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G500-2023-Kroger

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The highlight of 2022 for Kroger—already the country's largest grocery store chain—was the October announcement of a $24.6 billion merger with competitor Safeway-Albertsons. Kroger CEO Rodney McMullen vowed to take legal action if regulators blocked the deal over concerns of corporate consolidation. Approval of the deal is not expected until early 2024. 
<ul> 
 	<li>Kroger’s delivery business grew 22% in 2022, largely driven by the national rollout of its paid subscription program Kroger Boost, which offers free delivery on orders over $35 and hopes to compete with the likes of Amazon Fresh and Instacart.</li> 
 	<li>After questions surrounding compensation for employees, Kroger responded by investing $800 million into raises for frontline employees in 2022, raising minimum pay for all its employees to $18 an hour.</li> 
 	<li>In the fourth quarter of 2022 Kroger ended its relationship with the Cigna-owned pharmacy benefit manager Express Scripts after contract renewal talks broke down. The rupture was expected to cost Kroger $100 million in sales at its in-store pharmacies.</li> 
</ul>

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F500 2022 Kroger

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G500-2020-051-Kroger

Kroger has performed consistently amid stiff competition from the likes of Walmart, which already has an outsize share of U.S. grocery sales, and Amazon, which is making increasing inroads into the segment. Kroger's same-store sales edged ahead 2% in 2019, which is about average for U.S. grocers, while operating profits increased 7.5%. After a slow start in ecommerce, the Cincinnati-based company has been investing to ramp up its online operations through a partnership with U.K. grocer Ocado. It aims to eventually have 20 highly automated fulfilment centers operating across the U.S. The first three of these warehouses—in Ohio, Georgia and Florida—are due to open in 2021. At least one prominent investor likes Kroger’s prospects: Warren Buffett’s Berkshire Hathaway revealed it had taken a 2.4% stake in the grocer in the fourth quarter.

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F500-2020-023-Kroger

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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The Kroger Co. is one of the largest U.S. grocery retailers, operating supermarkets under banners including Kroger, Ralphs, Fred Meyer, King Soopers, Fry’s, Smith’s, Harris Teeter, Mariano’s, and others. In addition to grocery stores, its network includes fuel centers, pharmacies, and digital shopping services. Customers can order groceries online for same-day Kroger Pickup—formerly ClickList—or delivery. Kroger has expanded its offerings for professional and at-home meal occasions through prepared foods and its Home Chef business, while growing its private-label portfolio with Kroger Mercado, a Hispanic-inspired line launched in 2023 with more than 50 products.

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Kroger (KR): Company Profile, Stock Price, News, Rankings

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Kroger

kroger

Good morning, and welcome to the Crococo First Quarter twenty twenty five Earnings Conference Call. Please note this event is being recorded. I'd now like to turn the conference over to Rob Quast, Vice President, Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Kroger's first quarter twenty twenty five earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Ron Sargent and Chief Financial Officer, David Kennerly. 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. 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 and one follow-up question if necessary. I will now turn the call over to Ron.

Thank you, Rob. Good morning, everyone. Thank you for joining our call today. Before jumping into the results, I 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.

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.

We are reassessing our capital allocation strategy to make sure we are spending our capital on projects that offer the highest returns. We are reviewing our noncore 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 ecommerce business unit, aligning all areas of the online customer experience under Yale Kassett, our chief digital officer.

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 Soopers, Food four 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. 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. And adjusted net earnings per diluted share was $1.49 in the first quarter, which was an increase of 4%. Now let's take a closer look at the quarter. Strong performance in 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 departments. Turning to our brands. As more customers 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 Brands 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. 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.

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 ecommerce and giving our current households more reasons to shop with us. As our ecommerce business grows, it represents a bigger impact on our results. Our teams are committed to growing both ecommerce 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. 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. We know that our best customers shop with us through both ecommerce 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. It's also important to note, we paused our annual store review during the merger process. To position our company for future success, this morning, we announced plans to close approximately 60 stores over the next eighteen months.

We don't take these decisions lightly, but this will make the company more efficient, and Kroger will offer roles in other stores to all associates currently employed at affected stores. To recap, our top priorities are clear. We're going to move with speed. We're gonna concentrate on our core business, and we're gonna run great stores. This is how we'll position Kroger for long term performance.

