The Kroger Co.

Good morning and welcome to the Kroger Company fourth 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, Barry. 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 our business on an ongoing basis is contained in our SEC filings. The Kroger Company assumes no obligation to update that information. Both our fourth 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'd like to confirm that Kroger will host its annual Virtual Investor Day event on Wednesday, March 31st. Please hold the date, and we look forward to sharing more about our future growth plans with you then. I will now turn the call over to Kroger's Chairman and Chief Executive Officer, Rodney McMullen.

Thank you, Rebecca. Good morning, and thank you for joining us. With me today to review Kroger's fourth quarter and full year 2020 results is Chief Financial Officer Gary Millership. This past year presented challenges that none of us could have predicted. I am so proud of how Team Kroger has risen to meet every challenge and to be there for our customers when they've needed us the most. While we hope that the worst of the pandemic is behind us and we are encouraged by the progress around the initial vaccine rollout Our priority remains the health and safety of our associates, customers, and communities. 2020 was the final year of our three-year transformational plan, Restock Kroger, during which we made strategic investments in changes to our business model to better serve our customers. We focused on widening and deepening our competitive modes, which include seamless, personalization, fresh, and our brands. As a result, we generated strong momentum and successfully repositioned our company to serve our customers in new and exciting ways. Let me now turn to our results. Robert delivered strong results during our fourth quarter and for the full year 2020. We continued to gain market share and full year results were above the guidance we shared with you last quarter. Identical sales without fuel were 14.1% for the year, as customers continued to consolidate trips and spend more per transaction. We grew digital sales triple digits in 2020, enabled by our team's ability to pivot quickly and effectively in the first stage of the pandemic to ensure that we were meeting our customers' demand for safe, low-touch, and touchless shopping modalities. Our strong performance in digital is also a testament to the proactive investments we made over the last several years in our network, which positioned Kroger to respond with agility during this crisis and critical time. Beyond the numbers, we have built substantial momentum within our business, and more importantly, we continue to deepen our personalized relationships with our customers who remain at the center of everything we do. When the pandemic started, no one knew what to expect. But what we did know was that our decisions and actions would be guided by our purpose and our values. Our purpose is to feed the human spirit, which means we are driven to do more and help make the lives of those around us better, especially during times of uncertainty. Since the beginning of the pandemic last March, our most urgent priority has been to safeguard our associates and customers. We've implemented dozens of new safety and cleanliness processes and procedures in our stores and all of our facilities, including safety partitions and physical distancing floor decals, implementation of customer capacity limits, and providing PPE-like masks for our associates. all of which are described in our blueprint for businesses, an open source guide we've created to help other companies navigate the complexities of safely operating during a pandemic. Supported by our strong performance and cash position, we've committed more than $2.5 billion to safeguard the environment of our associates and customers where they work and shop in and to reward associates including committing nearly $1 billion to better secure pensions for over 30,000 associates. This was in addition to paid emergency leave, financial assistance through our Helping Hand Funds program, and much more. We continue to provide support for our associates, including awards in November and February that included $100 cash and 1,000 fuel points placed on frontline associate shopper cards to help ease financial hardship from the pandemic and as a thank you for their continued commitment to serving our customers so tirelessly. We know the critical role that the COVID vaccine plays in creating a safe environment for our associates and customers. That's why we're encouraging everyone to receive the vaccine as soon as they're eligible to do so. During the quarter, we announced a $100 incentive for all associates who received the manufacturer recommended dosage of the vaccine. We hope this offer, along with targeted education efforts, will help break through vaccine hesitancy and further encourage the health and safety of our associates. Kroger Health is proud to be a partner with the federal government and our state governments in distributing the vaccine. we continue to introduce initiatives to improve the vaccination process, including the recent launch of a new scheduling tool and enhancements to our website to make finding and scheduling vaccine appointments easier. Today, Kroger Health has administrated more than 665,000 vaccines, including more than 38,000 for our own associates. Because vaccine Availability and eligibility continues to vary by jurisdiction. We are advocating at the local, state, and federal level and calling for our associates and frontline grocery workers broadly to be included in the earliest vaccine phase possible. Inspired by purpose and guided by our values, 2020 taught us that we are capable of doing more, of moving faster, and effectively prioritizing what matters most to our customers, associates, and communities. In addition to changing how we work, COVID-19 has changed how our customers enjoy food. We continue to see people eat and work more from home and prioritize health and cleanliness. We believe that these trends will continue even as restrictions