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spk03: low single digits compared to last year. I'd now like to provide a brief update on associates and labor relations. We continue to invest in our associates as part of our long-term strategy, resulting in an average hourly rate of $19 an hour and a rate of nearly $25 with comprehensive benefits factored in. During the first quarter, we ratified new labor agreements for our Houston Clerks and Meat, Mid-Atlantic Division Stores in West Virginia, and South Carolina stores in Columbia and Myrtle Beach, and Portland Distribution Center and drivers covering more than 21,000 associates. Turning to cash flow, Kroger continues to generate adjusted free cash flow, strong adjusted free cash flow, through consistent operating results, which is enabling us to continue deleveraging in anticipation of our merger with Albertsons. At the end of the quarter, Kroger's net debt to adjusted EBITDA ratio was 1.25, compared to our target range of 2.3 to 2.5. Our strengthened balance sheet provides ample opportunities for Kroger to pursue growth and enhance shareholder value. We continue to take a disciplined approach to deploying capital with a focus on projects which drive long-term sustainable net earnings growth, while remaining committed to our investment-grade debt rating, increasing our dividend over time subject to board approval, and returning excess capital to shareholders when we are able to do so. As part of our capital investment plans for 2024, we shared last quarter our plans for approximately 30 major storing projects focused on higher growth geographies where we have traditionally achieved a strong ROIC and operating profit growth. We've made good progress on our projects so far and remain on track with our plans. While early, we're happy with the results from projects completed in the first quarter. We are confident these new storing projects will help advance our omnichannel strategy and be an important component to our sales growth and TSR model going forward. During the first quarter, we announced we had entered an agreement for the sale of our Kroger specialty pharmacy business. As part of our regular and ongoing review of our portfolio, we determined that specialty pharmacy was not part of our core strategy going forward, and a sale would enable us to focus on our health and wellness strategies that revolve around our retail pharmacies. Due to the sale, a non-recurring health for sale tax adjustment of $31 million was recognized in the quarter, and it has been reflected as an adjustment item in our results. The sale of KSP is not expected to have an impact on our 2024 guidance. I'd now like to provide some additional color on our outlook for the rest of the year. Today, we reaffirmed our annual guidance, reflecting both positive momentum we are seeing in our business, along with a more cautious customer environment in the near term. In terms of quarterly cadence, we now expect a decline in adjusted EPS for the second quarter, similar to the rate we observed in the first quarter, as we expect pharmacy business profitability pressures to carry over into the second quarter. This reaffirms where we expected to be through both the first half of the year as well as the full fiscal 2024. In closing, our first quarter performance reflects the strength and resiliency of our models. We are strengthening our grocery business, which drives the data and traffic to accelerate growth in our alternative profit businesses, and we remain confident in our ability to drive attractive and sustainable returns for our shareholders. I'll now turn the call back to Rodney.
spk07: Thanks, Todd. As you've heard from both of us, our grocery business is performing well, and we are building momentum across our business. Kroger is operating from a position of strength. We have the right strategy, which is resonating with customers, and we have the financial strength to pursue growth and enhance shareholder value. As we continue to prepare for our merger with Albertsons, I'd like to thank our associates for their incredible commitment. Since we announced the proposed merger back in October of 2022, our associates have done an exceptional job preparing for the integration with Albertsons, while never once taking their eye off the ball of serving our customers, advancing our strategy, operating our business, and driving results. Because of their efforts, we will be prepared to hit the ground running as a combined company, ready to serve more customers from day one. As a more general merger update, in April, we announced an expanded divestiture plan with CNS, which directly responds to the concerns raised by federal and state antitrust regulators regarding the original agreement. We believe the package, which includes a modified and expanded store set and more non-store assets, bolsters Kroger's position in regulatory challenges to the proposed merger. including our upcoming court proceedings. It also positions CNS to be a strong and successful competitor. We are prepared to defend our merger because it will produce meaningful and measurable benefits for customers, for associates, and for communities across the country. Customers will benefit from lower prices and more choices following the merger close. We have committed to investing $500 billion to begin lowering prices day one following close, along with an additional $1.3 billion to improve Albertson stores. Employees will benefit from Kroger's commitment to invest a billion dollars to raise wages and comprehensive benefits, further building on our $2.4 billion in incremental investments since 2018. As union membership continues to decline nationwide, this merger will secure union jobs and communities will benefit from the strength and the ability of the combined company to accelerate Kroger's commitment to ending hunger. As a combined company, Kroger has committed to donating 10 billion meals to families across the U.S. by 2030. In closing, Kroger is off to a solid start to the year, positioning us well to deliver on our commitments. We continue to invest in associates and the associate experience because when they have a better experience, our customers do as well. Grocery results are off to a better than expected start, which provides the foundation for growth in alternative profit businesses. And our model is generating strong free cash flow, which has strengthened our balance sheet and positions us for future growth. With that, Todd and I look forward to taking your questions. Because we are in litigation, we will not be taking questions on the merger this morning.
