability as we achieved a record low for the time taken to pick a digital order in store and continue to see growth in the media revenue generated on digital transactions. Gross margin was 21.4% of sales for the second quarter. The FIFO gross margin rate, excluding fuel, decreased 60 basis points compared to the same period last year. This decrease was primarily related to price investments and higher shrink and supply chain costs, partially offset by sourcing benefits and growth in our alternative profit business. On a two-year basis, our FIFO gross margin rate, excluding fuel, decreased 55 basis points compared to 2019. Consistent with many retailers, we experienced supply chain constraints and increased warehouse and transportation costs during the quarter.

[Gary Millerchip, CFO at Kroger]

We are actively managing this risk within our business by securing increased capacity and augmenting associate retention programs within our own facilities. We expect supply chain costs to remain elevated in the second half of the year, and this is contemplated in our updated guidance. In the second half of the quarter, we also saw higher inflation in some categories. We are being disciplined in working with suppliers to manage these increases and are passing along higher cost to the customer where it makes sense to do so. While difficult to predict with precision, as we shared last quarter, we believe inflation for the full year will be higher than originally contemplated in our 2021 business plan. For the second half of 2021, our guidance now assumes inflation of between 2% and 3%.

[Gary Millerchip, CFO at Kroger]

Recognizing recent inflation trends and our outlook for the rest of the year, we recorded a higher LIFO charge for the quarter of $47 million compared to $23 million in the prior year. Kroger's strong operational execution allowed us to leverage Operating, General & Administrative expenses by 76 basis points, excluding fuel and adjustment items in the second quarter. This reflects lower COVID-19 related costs and savings captured through our cost-saving initiatives. On a two-year basis, our OG&A rate, excluding fuel and adjustment items, decreased by 137 basis points compared to 2019. We continue to see opportunities to streamline processes and leverage technology and remain on track to deliver $1 billion in cost savings during 2021. The traffic and data generated by our seamless ecosystem continues to create a strong flywheel effect for our alternative profit business, which again experienced significant profit growth in the quarter.

[Gary Millerchip, CFO at Kroger]

Media and Kroger Personal Finance continue to lead the way, and we remain on track to achieve the high end of our expected range of $100 million-$150 million of incremental operating profit in 2021. Fuel is also an important part of our overall value proposition for our customers. Gallons grew in the 2nd quarter by 7% and outpaced market growth. The average retail price of fuel was $3.13 this quarter versus $2.14 in the same quarter last year. Our cents per gallon fuel margin was $0.39 compared to $0.37 in the same quarter in 2020, and fuel was a tailwind to operating profit of $33 million compared to prior year. Turning now to our financial strategy. We continue to generate strong free cash flow and remain committed to investing in the business to drive sustainable growth while also returning excess cash to shareholders.

[Gary Millerchip, CFO at Kroger]

We are prioritizing capital investments that support our growth strategy, widen our competitive moats, and deliver strong returns. Capital expenditures year to date were down compared to prior year as we carefully navigated the impact of higher project costs and longer project lead times due to a challenging labor market. As we confirmed in guidance today, we are maintaining our range for capital investments, excluding mergers, acquisitions, and purchases of lease facilities, of between $3.4 billion and $3.6 billion and would currently anticipate coming in at the low end of this range for the year. During the quarter, Kroger repurchased $349 million of shares, and year to date has repurchased $751 million of shares. As of the end of the second quarter, $779 million remains outstanding under the current board authorization announced on June 17, 2021.

[Gary Millerchip, CFO at Kroger]

In June, Kroger also increased the dividend by 17%, marking the 15th consecutive year of dividend increases. Our proactive approach to investing in our associates over recent years is helping us navigate a challenging labor market. Our strategy continues to focus on investing in compensation plans that reward our associates in ways that are meaningful to them. We are committing to investing $350 million in hourly wage increases for our associates during 2021, in addition to the $800 million we invested in associate wages between 2018 and 2020. Over the same period, we have also taken several opportunities to improve the security of our associates' pension benefits. Our average hourly rate is now in excess of $16 an hour, and with comprehensive benefits factored in, will be approaching $21 by the end of 2021.

[Gary Millerchip, CFO at Kroger]

We are committed to increasing retail hourly wages sustainably, and our long-term financial model fully contemplates continued investments in associate hourly rates. During the second quarter, we ratified new labor agreements with the UFCW for associates in our Atlanta, Michigan, Food 4 Less, and Mid-Atlantic divisions, covering over 34,000 associates. We continue to negotiate contracts with the UFCW for store associates in Houston, Little Rock, Memphis, and Portland. Our financial results continue to be pressured by inefficiencies in healthcare and pension costs, which most of our competitors do not face. We continue to communicate with our local and international unions, which represent many of our associates, about the importance of growing our business in a profitable way, which will help us create more jobs and career opportunities and enhance job security for our associates. Turning now to our expectations for the second half of 2021.

