The Kroger Co.

Good morning and welcome to the Kroger Company second 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. 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 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, but Kroger assumes no obligation to update that information. Both our second 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. In addition, please save the date for our 2019 Investor Conference, which will be held in New York City on November 5th. Further details will be shared soon, and we hope you can join us. 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 today to review Kroger's second quarter 2019 results is Chief Financial Officer, Gary Millerchip. Kroger is focused on executing the second year of our restock Kroger plan. to generate shareholder value by serving America through food inspiration and uplift. Restock Kroger has four main drivers. Redefine the grocery customer experience, partner for customer value, develop talent, and live our purpose. Combined, these drivers come together to create shareholder value. We are halfway through the second year of our three-year plan. We continue making strategic investments to reposition the company for the future while continuing to grow and deliver today. We started this conversation the last two quarters by acknowledging we had our work cut out for us. As always, we remain energized by that challenge. While we're always continually driving for improvement, there are several examples in our second quarter results. that reflect the disciplined focus of Restock Kroger Blueprint is paying off. Guided by our customer obsession, Kroger delivered our best identical sales results since the launch of a transformational plan. Our internal customer measures are improving even faster than our identical sales growth. There is always a lag between improving the customer experience and when the customer will reward us. Some other positive trends during the second quarter include FIFO operating margin that was stable in our supermarket business, excluding fuel and pharmacy. Fifteen of our divisions had increasing supermarket identical sales without fuel compared to the first quarter. We continue to reduce cost. We are on track to deliver $100 million in incremental operating profit through alternative profit stream growth. We continue to make significant investments to redefine the grocery customer experience. We are building a platform of seamless experiences to serve customers anything they want, anytime they want, anywhere they want. We know that seamless experience is essential to the customer experience both today and tomorrow, which is why we continue to invest heavily in our capabilities in this area. Kroger's digital sales grew by a solid 31% in the second quarter. Pickup and delivery sales growth continue to perform in the mid-30% during the quarter. Going forward, we expect our digital sales growth rate to moderate year-over-year primarily due to the cycling of Home Chef and as a result of our disciplined focus on growing the ship customer over other digital offerings like VitaCost. VitaCost remains an important part of our business and our growth in ship is in part thanks to what we've gained from their platform and talent. We've also expanded our digital coverage area to reach 95% of our customers. This means that 95% of our customers who shop Kroger in a brick and mortar store can also shop with us for pickup or delivery. Importantly, we are starting to see improving operating profit trends in our digital business. Our digital business is becoming less of a headwind, which is an important inflection point as we continue to invest in new capabilities to support our transition to seamless. However, I do want to note this is still a significant investment for the company. A great example of partnering for customer value is our continued rollout of Ocado Sheds. In July, Kroger and Ocado announced plans for a new high-tech customer fulfillment center in Forest Park, Georgia. What's so exciting about Ocado is that their model to deliver to customers is significantly less costly than our existing model. So not only will sheds accelerate our ability to provide customers with a seamless experience, they will also help us to do it in a much more cost-effective way. We know Ocado's value is not just its current capabilities, but also in how quickly the company is able to innovate, to serve a rapidly developing online consumer market. Ocado's technology team of over 1,400 software engineers brings a huge depth of talent and a long track record of innovation to growing opportunities in online grocery retail. We also announced an expansion of our relationship with Walgreens to a new test area in Knoxville, Tennessee. Starting this fall, 35 Walgreens stores in the area will feature a curated selection of Kroger's popular Our Brands products like Simple Truth, America's largest natural and organic brand, along with national brand products. Kroger's Our Brand sales grew 3.1% this quarter. Retail and unit share growth led to the highest second quarter share in Our Brands history. We also introduced 203 new Our Brand items during the second quarter. Our customers' favorite new items mirror key food and flavor trends we predicted and then shared with our investor community last year at Investor Day. And those new items delivered more than 137 million in incremental sales during the second quarter, further bolstering our supermarket business. We were thrilled to share the news last week that Kroger is leading the way with the widest assortment of plant-based protein among U.S. retailers through our Simple Truth brand. We continue to see progress in our alternative profit streams with media and Kroger Personal Finance as the primary growth drivers. Gary will share additional commentary on the progress of our alternative profit streams in his section. Now moving to talent development, as we previously shared, we are proud that our average hourly rate is over $20 per hour with comprehensive benefits factored in, benefits that many of our competitors don't offer. As a result of Kroger's talent development investments, we are significantly improving employee retention in one of the tightest labor markets in years. We continue to invest in our associates as part of Restock Kroger by supporting associates in a variety of ways, including investment in wages, training, and development. Feed Your Future is our industry-leading education assistance program, continues to build momentum. Among all the participants, more than 85% are hourly store associates. Since inception of the program last year, we've distributed 3,000 awards totaling $5.1 million in education assistance. In addition to continuing to develop talent internally, we continue to increasingly customers, associates, stakeholders, and you as investors are are choosing who to partner with based on purpose and values. We were pleased to see the Business Roundtable's recent announcement, acknowledging that businesses have a responsibility to be a positive influence on society. Kroger has always been focused on being a trusted partner in communities and committed to social purpose. In the second quarter, we were proud to publish our 2019 Environmental social and governance report, reflecting our efforts across the company to be environmentally responsible and a positive influence on society. The report detailed progress on Kroger's zero hunger, zero waste social impact plan, as well as our 2020 sustainability goals. Other items highlighted in the report included our 9 percent reduction in food waste generated by retail stores, We achieved a 13 percent improvement in supermarket food waste diverted from landfills, moving from 27 percent diversion in 2017 to 40 percent in 2018. We reduced the amount of plastic resin in our brand's packaging by 9.1 million pounds so far, well on our way to achieving our 10 million pound goal by 2020. I will now turn it over to Gary for more detail into our quarterly financials. Gary?