The Kroger Co.

Hello and welcome to the Kroger Co. first quarter earnings call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now hand over to your host, Rob Quast, Director of Investor Relations. Over to you, Rob.

Good morning. Thank you for joining us for Kroger's first quarter 2022 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullin, and our 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. After our prepared remarks, we look forward to taking your questions. In order to cover a broad range of topics, we ask that you please limit yourself to one question and one follow-up question if necessary. In response to your feedback on allowing more participants during Q&A, we may provide abbreviated responses to your follow-up questions to hear from as many of you as we can. I will now turn the call over to Rodney.

Thank you, Rob. Good morning, everyone, and thank you for joining us today. We're off to a great start in 2022, delivering strong performance by successfully executing our strategy of leading with fresh and accelerating with digital. Our associates' relentless focus on providing fresh, affordable food to our customers is driving our strong results. During the quarter, we demonstrated the resilience of our business model led by strong top line sales ahead of internal expectations. In addition, our team navigated a challenging operating environment characterized by continued inflationary cost pressures and supply chain headwinds, which included higher diesel fuel costs. Through our strategic cost savings execution and sustained food at home trends, our team delivered 16% growth in our adjusted FIFO operating profit. providing once again the strength of our financial model in a variety of operating environments. Our teams are focused on delivering a great customer experience with zero compromise, rising inflation as consumers rethinking their shopping and eating habits. While customers continue to cook more, we are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment. Many customers continue to shop premium products throughout the store, including private selection, Murray's Cheese, and deluxe meal solutions. For other customers whose budgets are more directly impacted by food and fuel inflation, they are actively looking for ways to save. We're doing everything we can to help this customer stretch their budgets. I'd like to share more about the work we're doing for our customers and how our competitive moats uniquely position us to meet these challenging and changing customer needs. First, we are leading with fresh. Our customers continue to prioritize fresh as the number one determinant of where to shop. We are meeting their needs with operational efficiencies and new technologies that extend days of freshness and grow our selection of quality fresh products. In the first quarter, we achieved 5.2% identical sales growth in our fresh categories. These gains were led by the expansion of our end-to-end fresh produce program, which elevates standards and improves our ability to maintain freshness throughout the supply chain. We certified 355 stores this quarter, and the customer feedback has been overwhelmingly positive. We also continue to increase our use of forecasting and analytical tools, specifically leveraging 8451 to improve our ability to maintain fresh products in stock, both in store and online. Our recent floral results are a great example of how we are leading with fresh. As the nation's largest florist, the first quarter was our time to shine for holiday celebrations, and our floral team stepped up. achieving record sales. In fact, we set an overall single-day floral sales record on Valentine's Day and a Mother's Day sales record with strong double-digit growth. Second is our brands. During the quarter, we saw tremendous growth in our brands, which had identical sales of 6.3 percent and outpaced all national brands. With 92 percent of households purchasing at least one of these products, We launched 239 new and innovative products during the quarter, reflecting many of the top food trend predictions we made at the beginning of the year. All of our new products continue to be tested and validated to ensure that they are as good or better than the comparable national brand. We continue to invest heavily in the quality of our brands, which preserves our strong price position and drives higher profitability. Next area is personalization. Our data science platform provides unique insights that creates personalized customer experiences. In this dynamic environment where customer behaviors are changing rapidly, we use our data and insights to be nimble and react quickly to ever-changing needs. Our broad-based data science approach helps us determine how to best implement price, promotion, and display. We are focused on delivering incredible value to our customers through relevant, personalized offers and fuel rewards. Our loyal customers are using our fuel rewards program now more than ever, and in fact, more than 600,000 incremental households engaged for the first time this quarter. Finally, our seamless ecosystem continues to deliver fresh products to our customers anytime, anywhere, and with zero compromise. During the first quarter, more customers returned to in-store shopping, and as a result, we made strides to enhance that experience while introducing new tools that help our associates better serve customers. In pickup, we unveiled new technology that improved wait times 20% and expanded capacity based on customer needs. In delivery, we continue to introduce key initiatives that expand our reach and shorten delivery times. We strive to provide more customers access to high-quality, affordable food, regardless of whether they have a physical store in their community. During the quarter, we opened two new customer fulfillment centers powered by Ocado's automated smart platform, one in Dallas, Texas, and one in Pleasant Prairie, Wisconsin. bringing our total CFC count to five. We also opened three new spoke locations for a total of six spokes. As we head into summer, our end-to-end cold solutions, including the custom-built refrigerated van, will ensure customers get the freshest product delivered directly to their doorstep. Finally, our Boost membership is delivering promising results, Our one-of-a-kind membership program offers incredible value where customers can get unlimited free delivery on orders of $35 or more, double the fuel points on every dollar spent at Kroger, and other exclusive member benefits. We are encouraged by the number of new members in the four current pilot divisions. Importantly, delivery sales increased significantly compared to non-Boost divisions. and delivery retention improves approximately 600 basis points. Because of this early success, we are proud to announce today that Kroger Boost is launching nationwide beginning in the next few weeks. This next generation loyalty program is deepening our relationships with customers as they continue to look for value and convenience. Turning to supply chain, Our 2022 business plan anticipated ongoing supply chain challenges. By planning ahead and focusing on staffing, technology, and process efficiencies, we managed our costs effectively. By owning and operating a portion of our fleet, we better control and manage transportation costs. Despite diesel fuel costs headwinds, We were also proactive about forward buying and securing capacity for goods, resulting in better vendor rates. Through our supplier relationships, we saw sequential improvement in product availability. We are well positioned to adapt to the evolving environment, and we are cautiously optimistic in a broader supply chain recovery throughout the year. We also continue to invest in our associates, and an associate experience that facilitates an amazing customer experience. We firmly believe that exceptional financial and operating performance connects directly to the ways we support and invest in our associates. During the quarter, we took numerous steps to meet our associates' needs while they delivered for our customers. We continue to invest in associate wages and we expect hourly wages to grow throughout the year. we launched new initiatives to simplify day-to-day work, including the modernized scheduling tool MyTime. We took steps to improve communication across all of our teams and bring meaningful training to all of our associates, no matter where they work. One example of this commitment is the addition of Microsoft Teams Rooms across most of our store locations. This technology improvement will facilitate deeper connections and improve the associate experiences. As an employer of choice, more people are applying to work for Kroger and more associates are choosing to stay with us. While we still have work to do, we experienced a meaningful improvement in both hiring and retention in the months after the Omicron surge. We are also seeing more boomerangs. These are associates who left to work elsewhere and ultimately came back to us. Kroger's strong culture invites associates to come for a job and discover a career. And we're glad that so many value and appreciate our work environment, our culture, and the people they work with every day. Our winning culture is rooted in living our purpose to feed the human spirit. During the last year, our teams took significant steps to support our customers and communities through our Zero Hunger, Zero Waste social and environmental impact plan. We introduced a new Kroger and USO co-branded mobile unit to nourish active duty military service members and their families at military bases and USO centers across the country, as well as provide community disaster relief. The first of four units hit the road in May. In summary, we're off to a very strong start in fiscal 2022. We are widening our competitive moats, creating a shopping experience with zero compromise, investing where it matters most to our customers and associates, and strengthening our purpose in large and small ways every day. When we do all this well, our teams, our customers, and our shareholders all win. Now I'd like to turn it over to Gary to take you through our first quarter results. Gary?