The Kroger Co.

Good morning and welcome to the Kroger Company first quarter 2020 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 telephone keypad. 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 of Investor Relations. Please go ahead.

Thank you, Gary. Good morning, and thank you for joining us. I'm joined by Rodney McMullen, Chairman and Chief Executive Officer, and Gary Millerchip, Chief Financial Officer. And they will be providing an update on the business and discussing first quarter results. This is obviously an unprecedented time, and we are taking the additional steps of providing more details on current business trends this quarter, so our prepared remarks may run a little longer than normal. But 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 our business on an ongoing basis is contained in our SEC filings. So 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. I will now turn the call over to Rodney McMullin.

Rodney McMullin Thank you, Rebecca, and good morning, everyone. A lot has happened in our world since the last earnings call. We've had to adapt quickly to a new way of life. The COVID-19 pandemic and the most recent instances of racial injustice have changed our country in unmistakable ways. Most profoundly, the devastating loss of life and livelihood that has affected so many Americans. During the crisis, Kroger has been guided by our purpose and our values. I am proud of our associates who stepped up when we were called to be there for our customers, communities, and each other. We are proud of their heroic and dedicated associates who are on the front lines serving our customers when they need us most. As America enters the next phase of the pandemic, we know that our associates will continue to rise to the challenge, delivering fresh for everyone and helping our customers, communities, and America emerge even stronger. I am proud of the measures that we've taken across our business to safeguard and support associates, customers, and our communities. During the pandemic, our priority has been to provide a safe environment for our associates and customers with open stores, e-commerce solutions, and an efficiently operating supply chain so that our communities have access to fresh, affordable food and essentials. Since March, the company has invested more than $830 million to do just that. This includes the $150 million Thank You Pay for our frontline grocery, supply chain, manufacturing, pharmacy, and call center associates, which we are providing to acknowledge their hard work and dedication to maintaining safe, clean, and stocked stores. We are pleased that our associates will share in the company's success with today's second installment of Thank You Pay. We continue to invest in, support, and protect our associates. We are providing emergency leave to associates. We are offering free COVID-19 testing to our associates. We have increased the contribution to our Helping Hands Fund to $15 million to provide additional financial support to associates experiencing hardship due to the virus. Our work to safeguard associates will continue as long as the pandemic threat exists. And we are proud that Kroger was named in Forbes Magazine as leading one of the top 10 employer responses to the pandemic. As part of Kroger's commitment to help America reopen safely, our Kroger Health Team stepped up to help expand access to testing as a partner in the U.S. Department of Health and Human Services Public-Private Testing Partnership. Through this initiative, we have tested more than 82,000 patients in 15 states. We also offered free check cashing for stimulus, unemployment, and Social Security checks. Since launching this service, we've cashed more than 229,000 checks, totaling $244 million. Kroger has learned and continues to learn a lot while keeping our stores and supply chain open, and serving America during the pandemic. The company's total COVID-19 incident rate is tracking meaningfully below the markets where we operate, and our overall accident rate is the lowest we've ever recorded. I'm incredibly proud of how our associates have worked together to practice creating a safer environment for our customers, communities, and each other. We've been able to share our learnings with other businesses and communities to help as they've begun to safely reopen through a resource guide we created called Sharing What We've Learned, a Blueprint for Businesses. Our blueprint includes actionable recommendations and learnings that we've applied, as well as what we've learned through regular interaction with governments, health departments, and with business leaders in other countries, including Italy, Singapore, and China, all of which were ahead of the US in terms of the pandemic cycling through their countries. Under Restock Kroger, we have made significant strategic choices over the last several years to transform our business model and to redefine the customer shopping experience, partner for customer value, develop talent, and live our purpose. We've invested aggressively in technology to establish a seamless digital ecosystem, and we've made incremental investments in Fresh, our brands, and personalization. These investments in our competitive moats helped Kroger build business momentum in the second half of 2015, which continued through the start of our first quarter, even before the first phase of the pandemic began in our operating markets in earnest in March. The benefits of the changes that we've been making to our business model were accelerated by COVID-19. For example, our heavy investments in technology enabled us to reliably sustain the incredible almost overnight increase in demand for our pickup and delivery services. Here are other examples of how the pandemic accelerated Kroger's transformation. As you know, we introduced Kroger's brand transformation campaign Fresh for Everyone late in 2019. 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 access to fresh, affordable food. This has proven to be even more important during these times. In the initial stock-up phase of the pandemic, Customers purchased a lot of paper, cleaning products, and center store non-perishable items to fill their pantries. As the first new normal phase began to set in, marked by preparing for extended time at home and often with children, our fresh departments took an even greater relevance as more and more customers turned to fresh produce and proteins as staples of home-cooked meals. Fresh will continue to be an important driver of sales for Kroger, as demonstrated by our fresh departments, including meat, seafood, and produce, generating strong identical sales in the quarter. Our brands had a great quarter as well and grew 21.1%, driven by significant growth across our three largest brands. Having identified plant-based foods as a key trend well before 2019, the Simple Truth plant-based platform continues to deliver strong growth, growing over 32% in the first quarter. In this way, by consistently delivering both value and innovation, our brands will remain one of our most powerful competitive advantages. Because of the continued economic anxiety, we are