The Kroger Co.

Good morning and welcome to the Kroger Company fourth quarter 2021 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 Rob Quast, Director, Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Kroger's fourth quarter and full year 2021 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullen, and Chief Financial Officer, Gary Millichap. 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. The Kroger Company assumes no obligation to update that information. We are excited to see that many of you will also be attending either virtually or in person our 2022 business update tomorrow in Florida, when we will share additional details and answer questions about our long-term strategy and growth initiatives. More information about virtual registration for this event can be found 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 related follow-up question if necessary. Additionally, we would ask that you focus today's questions on our fourth quarter and full year 2021 results, as well as our 2022 guidance. Now, I will turn the call over to Rodney. Thank you, Rob.

Good morning and thank you for joining us today. Our strategy of leading with fresh and accelerating with digital propelled Kroger to record performance in 2021, on top of record results in 2020. We are incredibly proud of our associates, who continue to deliver for our customers through the pandemic. During 2021, our team delivered for all stakeholders by, first of all, achieving positive year-over-year identicals without fuel against very strong identicals last year and a two-year stack of 14.3%. Also, by connecting with customers through expanding our seamless ecosystem and remarkable consistent delivery of full, fresh, and friendly customer experience for everyone. Plus, investing more than ever before in our associates to raise our average hourly rate to $17 and our average hourly rate to over $22 when you include confidence of benefits as well. We balanced all of those investments by achieving cost savings of greater than $1 billion for the fourth consecutive year, and alternative profits contributed an incremental $150 million of operating profit as well. As we look to 2022, we expect the momentum in our business to continue, and we have confidence in our ability to navigate a rapidly changing operating environment. We are leveraging technology, innovation, and our competitive moats to build lasting competitive advantages. Our balanced model is allowing us to deliver for shareholders, invest in our associates, continue to provide fresh, affordable food for our customers, and support for our communities. We remain confident in our growth model and our ability to deliver total shareholder returns of 8% to 11% over time. Kroger is leading with fresh. Our fresh departments outpaced total company identical sales, excluding fuel during the fourth quarter. Kroger remains the number one retailer in many exciting areas, such as specialty cheese, sushi, and floral. As the world's largest florist, we sold over 76 million floral stems for Valentine's Day alone. And the smiles that came along with that for our customers and associates were free. We advanced our fresh strategy and strengthened our fresh offerings in 2021 by launching our Go Fresh and local supplier accelerator, supporting our commitment to small businesses. As a result of the launch, we have brought a number of new products to customers and the initial results have exceeded our expectations. We are still early in the program and we will continue to partner with small businesses to expand our pipeline of new products. We also remain a leader in innovation through exciting partnerships with companies like Kitchen United and Kipster. We've completed the initial test phase of our end-to-end fresh initiatives focused on bringing more days of freshness to our customers and are confident in its scalability and with plans to expand to targeted stores across the country. Our brands continue to resonate strongly with customers and maintains a culture of innovation, launching over 660 new items during the year. More than half of those new items were within our Simple Truth and private selection portfolios. We celebrated Home Chef's incredible milestone of becoming a billion dollar brand, our fourth greater than a billion dollar brand, which is pretty special. As a reminder for everyone, we merged with Home Chef in 2018. At the time, we knew our customers were looking for ways to make mealtime easier without compromising on taste or freshness. While Home Chef originated as a pure plate e-commerce offering, we saw immense potential to integrate and leverage it across our seamless ecosystem, scaling it within our stores and continuing to grow online. The success of this integration demonstrates our ability to integrate and scale solutions that provide value to our customers and grow our competitive moats. Kroger is focused on delivering a seamless experience that requires zero compromise by customers. And I think that's a really important point, zero compromise required by customers. And what that means, it's the freshest products, at competitive prices and flexible lead times. Yale will go into a lot more detail tomorrow on what zero compromise means for our customers at our business update. The strength in our top-line sales in 2021 demonstrates our ability to meet our customers no matter how they choose to engage with us, whether it's in-store or online. At the same time, we are actively