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 brands products. They're also eating more meals at home. Kroger's well positioned to support our customers' changing shopping habits.

We offer compelling promotions and fuel rewards, outstanding Our Brands products, and 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 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. I'd like to spend a moment talking about our associates.

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.

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. 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.

Now I'll turn it over to David who will review our financial results in more detail. David?

Thank you, Ron, and good morning, everyone. It's an honor to be here today for the first time as Kroger's chief financial officer. 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 our performance. To achieve this, I'll be concentrating initially on a few key priorities.

First, capital allocation. We'll 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. Second, cost optimization. We will focus on optimizing our cost structure, ensuring it aligns with and supports our long term financial targets and drives operational efficiency. 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 improvement. 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 revenue. Finally, growing market share. Kroger's collection of assets positions us well to win and grow share.

My focus will be on ensuring we prioritize our resources to drive profitable market share growth, including an acceleration of storing projects and more competitive pricing. Kroger is a world class retailer today, and we are well positioned for long term growth. My objective as CFO is to ensure we appropriately allocate our resources to where we have the best opportunity to grow and win while delivering strong financial returns. I'll now walk through our financial results for the quarter. We achieved identical sales without fuel growth of 3.2% excluding adjustment items.

Our sales growth was led by strong pharmacy, e commerce and fresh sales. We are encouraged by organic script growth, including growth in non GLP-one prescriptions. Over recent quarters, we've seen improvement in grocery volumes, particularly in the perimeter of the store, which contributed to our sales growth this quarter. Volume improvement remains a key priority for us, and we expect sequential improvement throughout the year. We saw inflation slightly below 2% in the first quarter, in line with our expectations at the beginning of the year.

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. The improvement in rate was primarily attributable to the sale of Kroger specialty pharmacy, lower shrink and lower supply chain costs, partially offset by the mix effect from growth in pharmacy sales, which has lower margins. After excluding the effect from the sale of Kroger Specialty Pharmacy, our FIFO gross margin rate improved by 33 basis points. 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 productivity.

Consistent with our approach to managing future obligations, we made a strategic pension contribution this quarter. This allows us to pre fund future requirements and importantly help secure long term benefits for our associates. Multi employer pension contributions drove a 29 basis point increase in our OG and A rate in the quarter. After adjusting for the effect from the sale of Kroger Specialty Pharmacy and the multi employer pension contributions, our OG and A rate was relatively flat on an underlying basis. As I mentioned earlier, cost optimization is one of my top priorities.

We will look for new ways to modernize work and operate more efficiently, not only to fund investments in our customer experience, but also to deliver on our financial commitments. Looking out for the balance of the year, we expect both our FIFO gross margin rate and OG and A rate on an underlying basis to remain relatively flat as we balance price and wage investments with margin enhancement efforts. Our adjusted FIFO operating profit was $1,500,000,000 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 program. 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 continued to outpace the industry. 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. As Ron shared 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 improvement in the fourth quarter of twenty twenty four. We're pleased with our continued progress and confident we're on the right path. But our clear goal is to accelerate this momentum. To that end, our new e commerce structure unifies all teams contributing experience with a clear mandate to enhance our e commerce operations for both improved profitability and a superior customer experience. Their efforts will center on deploying new technology, improving density in our fulfillment operations and accelerating the growth of our Retail Media platform.

We expect these initiatives to be significant drivers of our e commerce acceleration. I'd also like to provide an update on recent developments concerning our contract with Ocado. Last week, Ocado drew down the entire £152,000,000 from its letter of credit under our existing agreement. 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. 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 associates. 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. In total, this covers approximately 16,000 associates. Kroger is working to reach an agreement with the UFCW for store associates at approximately 80 King Soopers store locations in Denver Metro, Pueblo and Colorado Springs.

Associates at these stores chose to strike for fourteen days during the first quarter and negotiations are ongoing. We respect our associates' right to collectively bargain. 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 19.5 That figure grows to more than $25 with benefits like health care and pensions factored in that many of our competitors do not offer. We're proud to be a retailer which offers fair wages and comprehensive benefits.

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. 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 sheet. 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 flow and balance sheet provide us flexibility to invest in our business and other opportunities to enhance shareholder value. Our 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. A key priority for Kroger is to improve ROIC. We expect to do this by improving asset utilization and reallocating capital towards higher return projects, which will drive long term shareholder value.