spk05: We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. And our first question comes from Rupesh Barik from Oppenheimer.
spk02: Good morning and thanks for taking my question. So I wanted to dig deeper into the gross margin line. If you can maybe walk us through the puts and takes as you guys see it for the balance of the year, including how you think about the pharmacy margins in the back half of the year.
spk03: Yeah, thanks, Rupesh. Great question. You know, we talked at the beginning of the year that our expectation was to have relatively flat year-over-year gross margin, and that is still the expectation. As mentioned in my comments, we do expect results for the balance of the year to improve beyond our Q1 results. And that's really reflective of some of the gross margin expansion efforts that we have going on. They're going actually really well. We alluded to our brand's performance. Our margins in our brands continue to do very well. And as that business continues to grow, particularly in today's environment, we talk about the budget-conscious consumer, and that continues to connect with them. And so the growth in that business helps drive the margins, and we expect to see that as the year goes on. Fresh is another category where we've had meaningful growth. Fresh is doing really well. We've talked a lot about produce, our end-to-end fresh, and how that business is growing. And certainly that comes with higher margins, which has a positive effect on our mix. And then when you look at alternative profits, and in particular, retail media, that business continues to grow well. And especially the second half of the year, we expect retail media to continue its momentum to achieve our growth of in excess of 20% for the year. A lot going on in that space. And we went to a new platform a year ago. And as we went and ramped up the platform a year ago, we'll be cycling that period of time with some of the momentum we have in that business. So all of those are, you know, where a lot of our confidence comes from. We talk about reaffirming our guidance for the year. And we alluded to some of the pharmacy headwinds. Even though we expect some of those to carry over into the second quarter, I think all of the results that we're seeing from our margin expansion efforts are going to continue to drive us so that we hit our expectations to improve the result relative to Q1.
spk07: I want to just add a couple of points on Todd's last point. We continue to have good success with value add product. And typically that product is something that the customer can eat almost immediately in their car or at home. And that's helping on margin. And then our sourcing teams continue to have making progress and cost of goods, which helps as well.
spk02: Great. And then maybe just one quick follow-up question. In light of some of the competitor announcements of reducing price on certain items, just wondering how you guys feel about your price gaps today.
spk07: If you look at overall, as you know, for the last, I don't know, 15, 18 years, part of the Kroger's strategy has always been to invest in pricing every year. And 2024 wouldn't have been any different than any of the previous years. And we continue to execute against that plan of helping the customer stretch their budget. If you look at where we feel on our relative price position, we feel very good. And one of the things that we even appreciate I was glad to see is if you look at the customer that's on a budget for the first time in over a year, we actually had growth in count from that customer base. So overall, we feel good about where we are. One of the things I always think it's important to remember, too, is as a promotional merchant, People buy a lot more when things are in promotion. We also have a very sophisticated rewards program for personalized offers that publicly you wouldn't see, and also our fuel rewards. So overall, we feel good about where we are, and we feel good about where we are relative to any of our competitors. Thanks, Rupesh.
spk02: Great. Thank you. I'll pass it along.
spk05: The next question comes from Robert F. Holmes from Bank of America Merit Lynch.
spk09: Oh, hey, Rami. I had just two follow ups on the first question. Hey, just in terms of the price investments, and I know you guys always do them. But has anything changed with what your CPG partners are doing with Kroger to drive volumes? Because we know that they're looking to do that. And then also, we'd love to just get further perspective on what Kroger is seeing competitively, either the same or different. There's kind of Walmart and Target, but what are the regionals and independents doing competitively? Are they changing at all what they're doing?