[Gary Millerchip, CFO at Kroger]

Driven by momentum in our results and sustained trends in food at home, we are raising our full year guidance. We have also narrowed the range of our guidance as we are further into the year and the trends in our business and the broader food at home market become clearer. We now expect identical sales without fuel in the second half of 2021 to be flat to slightly positive, resulting in full year results of -1.5% to -1%, and a two-year identical sales stack of between 12.6%-13.1%. We expect our adjusted net earnings per diluted share to be in the range of $3.25-$3.35. We expect our adjusted FIFO operating profit to be in the range of $3.9 billion-$4 billion. Reflecting a two-year compounded annual growth rate of between 14.1% and 15.6%.

[Gary Millerchip, CFO at Kroger]

In conclusion, we are emerging stronger through the pandemic and remain confident in our ability to deliver total shareholder return of 8%-11% by sustainably growing earnings and using our resilient free cash flow to return excess cash to investors. Now I'll turn it back to Rodney.

[Rodney McMullen, Chairman and CEO at Kroger]

Thank you, Gary. The environment we operate in is dynamic, and I am so proud of our associates' ability to meet the challenge and serve our customers while building for the future. Kroger's seamless ecosystem is working. This was evident during the quarter as we saw customers seamlessly shift between channels, and we continue to see strong digital engagement. We are leveraging technology, innovation, and our competitive moats to deliver against the total shareholder return model we introduced in 2019 and reaffirmed in 2021. Kroger will continue to deliver for all stakeholders and position the business for long-term success. We look forward to your questions.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Greg Badishkanian with Wolfe Research. Please go ahead.

[Spencer Hanus, Analyst at Wolfe Research]

Good morning. This is Spencer Hanus on for Greg. Can you guys talk about the comps that you're seeing quarter to date? I think the guidance does imply somewhat of a slowdown on a two-year basis in the second half. Although it's early, how are you thinking about comps in 2022? Do you guys get back to your long-term algo next year? Thanks.

[Rodney McMullen, Chairman and CEO at Kroger]

Yeah. As Gary mentioned in his prepared remarks, the last period of the second quarter, we've returned to positive identicals. So far in the third quarter, we've continued to see the trend of positive identicals, and our guidance for the balance of the year, is positive as well. We're very pleased with where we are. We're pleased with the performance our teams are doing, and we're making progress and substantially ahead of where we initially thought we would be at this point in time on cycling the COVID peak from last year. As we look toward 2022, Gary, unless you want to get into more of the details, I think the key thing would be what we talked about at our Investor Day in 2021, and that's our commitment to a TSR model of 8%-11%.

[Rodney McMullen, Chairman and CEO at Kroger]

That's driven by a combination of sales growth, slight margin improvements, and taking free cash flow and returning to our shareholders via dividend and stock buyback. The sum of those together is what will drive the 8%-11%, and we remain committed to that. Obviously, since we put it in place in 2019, we've outperformed it. I don't know, Gary, if you want to add anything.

[Gary Millerchip, CFO at Kroger]

The only thing I would add, I think you said it very well, Rodney, is we feel really good about the trends in the business, obviously, as we shared on the prepared comments. As you look at the back half of the year, you asked for additional color on how we're thinking about the trends that we're seeing there and the guidance. I would say we're obviously heading into the back half of the year, as Rodney mentioned, with momentum in the business. We did raise the guidance to now be in that sort of 0%-1% for the back half of the year based on reversing into that from the year-to-date performance and the guidance that we gave for the year.

[Gary Millerchip, CFO at Kroger]

Overall, we're feeling really good about how we're executing in the business and seeing that sustained trend in food at home, as consumers continue to gravitate towards some of the trends that Rodney talked about. Also obviously we are seeing some return to previous behavior with the Delta variant currently prevalent in the U.S. as well. That being said, we do still think there are some knowns in the market. If you look at different countries, how long the impact of the Delta variant lasts, if you like, on consumer behavior. We are seeing some consumers return to normal behavior of returning to offices in some cases.

[Gary Millerchip, CFO at Kroger]

While we feel really good about our trends and our ability to continue to win with the customer, the back half of the year would be more of an 11%-12% two year stack based on still some of the uncertainties and unknowns around those elements that we're still looking to see how they play out. I think the only other thing that I would reinforce on Rodney's comment is that we do expect, as we shared at our Investor Day at the beginning of the year, that as we come through 2020 and 2021, we expect the overall food-at-home trends in the market, but also specifically Kroger's overall sales to come out of 2021 in a much stronger position than we would've been had the pandemic not occurred. We believe that will still certainly be true as we head towards 2022.