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 model. We're delivering on our commitment to return excess capital to shareholders.

We expect our $5,000,000,000 ASR program to be completed by no later than the third fiscal quarter of twenty twenty five. The ASR is being completed under Kroger's $7,500,000,000 share repurchase authorization. After completion of the ASR program, Kroger expects to resume open market share repurchases under the remaining $2,500,000,000 authorization. Kroger expects to complete these open market share repurchases by the end of the fiscal year, which is contemplated in full year guidance. 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 sales, which reflects strength in pharmacy, e commerce and fresh. 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 range. With respect to the store closures discussed earlier, we anticipate these will occur over the next eighteen 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 our full year guidance. While first quarter sales and profitability exceeded our expectations, the macroeconomic environment remains uncertain and as a result other elements of our guidance remain unchanged. 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.

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 are narrowing our priorities, and we are 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. Before we open it up for question, 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. We'll now open it up for questions.

Thank you. Our first question for today comes from Ed Kelly of Wells Fargo. Good morning, Ed. Go ahead.

Hi. Good morning, everyone. And David, welcome. I wanted to start just with a question around pricing and your value perception with customers. I think there's it sounds like an increased focus around trying to improve the value perception.

I was curious if you can maybe talk about how you're thinking about price gaps, the plan here going forward, what you're looking to accomplish? And then most importantly, can you do all this in margin neutral sort of way going forward?

Sure. Let me take that one, David. I don't know if you have anything to add. But overall, when you look at our competitive pricing environment, it remains very rational. As we mentioned in the comments, we do intend to continue to invest in lower prices.

In fact, we lowered pricing an extra 2,000 items during the quarter. But this is much like we've done in 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 offers have to offer great value as well. And I can't comment on others, but I I do believe that we were more competitive in q one than in q four, 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 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 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, you know, this quarter is a 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 neutral basis.

Great. And then just maybe a quick follow-up. You know, it looks to be a bit more focused on, you know, e comm profitability and improving the impact on the P and L there. Could you just maybe provide a little bit more color around the roadmap, the size of the opportunity? I'm not sure how big the losses are at the moment in e com, but any color there that you could share?

Sure, Ed. Let me 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. As we mentioned in the in the notes, we combined all the elements of our ecommerce business under Yale Cossitt. Yale's doing a 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. We're taking a a look at every single aspect of our ecommerce strategy as well as our ecommerce 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, you know, we are seeing continued growth in the business, up 15% this quarter.

Households and ecommerce are growing. Our customers are embracing the the whole digital model of our business, and we are seeing improvements in profitability at an increasing rate. But to be clear on the profitability, we're not profitable at this point, and we must become profitable in your ecommerce business. And we 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 segment.

Thank you. Next question comes from John Heinbockel of Guggenheim. Line is now open. Go ahead.

I want to start with, Ron, what do you how do you look at what is noncore? And that could be nonretail. It could be retail. I guess, could be stores, obviously, the 60 stores. It could be retail divisions, suppose.

How do you look at that? And then on capital allocation, high return projects, where remodels sit in that, in that prioritization relative to new stores?

Yeah. First of all, let me let me talk to to core versus noncore. I mean, the core are the things that, exist in our company that are dedicated to serving our customers. And, you know, it certainly includes stores. It 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 Kroger company, and I think that's what we need to focus on going forward.

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 we've talked about, investing in, storing projects, is that, you know, these projects typically offer higher returns than our average rate of return. You know?

And I would say remodel sit somewhere in the middle of our average return rate.

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 1,000,000,000 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 the advantage that, Ron and I have is just that, you know, it's bringing a 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.

And so I see this as operating from a position of strength, and I seeing 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, so our 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 and 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. 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 process improvement. 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 gonna do more of that kind of work.

So I think that road map, John, I think we've got some, some things that we're gonna look to get some early wins on the board. You know? But I think this is a a pretty significant medium term opportunity.

Thank you. Our next question comes from Robert Holmes of Bank of America. Line is Please go ahead.

Hey, good morning, David and Ron. Thanks for taking my question. I was hoping 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 some of those things for the rest of the year. So I think some of the tailwinds there was inflation, I think, obviously, in the first quarter. Can you parse out 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? And does that continue do you think for the rest of the year? And then I think you guys did make some comments on volume. It sounds like owned brands volume is pretty strong. Is national brands volume a negative for you guys? And is that a trend that continues as well?