spk07: If you look at CPG partners, overall, we would be seeing more trade dollars than in the past. And I think some of that ties to the comment I made before on sourcing. As economists always say, all short statements are incorrect. There are some CPG partners that aren't worried as much about tonnage and wouldn't be as aggressive. But Most CPG partners are starting to focus on tonnage again and then trying to partner with us more aggressively to help tonnage. If you look at regional competitors, really wouldn't see much difference there than the national competitors. And, you know, overall, you know, inflation is up slightly. You would see people raising slightly more prices than lowering, but nothing that's especially different there than what we would see. And as you know, there's a ton of great, awesome regional competitors out there. Thanks, Robbie.
spk05: The next question comes from Simeon Goodman from Morgan Stanley.
spk13: Hi, this is Zach on for Simeon. Thanks for taking our questions. First, with respect to the Q1 performance, would you say that you set up the guidance with some conservatism or was it genuinely stronger than what you thought it would look like? And maybe as a follow-up, why shouldn't we extrapolate that level of upside for the full year? And was it driven primarily by price or units or some of both? Thank you.
spk07: Yeah, if you look at the first quarter performance, as Todd and I both mentioned, we felt very good about where we were finished or where it turned out. You know, one of the things I always think it's, you know, the first quarter is so early in the year, I never feel it would be unusual for us to feel comfortable changing too much. If you look at the things that we felt good about are the things that we outlined in the prepared comments around our customer count growth, the growth that's broad-based across all of our customer types. Our store team is doing a very good job of continuing to improve the experience and in-stock positions and all those things. The couple of headwinds that we do have is if you look at like incentive plans, especially in the second quarter, we'll have significantly higher incentive plan accruals in the second quarter than what we did a year ago, which is partially what's affecting the second quarter. But overall, for the year, we feel good about where we are. We feel good about where we are relative to where we thought we would be. But it's really too early in the year to make too many changes. That's a good call, Rodney.
spk03: And actually, to go together, the strength we saw in the first half of the business is really tied to your incentive plan comment. A big contributor to the strength we're seeing in our grocery business is around our teams delivering on store execution and the shopping experience. and improvement in those metrics is an important part of our incentive plan this year. So those two thoughts are connected with one another. Okay.
spk07: Thanks, Zach.
spk05: The next question comes from Kenneth B. Goldman from J.P. Morgan.
spk00: Hi. Thank you. I just wanted to clarify, are you still – on track to see inflation increase as the year progresses. I think that was mentioned last quarter. I didn't hear any update on that rate of change. And then I don't think you provided, again, I may have missed it, gross profit dollars or pennies per gallon for fuel. Just trying to follow up on those two.
spk07: Yeah, I'll let Todd answer the second part. On inflation for the year, the first quarter was pretty much where we expected it to be. For the year, it's pretty consistent with where we thought it would be. So I'm going off of memory, but I think we said it was slightly over 1%, and we would continue to see it slightly over 1%. It's interesting. If you look at some of the commodities themselves, obviously that will bounce up and down. And as you get later in the year, some of that bounce will be driven by what kind of crop year is it relative to corn and some of those things. But really overall... We expect inflation to be similar to where we did last year, and it is starting to stabilize. We don't see deflation broad-based at all, but it is stabilizing around that little over 1%.
spk03: Yeah, that's great. And on the fuel point, we did, in my comments, we did see that cents per gallon margin was down low single digits.
spk05: Okay, thanks, Ken. The next question comes from John from Guggenheim Partners.
spk08: Hey, Rodney. I wanted to start with, when you think about delivery and pickup profitability, I mean, I know you're losing money in those areas. Do you have an idea in mind when you can begin to approach break-even? You know, I know it's going to take a while, but thought on that, and then if you had to pick a couple of key drivers, Right. That would get you there. What do you think they are?
spk07: Yeah, if you look, and John, we've talked about it a lot of times, I always say our job one is to make sure we don't lose the customer, and job two is we have the responsibility to figure out how to be profitable with each of those customers. We do have some divisions that are now at breakeven or slightly profitable, and if you look at incrementally on a per-order basis through almost all of our channels now, incrementally they're contributing. In terms of, you know, our expectation of ourself is that that customer will be just as profitable as a store customer over time. I don't know that I would put a specific date on it yet, but that is the expectations we have for ourselves. And the key things on it will be continuing growth. You know, for me, I think number one is making sure our MPS scores stay strong because that's what causes that customer to continue to repeat. Then making sure that each basket we start getting where the customer adds items within a basket. And then always from an operating cost standpoint, we'll continue to use our technology to be more efficient.