[Gary Millerchip, CFO at Kroger]

Obviously, we look forward to sharing more details on 2022 when we get towards the end of the year.

[Spencer Hanus, Analyst at Wolfe Research]

Thanks. That's really helpful color. Could you guys comment on how rational your peers have been at passing through inflation? Are you expecting any gross margin headwinds from some of the elevated inflation in the perimeter of the store? Any additional color there would be helpful.

[Rodney McMullen, Chairman and CEO at Kroger]

If you look at during the quarter, about half of the gross margin impact was from higher shrink and higher supply chain costs. Gary, in his prepared remarks, talked a little bit about both of those. If you look at shrink, a lot of that, about half of the half or 25% of it is driven within the shrink component, and that's heavily driven by organized crime, or at least it appears to be. I know Congress and other groups are starting to spend more time on understanding what's driving that and what's behind it and what's the distribution channels for the stolen products as well and trying to manage that. On the supply chain costs, we are proactively investing there to minimize the effect.

[Rodney McMullen, Chairman and CEO at Kroger]

On both of those areas, the guidance that Gary shared for the balance of the year reflects the pressure in those areas. From an inflationary standpoint, as you know, over time, we've been successful in operating in slow or negative inflation and high inflation, and we would see this no different. Our business, the easiest place to operate is when inflation's between 3% or 4%, but you don't ever get what you. It makes it the easiest. So far, costs are being passed through in an organized way for the most part and as we would expect in following our strategy.

[Spencer Hanus, Analyst at Wolfe Research]

Great. Thank you so much.

[Rodney McMullen, Chairman and CEO at Kroger]

Thanks, Greg. Sorry.

[Operator]

Our next question comes from Michael Lasser with UBS. Please go ahead.

[Michael Lasser, Analyst at UBS]

Good morning. Thanks a lot for taking my questions. I wanted to drill down into your comments around the consumer embracing eating at home, coupled with targeting the total shareholder return formula for next year. We're still largely in the midst of this pandemic. Many workers are still working from home. Is the strength this year just delaying the inevitable shift back to food away from home in calendar 2022? If that's the case, you're guiding to a 3% operating margin this year, essentially. How will you be able to maintain this operating margin rate in an environment where your sales are going to continue to be pressured, particularly as you have reduced a lot of your OG&A expenses this year? Thank you.

[Rodney McMullen, Chairman and CEO at Kroger]

Thanks, Michael. I'll start and let Gary finish. If you look at all of our research on people eating at home, customers are telling us they enjoy eating at home and eating with their families, which we believe is structural and sustainable. They're also telling us that eating at home, they're able to eat healthier, stretch their budget significantly further because it's not nearly as expensive as eating in a restaurant. They also like showing off their new skills on cooking. All of those things, everything that our research would suggest are long-term trends and structural trends. The other thing that everybody on the call, your guess is as good as ours, but everything that we can tell, we believe that people will continue working from home more than the past.

[Rodney McMullen, Chairman and CEO at Kroger]

Many companies, and I know certainly we are supporting people in terms of different jobs, what jobs can be worked from what location. In all of those cases, what we're finding is people are eating more meals at home, i.e., breakfast and lunch. Everything that we can see, a meaningful part of the trend change is really structural and sustainable, and it's not just a one-time blip because of COVID. In terms of the margins and stuff, Gary, I'll let you drill into some of that detail.

[Gary Millerchip, CFO at Kroger]

Yeah, I think all I would add, Rodney, is maybe just, Michael, take you back to the journey we've been on for the last three years with our model, and if you think about how we teed it up at our investor days. We feel that over 2019, 2020, and now 2021, we're really demonstrating how we're able to manage the business more holistically as we think about delivering on our TSR model. You think about the continued investments, even through the pandemic, that we are making in our customers to ensure that they see the value we're delivering, whether that's in the experience and some of the digital investments or through continuing to invest in price where it makes sense and personalization to make sure we're positioned well with the customer.

[Gary Millerchip, CFO at Kroger]

The investments that we're making in average hourly rate for our associates to ensure that we're continuing to improve the experience there. As you look at that and then think about the way in which we've managed costs, we're continuing to accelerate our alternative profit businesses and at the same time continue to get stronger and more effective at sourcing and managing margins in that way. I think that gives us confidence in our ability to continue to manage the business overall and drive a strong TSR in line with our commitments as you think about over time what our commitments are to our shareholders. We'll obviously get into more specifics around how we think about 2022 later in the year.

[Gary Millerchip, CFO at Kroger]

At this point, I wouldn't want to get into specific details about next year, but that's certainly how we think about our model and how we get confident in our ability to maintain the trajectory over time and supported by Rodney's comments on how we think about continuing to see the customer spend dollars of food at home and how we can continue to grow our business within that context.

