The Kroger Co.

Good morning and welcome to the Kroger Company first quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Rebecca Maness, Director, Investor Relations. Please go ahead.

Thank you, Gary. Good morning, and thank you for joining us. 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 or 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. But Kroger assumes no obligation to update that information. Both our first quarter press release and our prepared remarks from this conference call will be available on our website at ir.kroger.com. After our prepared remarks, we look forward to taking your questions. In order to cover a broad range of topics from as many of you as we can, We ask that you please limit yourself to one question and one follow-up question if necessary. Thank you. I will now turn the call over to Kroger's Chairman and Chief Executive Officer, Rodney McMullin.

Rodney McMullin Thank you, Rebecca. Good morning, everyone, and thank you for joining us. With me to review Kroger's first quarter 2019 result is Chief Financial Officer Gary Millership. We started the conversation with you last quarter by acknowledging that we had our work cut out for us. We are energized by that challenge, and our team brought that energy to the first quarter. There are several examples in the first quarter results that reflect the discipline, focus, and progress we are making on our transformation plan, Restock Kroger. All of this work starts with our customer obsession focus. That is why we're building an omnichannel platform to serve customers with anything, anytime, anywhere. That is why we're focused on redefining the experience grocery customers can expect to have in our stores and online, improved upon by existing exciting partnerships that create additional value. That said, while the second year of Restock Kroger is off to a solid start, we know we can do better when it comes to our identical sales results. To that end, it's important I say right up front that by further intensifying our customer focus, Kroger's quarter-to-date identical sales are trending better than the first quarter and moving toward the guidance range. One of our most powerful competitive advantage is also one of our best ongoing performers. Kroger's own brand products grew 3.3% and unit share gained 66 basis points to reach 28.9% share in the quarter. The focus on shifting the mix to simple truth and premium brands such as Private Selection led to double-digit gains in the quarter in those brands. We know that our customers love our brands and that they are hungry for innovative new products that they can only get by coming to and shopping with Kroger. In our quest to put food first and serve as America's food authority, we are bringing new tastes, trends, and experiences to our customers. In the first quarter, we introduced 219 fantastic Our Brand items. Our customers' favorite new items fall in line with the key food and flavor trends we predicted for 2019, including private selection pork belly bites, private selection artesian jerky, and Kroger Deluxe Unicorn Swirl ice cream. New items delivered over 225 million in incremental sales during the first quarter. Customer obsession is also why we're building a platform to serve customers anything they want, anytime they want, and anywhere they want. Our customers don't distinguish between an in-store and online experience. Rather, they typically have a food-related need or a problem to solve and want the easiest, most seamless solution. Our digital sales grew 42% in the first quarter. We also expanded our coverage area to reach 93% of our customers in the first quarter. This means 93% of the customers who shop Kroger in a brick and mortar store also can shop with us for pickup or delivery. By the end of this year, everyone in America will have the ability through our modalities to shop with Kroger, whether they decide to come into a store, use our pickup or delivery services, or ship. Our efforts are positioning Kroger to be the leading omnichannel retailer in the food industry. Since 2014, we've gone from no digital sales dollars to a 2018 annual run rate of about $5 billion, which will trend toward a $9 billion digital sales run rate in the future. I call this out because while we are only in the middle of our transformation, it's important to frame up the magnitude of the progress that we have made. 2019 is another pivotal year for our partner for customer value pillar in Restock Kroger. We continue to improve the customer experience in our stores and across our digital properties by partnering with industry innovators such as Home Chef, Microsoft, Picado, and Walgreens. All of these partners accelerate our ability to provide customers anything, anytime, anywhere. Each partner shares our passion for exploring the nexus between technology and innovative customer experiences. We were excited to break ground last week in Ohio on America's first customer fulfillment center powered by Ocado. Kroger's partnership with Ocado will for the first time introduce transformative e-commerce fulfillment and logistics technology in America. This, in turn, means Kroger customers will get fresher food faster than ever before. We intend to open additional customer fulfillment facilities to create a seamless customer experience, replicating the model to serve everyone across America. We are also making progress building out our alternative business for profitable growth. We've made several organizational structural changes to allow deeper concentration on alternative profit stream while also maintaining our laser focus on delivering for our customers in the core business. Kroger is creating a virtuous cycle built upon the rich collection of proprietary data generated from our customer traffic to improve the customer experience, which then supports new margin-rich asset-like businesses. We expect alternative profit streams to continue to grow and contribute an estimated incremental $100 million in net operating profit in 2019 and continue to accelerate into 2020. This will be generated primarily from the more mature alternative profit streams such as Kroger Personal Finance, our media businesses, and customer data insights. There are other initiatives within our alternative business portfolio that are in earlier stages of incubation. For example, we recently announced the formation of Pearl Rock Partners, a platform to identify, invest in, and help grow the next generation of leading consumer product brands. Initiatives such as Pearl Rock Partners are expected to have a small impact during Restock Kroger and then contribute more meaningfully to our results after 2020. Following up on our commitment we made in March to our financial stakeholders, Gary will provide additional transparency about where alternative profits will flow through our financial statements during his remarks. One of the challenges of transforming a company is finding the right leaders at the right time to guide and coach people through complex and often difficult change. The underlying principle is to respect the company's past while creating the future. We've secured Kroger's continued success in the next chapter of retail by proactively managing several pivotable next-generation leadership successions, including the essential CFO and CIO roles. We've also focused several senior most executive roles, most notably leaders of our new business development, including partnerships, and Kroger's alternative business portfolio, to support the transformation of our growth model. Every leadership transition is deliberate, carefully managed, and made in partnership with Kroger's board of directors. I'd like to again congratulate all of our new senior vice presidents and underscore my confidence in their ability to lead Kroger forward. Another important area of leadership for Kroger is in the environmental, social, and governance areas. which is a natural extension of our Zero Hunger, Zero Waste plan and is gaining recognition from a growing number of investors. As America's grocer, we are committed to setting the table for a sustainable future. A year ago, we took a deeper look on how plastic is affecting our communities and environment and became the first major U.S. retailer to announce the phase-out of single-use plastic grocery bags. starting with our QFC division in the Pacific Northwest. Earlier this month, Kroger announced our commitment to be the exclusive U.S. grocery retail partner for Loop. Loop is a new system that uses durable product packaging to help reduce single-use plastics. TerraCycle introduced Loop at the World Economic Forum in Davos in January to much fanfare and media interest. Many familiar suppliers and brands are included in the platform, and the list continues to expand. Loop hygienically cleans and sanitizes the empty packaging that was previously sold to the consumer and sends it back to the suppliers to refill for another use. Because the retail industry is transforming, we proactively launched Restock Kroger to deliver for customers and our shareholders. Finely stated, Restock Kroger is all about transforming our growth model. The second year of Restock Kroger is off to a solid start. The entire company is focused on redefining the grocery customer experience, improving upon our exciting partnerships that create value. We are investing in our associates more than ever before and building a purpose-driven culture. And we are also on track to generate the free cash flow that and incremental adjusted FIFO operating profit targets for 2019. As I said earlier, we recognize we have work to do and remain focused on delivering on our restock Kroger commitments. Now I'd like to turn it over to Gary Millership, who has been in the CFO role since April. Gary?