spk08: Okay, maybe as a follow up on pharmacy. So what's your sense that the pressure is coming from where is it solely reimbursement or something else? You know, I mean, what's your take on reimbursement longer term? And are we basically going to see less capacity, right? And drugstores right are closing a lot of locations. But do you think between that supermarkets getting out of the business, there will be a lot less capacity in pharmacy? three or four or five years from now that will help profitability.
spk03: John, I'll talk to the headwinds a little bit. What we're seeing there was really a couple of items in product mix. One was around GLP-1. We've talked about that before. It's a high retail ring, but at an extremely low margin. And so that puts pressure on our margins. And coming into the year, if you recall, the latter part of last year, we had supply constraints on GLP-1. And so... Some of those restraints were relieved in the first quarter. And frankly, our team did a really nice job with suppliers getting out there to get product to meet demand in our stores. And so so our sales exceeded what we expected to see in the first quarter. That put put a little bit of that unexpected pressure on margins. And then the second, there's another category of drugs as well where we saw some regulatory restrictions that were unexpected that drove up the cost on those meds and put some pressure on the margin. So when we talked about some unexpected trends in pharmacy, it was really around product mix in those couple of areas and wanted to make sure we called it out because we do see that carrying over into the second part of the year. It wasn't necessarily expected.
spk07: And as we look longer term, three or five years, we definitely think there'll be less capacity. And as you noted, there's a significant number of closures by the other three players in that space. And there's a lot of work that's being done from a governmental standpoint around PBMs. The thing that I get super excited about our pharmacies and our health and wellness teams, they continue to do a great job of improving the experience. And I think it's amazing that a third of our customers don't even realize we have a pharmacy. And we're obviously working incredibly hard to make sure that third of our customers don't even realize we have a pharmacy to get them to convert and become a patient of our pharmacy because our teams do an amazing job on service. We have incredibly quick lines and things like that. And it's one less trip that somebody has to make. So thanks, John, for the question.
spk05: Our next question comes from Michael Lesser from UBS.
spk11: Good morning. Thank you so much for taking my question, Ronnie, between some of the comments from other food. Good morning. Before, between some of the comments from other food retailers, as well as your own discussion around increased price investments, there is a perception that the industry is becoming more competitive, and that is going to disrupt the profitability of food retail in the back half of the year. So could you compare where the overall promotional intensity uh that you're witnessing is today versus where it's been in the past especially around disruptive times and how much did your price investment contribute to the improvement that you saw in more price sensitive customers lower income consumers in the quarter the um in terms of overall uh
spk07: I would say in terms of promotional activity, it looks very similar to pre-COVID. And for the first time, it finally starts looking and feeling more like pre-COVID times. You know, as I mentioned a second ago, overall, we saw more prices go up than go down. So when you look at the individual number of SKUs, I feel really good about where we are, and I feel good about our teams and their ability to continue taking care of customers. In terms of the value customer, I think a lot of it is driven more from some of the things that we've done relative to our new brand in terms of smart way, helping that customer understand that they can come and shop with us. And you don't have to compromise relative to fresh and quality and some of those other aspects and the customer experience or associate experience that they give. So when you look at it overall, it's pretty consistent with where we thought it would be. And, you know, part of it, I think, is just the moderating inflation, but we still continue to expect a little bit of inflation.
spk11: My follow-up question is that Progress Financial formula works very well when its ID sales are above 3%. When is a realistic expectation that it could resume seeing ID sales back at that level?
spk03: I think you're right. Our model is to drive 2% to 4% ID sales. And as you looked at, you know, we talked a lot last quarter around the dynamics of inflation and what we saw last year with the rapid disinflation throughout the year. And as we get back to this year, the more normal inflation environment that Rodney alluded to, And we start cycling those heavy disinflations. You know, we talk about the getting towards the high end of our guidance range relative to sales by the second half of the year. And I think that starts to get us back into that range that our long term model is based on in the two to four percent.