[Rodney McMullen, Chairman and CEO at Kroger]

Yeah. Cost, it's one of those things where we've been able to take costs out of the business without affecting the customer experience for years. I know when we set out a goal, we always think that that's all we're going to find, and then our great teams are able to find more areas for process change and cost opportunities. When I watch our operations team, Gary mentioned the procurement team, our technology team, but more importantly, how our stores and technology and operations team are working as one to continue to identify things to make our associates' job easier, to reduce the number of touches of product and be able to take costs out, which our customers then benefit. Some of that cost reduction is shared with our customers, some of it is shared with our associates.

[Rodney McMullen, Chairman and CEO at Kroger]

It's part of the overall flywheel that continues to accelerate and make our model sustainable. Gary's point on alternative profit is an important component of that as well.

[Gary Millerchip, CFO at Kroger]

Actually, Rodney, one other thing on the cost side, Michael, that I think is important too. We mentioned this again at our Investor Day, but the plan that we have to double digital profitability, that's obviously very important to the long-term strategy that Rodney outlined around how do we make sure that from a customer perspective, they're not having to compromise between store and digital experiences. But it's also important from a business model point of view to continue to improve the profitability of the channel so that from our perspective, we can be agnostic from whether the customer's buying online or buying in the store. As we grow that digital profitability rate, important to remember, that just doesn't affect the growth in the future. It affects the $10 billion business that we have today.

[Gary Millerchip, CFO at Kroger]

That's also proving to be a tailwind in the financial model in OG&A now, but also will continue to be a tailwind because we're only partway through that journey as we take cost out of filling an order and continue to grow media revenue per transaction as well.

[Michael Lasser, Analyst at UBS]

My follow-up is focusing on the media revenue per transaction. It seems like that's the area where you're really supporting the profitability of your digital business, and subsequently the overall gross margin for Kroger as a result. Where are you from an advertising perspective, from a large CPG company perspective versus getting more advertisers on the platform? Can you frame out how big this advertising opportunity can be? As an unrelated side note, to what extent was there a vaccine distribution benefit within the gross margin? One of your large competitors talked about that within the quarter.

[Rodney McMullen, Chairman and CEO at Kroger]

Well, there's several questions there. I'll briefly talk about the media. We still see retail media as a significant opportunity. We shared at Investor Day, but Kroger's retail media team and our retail media offer in five different areas, we ranked number one among our competitors in three of the five, And we were tied for number 1 in the other 2. Obviously the value CPGs get from our offer and our ability to use our data to make sure the right customers are seeing offers is substantial and significant. We believe that it's a significant opportunity to continue to grow retail media. I won't get into specifics other than we would say that we feel like we're just getting started.

[Gary Millerchip, CFO at Kroger]

Yeah. Michael, I would just say on the health and wellness question, we would certainly have seen some benefit from COVID vaccines during the quarter. Having said that, we pivoted a lot of our efforts in the pharmacy business, which as you know, is a big part of our operation and our The Little Clinic. I would say net-net, if you looked at the health and wellness business, I would think of it as largely being on plan. I wouldn't think of it as a headwind or a tailwind during the quarter or for that matter, being a headwind for the rest of the year either. I think we've got fully contemplated within our guidance the expectations around the health and wellness business going forward.

[Michael Lasser, Analyst at UBS]

Thank you very much. [You can Chuck].

[Rodney McMullen, Chairman and CEO at Kroger]

Thank you.

[Gary Millerchip, CFO at Kroger]

Thank you.

[Operator]

Our next question comes from Chuck Cerankosky with Northcoast Research. Please go ahead.

[Chuck Cerankosky, Analyst at Northcoast Research]

Good morning, everyone. Nice quarter. I want to talk a little bit about, or ask a little bit about private label in this inflationary period. How do you see customers reacting to it, and is there a difference between a customer shopping in-store and online?

[Rodney McMullen, Chairman and CEO at Kroger]

If you look at our brands, Simple Truth and Private Selection continues to really gain share and grow. We're also finding big packs are growing significantly. For us, we find our brands, if CPGs are passing through inflation that's not real, every time when somebody does that, our brands even gain incremental share. The other thing that I've been really proud of our team is the innovation they've put behind the product, we've introduced over 140 new products in the quarter, we continue to expect that going forward. We're not seeing behavior changes. If you go back to prior times when you had inflation, the customer a lot of times would trade over to our brands as part of their stretching their budget.