encouraging customers to engage with us on our digital platforms, even when shopping in store. That's because when a customer engages with us digitally, they spend more with Kroger in all modalities. We continue to attract new customers to our digital platforms. During the quarter, we saw new seamless pickup and delivery of household acquisitions increase 25% compared to the third quarter. We remain committed to doubling digital sales and profitability by 2023, which was announced in 2021. We look forward to sharing our glide path to this goal with you tomorrow. We do not expect digital growth will be linear, especially as we cycle the sales spike in 2020 and customers become more comfortable shopping in store again. We are incredibly proud of the new digital modalities we launched during 2021, including Kroger Delivery Now, our Boost membership program, and the rollout of new customer fulfillment centers, all of which we expect to contribute meaningfully to our long-term goals. Yesterday, we announced a new customer fulfillment center for the Cleveland region, following on heels of our announcement of a cross-doc spoke facility that will serve Oklahoma City. And just a few weeks ago, we opened our third customer fulfillment center in Forest Park, Georgia, and are leveraging learnings from Monroe and Groveland to drive efficiencies and scale in the new facility. Customers are loving this new offering, and we continue to be pleased with the initial rollout of our facilities in Groveland and Monroe. And we look forward to sharing additional insights tomorrow. Now turning to the supply chain. Our teams across our stores, warehouses, plants, and offices have been incredible in working together to supply fresh food and necessities for our customers while addressing the rapidly changing environment. During the quarter, industry challenges continued within the supply chain, and we remain confident in our ability to navigate these challenges. Within our supply chain, We continue to deploy a wide array of tools, including our owned and operated fleet. We are also partnering with our suppliers to improve product availability using the strength of our data science teams to provide insights that shorten lead times and optimize inventory flow across the extended supply chain. We continue to focus on expanding our transportation contracts and attracting carriers from outside our industry, which has kept product flowing predictably across our network. The teams are doing a great job managing the increased costs, and the trends within our costs are improving sequentially. We're using our data and supplier data, plus leveraging technology to support future growth. We expect the supply chain to continue to improve throughout the year. as a result of our actions. When I visit our stores, I often hear from our associates that what they love most about their job is that they can positively impact the lives of our customers, communities, and each other every day. It's also what I love about our business too, and it's what makes our purpose to feed the human spirit so vital for our people. One way we live our purpose is through progress toward our ESG goals and our commitments. As part of our Zero Hunger, Zero Waste social and environmental impact plan, last year Kroger donated 499 million meals. That's right, 499 million meals to feed hungry families across America. And we continue to make progress toward our goal of zero waste. to helping people live healthier lives, we've administrated almost 11 million doses of the COVID-19 vaccine through Kroger Health. For our more than 450,000 associates, we strive to create a culture of opportunity, and we take seriously our role as a leading employer in the United States. Kroger has provided an incredible number of people with their first jobs, new beginnings, and lifelong careers. As we continue to operate in a challenging labor market, we are dedicated to attracting and retaining the right talent across the organization to be able to continue delivering for our customers. We are investing more than ever before in our associates by expanding our industry-leading benefits, including continuing education and tuition reimbursement. training and development, health and wellness, as well as the continued investment in wages that I mentioned earlier. This is enabling us to navigate current labor conditions while continuing to provide America with the freshest food at affordable prices across our seamless ecosystem. We are cultivating an environment where all associates are able to thrive. For the fourth year in a row, Kroger earned top score in the Human Rights Campaign Foundation's 2022 Corporate Equality Index, the nation's benchmark in measuring corporate policies and practices related to LGBTQ plus workplace equality. Last year alone, we provided more than $5 million to support associates through unexpected hardships through our Helping Hands Fund. This includes providing critical funds for disaster relief for nearly 1,300 associates. 2021 was an incredible year for Kroger and we are committed to continued growth. One of Kroger's greatest strengths is our relentless focus on learning and improving every day. I believe this has been a key on navigating our business successfully in every operating environment. We remain customer obsessed and focused on operational excellence to deliver for our customers, associates, communities, and shareholders. And now I'd like to turn it over to Gary. Gary?