spk07: And the other thing, it's a great question. It's hard to give a specific date other than I can assure you that our team is working really hard to get there. We're also and this is something I would say we've always done, but you always try to get better. And if you look at capital investments, we would also be using capital investments to support that growth. And as you know, we're starting to increase the number of stores that we're opening. And the maturity of those stores and the remodel of those stores also help with identicals over time. And we would expect that to obviously be the case now. And as Todd mentioned, it's early in the slightly higher capital spending for new stores and expansions and stuff. But we're pleased with the early results. Thanks, Michael.
spk05: And our next question comes from Michael Montani from Evercore.
spk12: Hey, thanks for taking the question. I wanted to ask if you could discuss the ID sales cadence through the quarter and then in the month of June, how should we think about ID sales for 2Q? And then I had a follow-up.
spk03: Yeah, the first quarter was a little choppy because we had a Easter mismatch relative to the calendar. But the general trend throughout the quarter was that we saw IDs increase steadily as we went through the quarter on average. And then as we look to Q2 to date so far, we're right on plan relative to our expectations for Q2. and the guidance that we've given.
spk07: Yeah, and as you know, we do expect IDs to improve throughout the year, and so far we're continuing to see that and would expect that to continue.
spk12: Got it. That's helpful. And if I could, just wanted to try to better get the arms around some of the pharmacy pressures. Is there anything that you could point to in the back half of the year that whether it be comparison-based or otherwise, that would help to alleviate some of those pressures or perhaps other sources of profit, whether it be media or fuel that could offset somewhat.
spk07: I'll make a couple of comments and Todd, feel free to add. One of the things as you get to the third quarter and early in the fourth quarter is vaccines. And as you know, last year, our teams did an amazing job of increasing the number of vaccines we gave. And we have a ton of learnings that we think we'll be able to do that again this year. And the So when you look at just the pharmacy business, part of that will be that. And also on some of the supply issues, we would hope that and expect for those to get more normalized. And like the one drug that Todd was talking about, the generics as they come out and stuff, historically, that's always improved significantly. profitability. And we would expect at some point in the later part of the year for those things to happen. Relative to the other pieces, Todd, I'll let you. You're right.
spk03: I don't know what I was going to say on pharmacy, Rodney, and just overall with the business. I alluded to earlier the margin expansion efforts that we're seeing. And those are all factored into the guidance for the rest of the year. And even given those pharmacy headwinds, we expect the pharmacy or the margin expansion, the gross margin expansion initiatives that we have blended with the pharmacy headwinds that we called out should enable us to achieve gross profit results beyond what we saw in the first quarter. Thanks, Michael.
spk05: And our next question comes from Ed Kelly from Wells Fargo.
spk10: Hi, good morning, everyone. I wanted to start with two questions. The first question I had is just around morning. It's just around the second quarter guidance. So, you know, in Q1, you beat on lower fuel margins and lower pharmacy. You know, Q2, the guidance is coming down. Is that just solely based on pharmacy and incentive comp? Is there something else happening within here? I'm just trying to figure out the level of conservatism that is sitting in the second quarter guidance, given what you just did in Q2 against all of this.
spk03: Yeah, no, you're right. And it is primarily based on pharmacy and incentive. You are correct. From a fuel perspective, yes. You know, that's so volatile. It's really week to week. It's part of what we keep our eye on as we go forward. So far, it has been closer to our expectations for the quarter, but that's one that we truly monitor daily and weekly to understand the impact it's having on the business.
spk10: All right. Then I guess a quick follow-up is just on, you know, leverage. So you continue to reiterate your leverage target, right? you are well below that at this point. Taking a step back, are there any advantages that you see to the business to running below the target long term? Is this a metric that you think you would reassess post the Albertsons decision? Just curious as to how you're thinking about that.
spk03: I think long term, our targets of 2.3 to 2.5 are in the right place. That is one of our key objectives is to maintain our investment grade rating. And over time, it's proven that that is the range that enables us to be able to do that. So I think we long term continue to look to operate within that. that range with or without the merger, frankly. And the beauty with where we're at here, you're right. We do have a lot of capacity there. Obviously we're firmly focused on closing the merger and being able to use that capacity relative to the merger and come out the other end. But I think in any scenario, the capital allocation approach that we've taken over time, we've got a long track record on what that is and how we do it. And I would expect us to execute under that framework on a go forward basis.