[Rodney McMullen, Chairman and CEO at Kroger]

We're not seeing budget changes on our brands happening at this point, but I'm sure if inflation continued, our customers are telling us they still feel pretty good where they are financially. For the most part, people are still saving at record levels and things like that. At some point, if budgets got more constrained, you would probably start seeing some of that behavior. The business we're gaining right now is really being created because of the innovation in our product and the quality of the product, and it's really standing on its own.

[Chuck Cerankosky, Analyst at Northcoast Research]

Secondly, Rodney, are you seeing regional differences in the shifts in the way people moved in and out of e-commerce over the course of the quarter?

[Rodney McMullen, Chairman and CEO at Kroger]

Yes, we would. It's really wherever COVID is higher, you would see the shift to more online, and that's delivery and pickup. As it moves north, you would see that within the company. As I mentioned in my prepared remarks, the thing that we're especially proud of is almost every customer that were shopping with us digitally early in the quarter that stopped shopping digitally, they started shopping in the stores. For us, that's really important as part of our overall strategy for seamless, because what we find is after the first year, an online shopper actually comes into the store more often than they did before they became an online shopper.

[Chuck Cerankosky, Analyst at Northcoast Research]

Have you quantified what your total e-commerce did to the operating earnings during the quarter? Is there any way to put a number on that, whether a smaller loss, or is it trending towards a positive number?

[Rodney McMullen, Chairman and CEO at Kroger]

Well, look, Gary, I'll talk a little bit. If you look at within the quarter, obviously, we had the startup costs of our sheds in Florida and Monroe, so that created a headwind. Obviously, that was reflected in our guidance that we gave for the year and our updated guidance. I don't know, Gary, if there's any additional.

[Gary Millerchip, CFO at Kroger]

Well, I think we talked about the profitability of digital in different ways. When we add in all the fixed costs, we're more on the journey towards profitability, as you were alluding to. We generally focus, though, on what's the pass-through rate on the transactions as we're growing customers. What we find with digital, as you know, is the customer becomes more loyal overall to Kroger, and we see about 50% or so incrementality as the customer engages digitally. As we've talked about previously, when you think back to last year, we're at mid-single digit pass-through rate compared to a pass-through rate that would be closer to mid to high teens on a store transaction. We're on the path to improving that profitability to drive towards doubling the profit rate on the digital transaction and ultimately targeting to get to parity.

[Gary Millerchip, CFO at Kroger]

I would say we're making good progress on that journey. As I mentioned on my prepared comments, we continue to make solid improvements in the efficiency of picking a digital order. Over time, we'd expect Ocado to play a role in that as well, of course, with the automation they provide. With media revenue continuing to grow rapidly, that's also creating a tailwind. I'd say we're seeing good momentum and on track with where we expected to be with that journey in the quarter.

[Chuck Cerankosky, Analyst at Northcoast Research]

Thank you very much. Good luck on the rest of the year.

[Rodney McMullen, Chairman and CEO at Kroger]

Thanks, Chuck.

[Operator]

Our next question comes from Edward Kelly with Wells Fargo. Please go ahead.

[Edward Kelly, Analyst at Wells Fargo]

Hi, guys. Good morning.

[Rodney McMullen, Chairman and CEO at Kroger]

Good morning.

[Edward Kelly, Analyst at Wells Fargo]

I wanted to ask about share repo and the cash balance. You ended the quarter with a lot of cash again. You are well below your leverage target. Thoughts on the buyback? Is the stock attractive here, I guess, is a straightforward question. What are your thoughts on taking out additional debt to buy back stock? With the dry powder that is here, it seems like you could probably take out north of 10% of the shares. Is this a bigger part of delivering 8%-11% next year? Just kind of curious as to how we should be thinking about all this.

[Gary Millerchip, CFO at Kroger]

Yeah. Thanks for the question, Ed. I would say, overall, we're not changing our overall financial strategy. As we think about our free cash flow, we continue to start with how can we invest in the business to grow it profitably and sustain growth, and we still think there's lots of opportunity to accelerate the model. I think we alluded to a little bit of this in our last investor day. Our goal over time would be to be stretching our top-line growth and our overall earnings growth. The focus for excess free cash flow is certainly looking for where are the opportunities as we believe we can continue to lead with fresh and accelerate with digital to drive that growth.

[Gary Millerchip, CFO at Kroger]

We're certainly going to look at any of those incremental investments against the bar of saying, "Is that going to drive a stronger return for investors versus buying back incremental stock?" Within our overall framework today, as we obviously continue to invest in the business to grow, we are committed to continuing to return cash to shareholders at the level that we've shared in our current TSR model. As you heard us say, we increased the dividend by 17% to reflect really our confidence that we expect to come out of COVID at a higher position from an an operating profit perspective as we leave 2021. We've continued to buy back stock during the quarter and would expect to continue to buy back stock at the current price. We do leverage a grid.