still offering our customers value through personalization and promotions, leveraging our mailers, mobile app, website, and weekly ads. We continue to offer promotions throughout the quarter with a focus on single item purchases. Kroger began investing in digital several years ago to build a seamless ecosystem that would deliver anything, anytime, anywhere. As a result, we have over 2,000 pickup locations and 2,400 delivery locations reaching 97% of our customers with a seamless customer experience that combines the best of our physical stores with digital. These investments were especially timely as customer adoption of pickup and delivery grew significantly during the pandemic. And because of our existing ecosystem, we were able to respond quickly to further expand and enhance our e-commerce services. We were able to quickly offer and promote in-demand no-contact delivery and low-contact pickup services. We expanded and improved contact-free payment solutions like ScanBag and Go and Kroger Pay. We took several steps to support the higher volume of pickup orders, including hiring additional e-commerce associates, adding more order pickup slots, and increasing the frequency of communications with customers. We also began testing a grocery pickup-only location in Cincinnati. All of this contributed to a 92 percent sales growth in digital channels in the first quarter. In April and May, the sales grew in the triple digits. We continue to invest in and constantly improve our e-commerce capabilities. Our partnership with Ocado remains an essential part of our evolving seamless ecosystem. Our customer fulfillment centers will accelerate our ability to serve customers seamlessly and in a more cost-effective way. Earlier in June, we identified three new regions, the Great Lakes, the Pacific Northwest, and the West, for placement of our high-tech sheds. When operationally, these facilities will collectively create more than 1,000 new jobs with the potential for hundreds of additional career opportunities. As we've shared previously, we believe Ocado's value as a partner is not just its current capabilities, but also in how quickly the company is able to innovate and serve rapidly changing consumer markets. We're designing a flexible distribution network combining aggregated demand and proximity of our stores, medium-sized facilities and large-sized facilities. You can see this strategy taking shape in the new automated CFCs, which will span a range of sizes. The new facility in the west will measure 300,000 square feet. The new facility in the Pacific Northwest will measure 200,000 square feet. and the facility in the Great Lakes region will measure 150,000 square feet. The varying sizes demonstrate the flexibility and the optionality will allow us to fulfill same day or next day, delivery or pickup, and customer or store replenishment. Kroger has been investing to raise wages for our frontline associates for the last several years. As part of restock Kroger announced in 2017, Kroger is increasing associate wages incrementally by approximately $800 million per year through the end of 2020. And this is more $300 million more than the original plan. As a result of this continuing investment, Kroger has increased its average hourly rate to over $15 per hour. And with comprehensive benefits factored in, our average hourly rate is over $20 per hour, benefits that many of our competitors don't offer. Because of these investments and our established human capital management processes, we were able to expedite our hiring processes in early March to shorten the time between application and employment, onboarding new hires in an average of 72 hours, and focusing onboarding on culture and safety, we were able to not only generally protect associate jobs in the face of record unemployment, we also created new jobs and new career opportunities for more than 100,000 workers nationwide. Our expedited hiring and onboarding processes also enabled us to focus on associate and customer safety. We were able to direct immediate support to the expansion of Kroger pickup availability as well as an enhanced cleaning and sanitation practices in our stores and facilities where we needed the help the most. Many of those new roles were bridge jobs, providing laid-off workers with a stable job opportunity while furloughed from their previous jobs, many of whom are now starting to return. Additionally, I'm pleased to note an extension of our human capital commitments. We contributed an additional $236 million to multi-employer pension plans in the first quarter. This investment will help stabilize future associate benefits. We work extremely hard to ensure that we have the right talent, teams, and structure in the right focus areas in our core supermarket businesses and our alternative profit businesses. Our focus is on developing, training, promoting internal talent, while simultaneously hiring seasoned food industry executives to drive our retail supermarket business. Kroger remains committed to diversity, equity, and inclusion with our workforce. We are creating more opportunities for our associates to openly share their thoughts, feelings, and experiences with discrimination and for our company and leaders to more deeply and deliberately listen. We will continue to educate and show our leaders and associates how to be more empathetic, supportive, and aware of our own unconscious biases so that together we can build a better and more inclusive Kroger. COVID-19 also accelerated our commitment to integrated ESG or sustainability practices. What we are seeing in our communities during the pandemic confirms that our Zero Hunger, Zero Waste mission is more relevant than ever. During the pandemic, more than 80 million people in the US lost their jobs and applied for unemployment benefits and or food assistance. Many more families are struggling to put food on the table today. Kroger is using our philanthropic dollars and foundations to support our food banks and other key partners. Additionally, we are now accepting SNAP EBT benefits as payment for our pickup service, allowing more customers to access fresh, affordable food through e-commerce. We also implemented a dairy rescue support program for farmers. Many farmers and producers did not have a market for their products as food service, hospitality, and restaurants remained closed. We operate 17 dairies around the country, and are uniquely positioned to offer our processing capabilities. Manufacturing and dairy procurement teams rapidly scaled a program to rescue surplus milk donated by Kroger's dairy cooperative suppliers and processed by Kroger operated dairies and directed it to food banks and families in need. Kroger is a trusted brand and our number one priority is to be there for our customers associates, and communities. We understand the transition to a new normal will not happen uniformly across the country. As America enters the next phase, we're using our own customer insights and monitoring the impact of affected global markets to help us continue to meet customer needs. And now I'll turn it over to Gary for more detail into the quarter financials. Gary?