spk07: We really view our lowest cost of capital is a triple B rating. And if you go, if you look at it historically, it's like 80% of the time, that would be the lowest cost of capital. And as you look at the markets going forward, we don't see anything that would cause that to change. So that gives you the financial flexibility to do things like merging with Albertsons. I'd also recommend, creates the lowest cost of capital. And the reason we always reiterate that two, three to two, five is that really is the point that we believe creates a solid triple B rating. And, you know, the thing that as Todd and I both mentioned, the business continues to be incredibly strong from a free cash flow standpoint and the anticipation going forward. So it gives us the opportunity to continue to invest in the business, continue to grow the business and, And we can't wait to be able to merge with Albertson so we can do that at even a scale a little bit bigger. So thanks, Ed, for the questions.
spk05: And our next question comes from Kel Abania from BMO.
spk01: Hi, good morning. This is Kelly Abania from BMO. Good morning. I wanted to ask about the volume and the tonnage. outlook. I think you mentioned some positive momentum with the budget consumers, and maybe an increasing customer count there. But how, how are volumes and tonnage trending year over year within your different customer cohorts? And how is that impacting your outlook for the full year in terms of tonnage and volume overall?
spk07: If you look, the tonnage trends are all, I think if there's any exception to this, they're all in the right direction and they're improving. You know, if you look at historically, part of that, we believe, is because of the moderating inflation. Part of it is because of doing a better job on in-stock and the customer experience. and connecting better with each customer segment. So we feel good about those trends for multiple reasons. Was there a follow-up question or?
spk01: Oh, yeah, thank you. I wasn't sure if you're done. I just wanted to ask maybe another question on the promotional and the competitive environment. It sounds like you characterize it maybe back to normal. I guess what's different today about Kroger's kind of gross margin profile being more stable? And it sounds like maybe up a little bit in the next couple of quarters here relative to a few years ago. How much of that just rests on the alternative profit and the magnitude of that and the continued growth there versus anything different that you see in the gross margin for the kind of the core business?
spk03: Yeah, Kelly, I think it's, you hit on part of it. I don't think it's just alternative profit. I think we have today more levers maybe than we've had in the past to be able to drive that value through margin expansion. So it's alternative profit and retail media. It's what our merchants do We've already talked a little bit today about our brands and the value that our brand brings and the margin expansion there, and same with Fresh. I think it's all of those areas, and I think it's also the things that we continue to do with process improvement, whether it's in supply chain, whether it's continuing to drive down shrink, et cetera, et cetera. I think it's the variety of margin improvement initiatives that we have is what's a little different than maybe what we saw several years ago, because we have various sources of value to help fund those investments in our customers and in our associates, frankly.
spk07: Yeah, and if you look at some of the things that's in margin, like warehouse and transportation costs, our teams are making good progress there, reducing the number of empty miles, taking and managing more of the transportation. So there's a lot, you know, one of the things, as you know, we've done a ton of work over the last five or ten years on diversifying our business model and how we create value. And part of it is the traffic that our base business creates, being able to monetize that in ways that the customer actually views and finds of value. Thanks, Kelly.
spk05: And our next question comes from Krishna Katai from Deutsche Bank.
spk04: Hi, good morning, and thanks for taking the question. I wanted to ask about the store execution plan that you implemented with the daily scoring system. Now you're really addressing some of the underperforming stores relative to the chain average. So one is what has been the biggest opportunity for some of the store level improvements you're seeing, just how much are they contributing to the traffic gains that you are also seeing and just how best to think about further upside with both your budget conscious customers, but also the mainstream and the premium customers.
spk07: When you look at upside, I think our whole team feels incredibly good. If you were in one of our meetings, you would hear us talk about all the things that we can get better at, and it's things that matter to our associates and matter to our customers. So we're incredibly excited about the continued opportunity we have on getting better. On the store execution, it's obviously, you know, they always say retail is detail, and it literally is working with every single store. You know, as we mentioned in our prepared remarks, turnover continue to improve. When turnover is lower, When retention's better, it helps on the experience. It helps on the execution in the store, on in-stocks and other things. Our teams are doing a very good job on fresh, and that's everything from our supply chain to our folks ordering product to using AI to make sure the right stores get the right product to the stores getting it out on the shelf and helping the customer have a couple more days of freshness at home. So it's really all of those things together that we think it's what's driving the increased in traffic and increased in connection with our customers. So it's obviously super proud of the whole team and excited about the opportunities going in front of us.