[Gary Millerchip, CFO at Kroger]

I think I've referred to this before. Think about it as depending on where the share price is. If the share price is lower, it buys back more stock during the quarter. If the share price is higher, it buys back less stock because we're not trying to time anything in the market. We're really trying to make sure that we're maximizing the return on the dollar as we go through the year, to take advantage of fluctuations in the price as it happens during a typical trading period. We certainly remain committed to returning cash to investors. We start with the excess cash from a point of view of saying, where could we accelerate our growth? Ultimately, we'll share more on that as we identify those opportunities, and we'll continue to flex if we believe that there aren't those opportunities.

[Gary Millerchip, CFO at Kroger]

Obviously, we'll look to make sure we are dynamic in making sure we're deploying excess cash.

[Edward Kelly, Analyst at Wells Fargo]

Okay, great. Just a quick follow-up on the gross margin. Is the two year number for Q2, is that a good way to think about the back half or with inflation accelerating and supply chain, does that headwind grow a little bit in the back half? Just curious as to how we should be thinking about that.

[Gary Millerchip, CFO at Kroger]

Yeah. I think actually Q2 is a pretty good sort of. Again, we don't go into specific numbers, but I think directionally it's a helpful way to think about the back half of the year. As you think about overall earnings, we would think gross margin continue to be a headwind. Part of that being warehouse and transportation, part of it being shrink. We're also continuing to invest in the business where we think it makes sense and give value to customers. OG&A will continue to be a tailwind, but we will see less COVID cycling, if you like, in the back half of the year. That's why the overall impact on operating profit won't be as strong in the back half of the year.

[Gary Millerchip, CFO at Kroger]

If you think about Q2 in general, outside of that cycling of extra COVID-19 costs last year in the first half of the year, I think it's a pretty good way to think about the back half of the year, Ed.

[Edward Kelly, Analyst at Wells Fargo]

Great. Thank you.

[Gary Millerchip, CFO at Kroger]

Thanks, Ed.

[Operator]

Our next question comes from Michael Montani with Evercore ISI. Please go ahead.

[Michael Montani, Analyst at Evercore ISI]

Great. Thank you for taking the question. I was just hoping to get a little bit of incremental color around the ID sales. Has the transaction count turned positive at this point? Secondly, if you could provide some incremental color around how much inflation you were able to kind of pass through to consumers vis-a-vis what you saw in COGS. Because at times in the past, you have given some helpful context there.

[Rodney McMullen, Chairman and CEO at Kroger]

If you look at transaction count, we would continue to have a slightly declining or kind of flat transaction count. It really depends on if you're looking at versus prior year or two years. If you look at basket size per purchase, it's significantly increased in terms of when customers come into the store, they buy significantly more. If you look at our online shop customer, that customer's basket size is significantly higher than a basket when somebody comes into a store. Both from a digital standpoint, and individual transactions standpoint, customers are significantly buying more. It's really three things. One, they're buying more. They're also buying premiumization of product where they've upgraded the products they buy. They also are buying bigger sized products as well.

[Rodney McMullen, Chairman and CEO at Kroger]

If you think about toilet paper, very few customers now can or will even buy a four pack of toilet paper, where most customers now are buying 24-pack or even bigger in some cases. In terms of the inflation, Gary, I'll let you answer Michael's question on that.

[Gary Millerchip, CFO at Kroger]

Thanks for the question, Michael. Yeah, we've laid out before, I know, on the call. We have a very robust process for how we manage when we see inflationary costs flowing through from suppliers. First of all, we challenge to make sure that we feel confident they're legitimate because obviously we want to make sure that they truly are structural cost changes. Then if they are, we absolutely have a process for passing them on to the customer. I would say that generally we've been very comfortable with our ability to pass on the increases that we've seen at this point. We would expect that to continue to be the case looking into the back half of the year. As you saw during the quarter, we are, though, continuing to invest in price where we think it makes sense.

[Gary Millerchip, CFO at Kroger]

Sometimes that might be in areas where we're seeing inflation. Sometimes it might be we're investing because we believe it's the right thing to do to grow customer long-term loyalty in other places through our personalization strategies. Overall, we feel good about the way in which we're able to manage the inflation within the business. At the same time, we are continuing to invest because we believe that's going to be important to grow share over the long term as well.

[Michael Montani, Analyst at Evercore ISI]

Got it. Thank you.

[Rodney McMullen, Chairman and CEO at Kroger]

Thank you.

[Operator]

Our next question comes from Karen Short with Barclays. Please go ahead.

[Rodney McMullen, Chairman and CEO at Kroger]

Karen, are you there?

[Karen Short, Analyst at Barclays]

Oh, sorry. Can you hear me now?

[Rodney McMullen, Chairman and CEO at Kroger]

Yeah.