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, ecommerce, as well as our brands, and our brands continue to 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 q four, and that continued in q one. 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 Yeah. Couple of things to add. So just on the inflation outlook. So we saw inflation, you know, just under 2% for the quarter. We'd guided to one and a half to two and a half for the year.

So we're well within the guidance range. 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 note that ESI had a very minimal impact to the quarter, less than 10 basis points. And we continue to see good growth from GLP-1s.

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 you're seeing there?

You know, what we're seeing is, you know, different shopping, you know, behaviors and different shopping patterns. You know, for example, you know, we are seeing, you know, both, I think, shopping more at at Kroger stores and grocery stores compared to eating away. They're making more frequent trips to the store. The average basket is is less. When you look at the spend in total, I I think it's been very stable.

You know, one factoid is kind of interesting is that the inflation has been higher for food away from home or restaurants. Inflation in restaurants have been higher for twenty seven consecutive months versus food consumed at home. I think both in in high and low income levels, they're, you know, navigating a significant uncertainty. I think consumer confidence down. Customers are looking for value.

And I think, you know, when you look at how we've responded to that, I you know, we're always looking for ways to, you know, deal with the environment and and bring value to our customers and whether that's, you know, our brands, whether it's having the right promotions, having the right promotional pricing. You know, we are kind of seeing a a shift into larger pack sizes and increased use of coupons. We're seeing some discretionary spend that's a little softer in areas like snacks and adult beverages, pet, general general merchandise categories. So, you know, I think in terms of the consumer, we 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.

Thank you. Our next question comes from Simeon Gutman of Morgan Stanley. Your line is now open. Please go ahead.

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 see, it's not perfect because it's national, but it did look like you inflected in the first quarter.

You mentioned that ESI was pretty minimal. So curious how you view it. What would you attribute to the inflection? And was it e commerce? And was it broad based? Thanks.

Well, good morning, Sami. And, I I think I've known you long enough to to for you to understand that no good retailer is, ever happy with their market share. You know, it it's really a critical metric in any retail business, and the goal's gotta be to improve market share. 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 q one, and, we saw market share gains in markets where we have added stores. Again, I I don't wanna discount the other driver in market share gain, and that's, you know, in store experience. 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, you know, when you, when you're growing your ecommerce business at, 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?

Okay. A follow-up, different topic, ecommerce. I don't know if it's if it's too early, but can you tell us if you look at the investments that this company has made, do you 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. 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 to serve and accelerate speed? Or you think you have the foundation in place today?

Well, you know, I think we have a a terrific foundation in place in our ecommerce business, and we have invested, you know, heavily in our ecommerce business over the last several years. We are, I think, offering a 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.

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, but I think it's a little early to say, you know, exactly, you know, what we're gonna decide on each one of these. But, the investments that we've made have been helpful. But, you know, going forward, we're gonna look at, you know, every investment that we have made or will be making. You wanna talk about Ocado?

Let 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 more.

Thank you. Next question comes from Paul Lejuez of Citigroup. Your line is now open. Please go ahead.

Thanks, guys. Good morning. Can you talk a little bit more about the All Brand portfolio, the growth you saw in that segment of the business versus the rest of the store and how the gap 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, whether any certain regions stand out and getting more or less promotional or rational, however you want to frame it.

Yeah. I can 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 even further in the years ahead. You know, the quality is terrific.

It creates great value, you know, to our customers. It allows us to to lead the pack, I think, in product innovation. And, you know, I referenced the the the simple truth protein line, but I think that's a great example of that. You know, people are eating healthier, so we're gonna jump on that trend. I think high protein products also ties into customers using GLP one 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 Selects. All of it just at Kroger. 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.

I think this was asked earlier, but the higher end 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, know, sort of increased spend on fresh. Normal trends. I don't think anything unusual to note on the higher income consumer.

Thank you. Our next question comes from Michael Lasser of UBS. Your line is now open. Please go ahead.

Good morning. Thank you so good morning, Ron. Thank you so much for taking my question. If we put a picture of what Kroger is experiencing together, perhaps there's a case where the growth in e commerce 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?

Kroger (KR) Q1 2026 Earnings Call Transcript

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