spk04: Great. And just a quick follow-up, I hate to beat this, but just on the promo backdrop, just How should we think about your promotional basket? How much of that is proactive versus reactive that you are doing in the current environment? And I think you said that it's pretty much back to pre-COVID levels. Is it fair to assume that your vendor funding is also in line with pre-COVID levels, or do you anticipate that to continue to ramp as your vendors are focusing on driving volumes? Thank you.
spk07: Yeah, if you look at vendor funding, we would expect it to continue to increase because the CPGs are trying to move tonnage. If you look at overall, we would, I think, feel like it's pretty much back to pre-COVID, but at a higher level. Some CPGs have increased their margins, so they're just making flat out more profit. So we think they actually have room to even further invest in trade dollars.
spk03: To your comment on reactive versus proactive, you know, when we put our plan together for the year and our guidance in the whole nine yards, you know, we put together our pricing strategy for the year. And we're executing on the strategy that we've put in place. And we think clearly customers are responding to that very favorably. We're not deviating from the plan that we have that we've put into place. We're executing our playbook. Rodney mentioned it earlier. It's what we've done for 15 or 20 years. And we've stuck to our playbook. and we think that's what's resonating with our customers.
spk07: There isn't things that are going on out there that I would say that's causing us to be reactive. You know, you always pay attention, and I spend as much time getting into competitor stores as I do our own stores. But when I look at overall, we're running our plan, and we're using our data and insights to make sure that we're taking care of our customers and associates. So I feel really good about that. where we are overall on that. So thanks for the questions.
spk05: The next question comes from Chuck from North Coast Research.
spk06: Good morning, everyone. Morning, Chuck. I was cut off for a while, but it sounded like you said, Rodney, that your delivery sales doubled year over year in the first quarter. What's driving that? Is it just your execution, the customer demand? And when you look at customer demand for delivered groceries, how does it break down between budget conscious customers and more affluent customers?
spk07: Yeah, if you look, sorry that you got cut off, but the delivery business almost doubled year on year. It's pretty broad based on all customer segments. But I think one of the things that's important to remember is that our technology allows us to do a better job now accepting Snap and some of those things than what it did a year ago. So it's really across all customers. I think the thing that's driving it is our teams are doing a nice job on making sure the experience is good. I can tell you in Florida, people get ice cream that's still frozen and chocolate that's not melted because of the delivery trucks. And it's one of those things where... All the things you feel good about, we still have a lot of work to make sure that we're satisfied with the profitability.
spk06: Are there any CPG promotions or monies made available to help get that customer to make the first delivery order?
spk07: Yes. The short answer is yes. And there's, you know, as you know, online and with our data and personalization tools, There's all kinds of things that you're learning in terms of different customers find it attractive at different times. So the short answer is absolutely yes. The other thing is obviously online really supports the alternative profit business as well from a media standpoint. Thanks, Chuck.
spk06: Thanks, Rodney. Good luck for the rest of the year. Thank you. Appreciate it.
spk05: The question and answer session is now finished, so I will hand back over to Rodney for any final remarks.
spk07: Thank you for all the questions, as always. As you know, I always like to share a few comments with our associates listening in. Today, I'd like to take a moment to celebrate Alex Spurlock. Alex is a store leader at QFC Store 860 in Redmond, Washington. and recently was named the 2024 Food Industry Association Store Leader of the Year. Obviously, this is a huge honor, and we are so impressed by the amazing work that Alex does at her store. With more than a decade in the grocery business, Alex understands the industry. She has a gentle spirit and a fierce attention to detail that clearly earned her this recognition. What's most impressive is Alex's passion for her associates. She is always ready to coach her team and celebrate their success in meaningful ways. Thank you and congratulations, Alex, for everything you do for our customers and your fellow associates. And congratulations on this amazing honor. And thank you to all of our teams for all the work they do every day to take care of each other and our associates. And thank you for everyone for joining us today.
spk05: That does conclude today's conference call. Have a nice day. You may now disconnect your line.
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