[Karen Short, Analyst at Barclays]

Oh, sorry about that. Yeah, I had a couple questions just related to guidance. Gary, you mentioned that the vaccine admin fee kind of netted out with respect to other initiatives that you had in, I guess, health and wellness in general. I'm just wondering if you could give a little more color on that, because it was very sizable and one of your competitors in terms of basis point contribution to gross margin. Other model questions that I just wanted to clarify were, what your actual LIFO expectations are for the year, because that's obviously relevant for EPS. What your COVID-19 costs were in the quarter and what your expectations for COVID-19 costs will be for the rest of the year. I had one other bigger picture question.

[Gary Millerchip, CFO at Kroger]

Sure. Thanks, Karen. On the pharmacy side of things, essentially, you know, we operate our Little Clinics as well in a number of our stores. Multiple hundreds of stores have Little Clinic facilities. In our pharmacy core business, we continue to support the COVID vaccines. My comment earlier was, when you look at the total health and wellness business, as we pivoted resources to do more COVID vaccinations and as we provided that support, whether it be through off-site locations or through our own facilities, and you look at the total impact of the pharmacy business as customers shifted to more COVID vaccines and less of the newer prescriptions, if you like, even though we grew script count overall during the quarter and continue to grow script count.

[Gary Millerchip, CFO at Kroger]

If I look at the total impact on the health and wellness business for the quarter and the year to date, there wouldn't be a material overall outside of business plan performance. Certainly if you looked at the COVID vaccines in isolation, they would've created an incremental value to the health and wellness business, but it was offset by lower revenue or lower margin impact on other parts of that business. Netted out to being on plan, if you like.

[Gary Millerchip, CFO at Kroger]

As we look at the back half of the year, wouldn't expect it to be a reason that we'd have an incremental headwind in margin because of having less COVID vaccinations in the back half of the year. Certainly, we expect some vaccines in the back half of the year, but things start to return a little bit more to normal and less of a spike in vaccines compared to what we saw in the first half of the year. From a LIFO perspective, as I think you probably know, it's not really an easy thing to predict because LIFO as a charge is one data point at the end of the year. As we looked at the data points so far this year, we've seen inflation. We used those spots to predict where it would be.

[Gary Millerchip, CFO at Kroger]

I think the best guidance we could give you is if you take the year-to-date performance in LIFO that we've charged to the P&L and then gross that up effectively for the full-year, that would be essentially our full-year expectation based on the data points that we've seen to this point in the year and our outlook. FIFO, sorry, LIFO, I beg your pardon, is notoriously difficult to predict. We're giving you our best estimate, but at the end of the day, it'll be driven by accounting rules and a data point toward the end of the year. I think the best indication we can give you at this point is to use the year-to-date performance and gross that up for the year as our best estimate.

[Rodney McMullen, Chairman and CEO at Kroger]

In essence, annualize it, so divide by 7x 13.

[Gary Millerchip, CFO at Kroger]

Exactly, yeah.

[Karen Short, Analyst at Barclays]

Right. Then just COVID.

[Rodney McMullen, Chairman and CEO at Kroger]

Costs for the quarter.

[Gary Millerchip, CFO at Kroger]

Oh, yeah. As I mentioned earlier, we certainly saw significantly greater costs in the first half of last year. As a company, we adapted and learned how to operate more efficiently. We would certainly see continued COVID costs in the back half of this year, but cycling less cost from last year. We would expect it to be south of $100 million a quarter, but certainly, we're still seeing incremental costs in some of the areas that you would probably expect when you think about how we're continuing to operate through COVID. We still have masks costs during the quarters. We still have cleaning costs. We still have extended leave of absence for any associates that are identified as having the COVID virus and been diagnosed as a positive COVID case.

[Gary Millerchip, CFO at Kroger]

Those would be the kind of costs that we would see, and we'd expect it to be a little bit less than $100 million a year, or sorry, a quarter, I beg your pardon, as we look at the back half of the year. Still being a slight tailwind year-over-year, but nothing like what we just seen in the first half of 2020.

[Karen Short, Analyst at Barclays]

Okay. Just my bigger picture question is on Florida, so with respect to Ocado. Curious, Rodney, on your early learnings from Florida and whether you think that you may want to emphasize opening sheds in markets where you actually don't have physical retail locations or any thoughts on where you're at on that philosophy in terms of markets where you have a high market share, markets where you have middle market share, markets where you have no presence based on what you know so far.

