The Kroger Co.

Good morning and welcome to the Kroger Company third 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 discussion 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 the business on an ongoing basis is contained in our SEC filings. But Kroger assumes no obligation to update that information. Both our third quarter press release and our prepared remarks for this conference 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, many of you as we can, we ask that you please limit yourself to one question and one follow-up question if necessary. I will now turn the call over to Kroger's Chairman and Chief Executive Officer, Rodney McMullin.

Thank you, Rebecca. Good morning, everyone, and thank you for joining us today. With me to review Kroger's third quarter 2019 results is Chief Financial Officer, Gary Millichap. I would like to thank those of you who were able to attend our investor conference last month, where we shared our progress on Restock Kroger. We believe that Restock Kroger is the right framework to reposition our business to create value for all of our stakeholders. It provides us with a clear purpose and our vision to serve America through food inspiration and uplift. It focuses us on redefining the customer experience and identifying the partners who will help us deliver customer value today and in the future, and putting the right talent and teams in place to focus on growth in our supermarket business and our alternative profit businesses. We are proud of the progress we've made, and we've learned from the challenges we've experienced. We are on track with a stable and growing supermarket business as a result of our customer obsession, renewed intensity around operational excellence, and continued investment in seamless. We are growing our supermarket business by focusing on three levers to drive identical sales, fresh, our brands, and data and personalization. And we continue to build a seamless ecosystem that is available, relevant, and accessible for our customers. All of this combined to generate positive results in the third quarter. We continued to grow identical sales, reduce costs, and deliver strong free cash flow. We had a broad-based identical sales improvement. Fifteen of our divisions had increasing supermarket identical sales without fuel compared to the second quarter. We delivered a slightly improved FIFO gross margin excluding fuel and pharmacy. Headwinds in pharmacy were offset by strong fuel performance during the quarter. We are on track to deliver $100 million in incremental operating profit through alternative profit stream growth. Kroger continues to invest in digital as we build a seamless ecosystem for our customers. We know our customers value greater convenience this provides. and our data shows it's an essential component of growing overall loyalty. Digitally engaged customers not only drive growth through our digital modalities, they also help drive brick-and-mortar sales growth as well and share of wallet. So seamless is a both, not an either-or. Our data clearly shows that over time and after initial investments, The profitability of a digital customer is the same as an in-store customer. We continue to see an improving operating profit trend in digital, and therefore our investments are maturing as expected and consistent with the graph we shared at Investor Day. Our digital sales grew 21 percent in the third quarter. As we shared previously, we expect our digital sales growth 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. We've expanded our digital coverage to reach 96% of our customers. This means that 96% of our customers who shop Kroger in a brick and mortar store can also shop with us for pickup or delivery. We continue to invest in digital platforms as this is where the customer are increasingly going to meet many of their needs. Providing our customers with the ability to have anything, anytime, anywhere from Kroger sets us apart from a large segment of our competitors and will drive loyalty as well as our long-term growth and margin expansion. We continue the rollout of Ocado facilities. In November, Kroger announced plans for a new high-tech customer fulfillment center in Wisconsin. The automated warehouse will serve customers in Wisconsin, northern Illinois, and northwest Indiana. What's so exciting about Ocado is their model to deliver to the customer is significantly less costly than our existing model and any of the other models we've examined as well. Not only will these facilities 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 how quickly the company is able to innovate to serve a rapidly developing online consumer market. One of the comments we made at IR Day is that Ocado keeps learning and improving their model. Ocado's recent announcement of a micro-fulfillment center in Bristol is a good example of this. We believe that the food industry is special. It is huge, a $1.5 trillion market. And not only do people need to eat, they love to eat. Food isn't a commodity. but it's the center of our lives. Customers deserve a partner like Kroger who can provide inspiration and fulfill their passion for food. And unlike our national competitors, Kroger is food first. We believe that no matter who you are, where you're from, how you shop, or what you like to eat, everyone deserves to have affordable, easy to enjoy, fresh food that tastes amazing. As we shared in November, fresh is an important driver of sales for Kroger. Our fresh departments drive trips, loyalty, and gross margin. Our product standards, selection criteria, and supply chain are core strengths and are built to deliver first to market and best of season fresh products across the United States. Our produce department led the way in sales for the quarter. demonstrating how our store teams are focused on improving everyday execution in ways that are highly relevant to our customers. In addition, we launched our Fresh for Everyone brand transformation campaign, and the initial feedback from both our customers and our associates is very positive. One of the many ways we demonstrate our passion for food is through Kroger's Best in Class Our Brands portfolio. While many grocers offer private label products, Our Brands is a real differentiator for Kroger because our customers tell us through blind taste tests that our brand's quality is better than not only the competitor's private label products, but also many leading national brands as well. Kroger's Our Brands grew 3.4% this quarter. We also introduced 231 new Our Brand items during the third quarter. Kroger's third differentiating lever to drive identical sales growth is personalization. Data is a differentiator for Kroger. Many retailers have transactional data, but none have the customer data and the insights to make meaningful suggestions to their customers like Kroger. We continue to see incredible effectiveness and efficiency from a focus on loyal customers and investing in their satisfaction. One specific area I'd like to highlight is our strong fuel points program. As we shared at the Investor Day Conference last month, an amazing 83 percent of our loyal customers engage with our fuel rewards program each year. We are increasingly targeting promotion and personalization of fuel rewards. and fuel drove trips and sales in the third quarter. We are using the power of Kroger's stable and growing supermarket business to create meaningful incremental operating profit through the alternative profit stream businesses, which adds up to a business built for long-term growth that generates consistently attractive total shareholder returns. Kroger continues to generate strong and durable free cash flow is reflected by the fact that the company has reduced debt by $1.5 billion over the prior four quarters and continues to increase its dividend to create value for shareholders. We are confident that we can deliver even stronger TSR in the future because of our strong free cash flow and sustainable net earnings growth. Restock Kroger is the right framework to reposition our business to create value for all of our stakeholders, both today and the future. And now I will turn it over to Gary for more details into the quarter financials. Gary?