ease and vaccinations are distributed. We will share more of these trends with you at our Investor Day in a few weeks. What hasn't changed is our fundamental commitment to providing our customers first. Our competitive moats, seamless, personalization, fresh, and our brands are built upon this commitment and are stronger today than ever before, especially as customers eat more food at home. We will continue to invest in these critical competitive advantages as we work to win a larger share of the food-at-home market. Let me provide some more detail on each of these competitive moats. Pickup and delivery continued to grow during the quarter, and we are seeing more and more new customers engaging in our seamless ecosystem. Our overall digital sales grew 118%, including delivery sales growth of 249% during the quarter. When customers engage in both our in-store and online modalities, we see a 98% retention rate within our ecosystem, highlighting how sticky our customer engagement is. During the quarter, we also saw further improvement in digital profitability as we continue to improve cost efficiency, sales mix, and retail media. Yesterday, we completed the inaugural order through our first Ocado shed in Monroe, Ohio. This marks the soft opening of the facility, and we look forward to our grand opening in early April. We continue to be excited about the elevated experience that this will bring to our customers in the tri-state area and across the country as we continue to open additional facilities. Our data and personalization allow us to deliver meaningful, unique customer moments across channels to address specific customer needs while enhancing their relationship with Kroger. Sixty million households shop with Kroger every year. The scale of our digital business has grown rapidly. In fact, during 2020, we had over 1.3 billion customer interactions across our digital modalities. a 30% increase over last year. Our significant reach allows us to meaningfully personalize the customer experience. In 2020, we presented nearly 11 million personalized recommendations per week. That's right, 11 billion recommendations personalized each week. When you look at that over the year, that's more than a half a trillion offered personalized for customers during 2020. We achieved several exciting milestones in Fresh this year. As more customers are spending more time at home, our produce and floral departments outperformed total company. Customers are focused on eating healthier, as evidenced by the increased engagement in our Simple Truth brands, which grew 18% during the quarter. We also saw customers trading up, and buying higher quality premium products like luxury wine and Murray's cheese, which also outperformed the total company. As customers look for food inspiration, we continue to develop innovative products to meet their needs, including ready-to-heat and ready-to-eat foods. We have seen significant growth in deli bakery and meal solution, and Home Chef finished the year with record sales, capturing additional share of stomach from restaurants and grocery retailers. Also this quarter, our Fresh for Everyone campaign celebrated its first anniversary. The marketing campaign is reaching new heights in ad effectiveness and is resonating with our customers. Our brand achieved its best year ever in 2020, exceeding $26.2 billion in sales, Our Simple Truth brand achieved a major milestone, exceeding a billion annual sales for the first time. And this is a brand that was created from scratch a little over five years ago. We saw a 20% growth in our premium culinary brand, Private Selection, as more people continue cooking at home and elevating their meals. Our Simple Truth plant-based platform launched 53 new items in 2020. one of the key launches for the year with Simple Truth oat milk ice cream. This line has brought new customers to the category and sales are continuing to outpace projections. Over 1.4 million new households have purchased from the Simple Truth plant-based platform this year. As we hold high standards for the taste and experience of our plant-based products, just like the rest of our brand's portfolio, Our trial rate has continued to grow, and our repeat rate has continued to strengthen. Kroger is committing to helping people and our planet. This is at the core of who we are as a company. During 2020, this work became even more critical as our communities experienced the pandemic and its economic impacts, social unrest, and natural disasters. Let me provide some detail on two important areas under our broader ESG strategy, diversity, equity, and inclusion, and our zero hunger, zero waste efforts to improve food access and food security. Diversity and inclusion are among Kroger's longstanding core values. In October, we introduced a 10-point framework for action to accelerate diversity, equity, and inclusion and promote greater change in the workplace and in our communities. As part of this framework, we created an internal advisory council comprised of black leaders and associates across the company to help set priorities and drive meaningful change. The Kroger Co. Foundation also established a $5 million racial equity fund to align philanthropy, to our extended commitment. So far, the foundation has directed $3 million in grants to four organizations with innovative approaches to building stronger, more equitable communities. COVID-19 and its impact also shined a light on the intersection of food security, health and nutrition, and racial equity. Given the increased need in 2020, Kroger nearly doubled our charitable giving to the Feeding America network of food banks and supported key partners like No Kid Hungry to direct meals where needed most. We are pleased to note that our associates continue to rescue surplus food throughout the year despite heavy stockpiling periods early in the year. Zero hunger, zero waste is the centerpiece of our ESG strategy. and it's how our associates live our purpose every day. I would now like to turn it over to Gary to take you through our quarter four and full year 2020 financial results. Gary?