[Rodney McMullen, Chairman and CEO at Kroger]

Yeah. It's a great question. We're still early in the process of answering that. If you look in Florida, we are tracking ahead of where we thought we would be at this point. The thing that I'm especially proud of our teams in Florida is our Net Promoter Scores are incredibly strong. I mean, mind-boggling strong, up in the neighborhood of best in class across all industries. As you know, food retail usually struggles with having Net Promoter Scores that are up in the Apple neighborhood and things like that. I'm incredibly proud of what our teams are doing in terms of creating the experience for the customer. I appreciate and like your question. I would say we're still early in the process, we continue to learn every day on our ability to ramp up a facility in a new market.

[Rodney McMullen, Chairman and CEO at Kroger]

Certainly, it's easier communicating to the customer in new markets or markets where our share isn't as high. That was one of the reasons why we picked Florida and Monroe here outside of Cincinnati, was to learn how to integrate it within our existing infrastructure and then having something from the ground up. I would expect over time, we'll learn how to do both of them, and we'll be really happy with the results.

[Karen Short, Analyst at Barclays]

Great. Thanks very much. That's helpful.

[Operator]

Our last question comes from Rupesh Parikh with Oppenheimer. Please go ahead.

[Rupesh Parikh, Analyst at Oppenheimer]

Good morning. Thanks for taking my question and fitting me in. I guess just going back to the gross margin headwinds during the quarter that you saw, two that you called out, shrink and supply chain. It sounds like that may be half the pressure that you saw during the quarter. I was curious if you see those headwinds on the shrink and supply chain at all transitory?

[Rodney McMullen, Chairman and CEO at Kroger]

I think incrementally, yes. If you look at shrink, I think shrink will remain higher. Now, we will go through and do all kinds of process changes to try to minimize shrink. We are being more aggressive, and Christine Wheatley, who's our general counsel, is also working with some trade associations to try to start working on it in a broader group, not just Kroger specific when you look at organized crime. I know I was reading The Home Depot's earnings call, and they talked about the same thing. We do believe it'll be important to partner with the government, and the way products are able to be sold in the marketplace. I do think there's things we will do to improve, but some of it will be a headwind until we're able to address that.

[Rodney McMullen, Chairman and CEO at Kroger]

On supply chain, I think an awful lot of that will be transitory. You still have to manage through it.

[Rupesh Parikh, Analyst at Oppenheimer]

Okay, great. Maybe just one follow-up question. We're hearing more and more from suppliers lately of challenges in the supply chain and being able to fulfill all the consumer demand out there. I was just curious how your out of stocks right now are trending versus what you've seen in recent months.

[Rodney McMullen, Chairman and CEO at Kroger]

Yeah. I would say that we're slightly higher. Our teams had, going in, been continuing to aggressively forward-buy inventory. Originally, it was because of the inflation pressures. It's ended up because of some of the supply chain issues. It's also one of the benefits of a lot of our own brands, and we manufacture a lot of our own brands. Our plants are aggressively pushing capacity. I would say that it is a headwind. It's slightly worse than it was, but we continue to work on minimizing and maximizing the in-stocks.

[Rupesh Parikh, Analyst at Oppenheimer]

Okay, great. Thank you.

[Rodney McMullen, Chairman and CEO at Kroger]

Thank you. Appreciate it. Before we conclude today's call, I'd like to take a moment to remember the tragic events that took place nearly 20 years ago tomorrow, and to honor the lives lost on September 11, 2001. As always, I'd like to take a moment to address our associates who are listening in. Thank you for delivering an outstanding performance this quarter and continuing to support our communities through the pandemic. As the number of COVID-19 cases continue to rise due to the rapid spread of the Delta variant, I want to affirm that health and safety of our associates and customers remain our top priority. We are doing everything we can do to make sure the vaccine is accessible and available to you and our customers wherever they are.

[Rodney McMullen, Chairman and CEO at Kroger]

I am so proud of our Kroger Health team, who have already administered 6.7 million doses of the COVID-19 vaccine. Thank you to our talented healthcare professionals for being there for our communities and for addressing questions for our customers about the vaccine and about getting the vaccine. I'm often reminded of the impact our associates have on the lives of our customers. Recently, one of our pharmacy managers in Atlanta saved the life of a customer who was having an allergic reaction in one of our stores. This is just one of the many examples that in extraordinary ways, our associates care for those around them. Thank you for inspiring me every day, and thank you for all you do every day to be there for our customers, our communities, and each other. That concludes today's call.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Gary Millerchip, CFO
• Robert Clark, Head of Investor Relations
• Rodney McMullen, Chairman and CEO

Analysts

• Chuck Cerankosky, Analyst at Northcoast Research
• Edward Kelly, Analyst at Wells Fargo
• Karen Short, Analyst at Barclays
• Michael Lasser, Analyst at UBS
• Michael Montani, Analyst at Evercore ISI
• Rupesh Parikh, Analyst at Oppenheimer
• Spencer Hanus, Analyst at Wolfe Research