The Kroger Co.

Good morning and welcome to the Kroger Co. second quarter 2024 earnings conference call. If you'd like to ask a question once the presentation has finished, please press star followed by one on your telephone keypad. Please note this event is being recorded. I'd now like to turn the conference over to Rob Quast, Senior Director, Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Kroger's second quarter 2024 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullin, and Interim Chief Financial Officer, Todd Foley. 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 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. Thank you, Rob.

Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to provide an outline of our discussion topics this morning. I will start by sharing a recap of our second quarter performance and highlight how we continue to advance our go-to-market strategy, which powers our value creation model and drives long-term sustainable growth for our shareholders. Then Todd will cover our financial results for the second quarter. And finally, I will close with an update on our pending merger with Albertsons. Turning to our performance this quarter, we continue to execute our strategy and we are delivering solid financial results through the strength and diversity of our model. We are driving positive customer activity with a compelling combination of affordable prices and personalized promotions on great quality products, all through a unique, seamless experience. Our strong customer trends also reflect our enhanced focus on elevating the customer experience through excellent store execution, which continued into the second quarter. Customers continue adjusting to the current economic environment. The reduction of excess savings built up during the pandemic, higher interest rates and the effect of inflation are pressuring customers' ability to spend. This is especially true for our most budget conscious customers, as we've been seeing for a while now. But we're now seeing other customer segments beginning to make changes as well. Customers are purchasing lower price cuts of meat, buying less and focusing on essentials. Budget conscious customers are buying more at the beginning of the month to stock up on essential items and groceries. And then as the month progresses, they are more cautious with their spending. In response, we are supporting our customers by keeping prices low through promotions, including loyalty discounts, personalized offers, and fuel rewards. We are also expanding our multi-tiered portfolio of our brand's products, which provides customers exceptional alternatives to national brands, competing on quality while at a noticeable lower price point. Our long-term model demonstrates that by consistently keeping prices low, we increase customer loyalty and grow share of wallet. While the food at home industry remains competitive, our model drives efficiencies that allow us to sustainably invest in value and maintain competitive price spreads with key competitors. In addition to lowering prices, we executed our go-to-market strategy through our pillars of fresh, our brands, personalization, and seamless. We are proud of our associates for bringing this strategy to life with another quarter of excellent store execution. This led to another quarter of strong customer trends, including total and loyal household growth and an increase in customer visits. Mainstream households, our largest customer segment, led our sales growth through more households and increased visits. By delivering a more consistent customer experience, we are moving customers up the loyalty ladder and positioning ourselves for long-term sales growth. I'd now like to cover how we are enhancing our go-to-market strategy, starting by leading with fresh, Our Fresh for Everyone promise reflects our commitment that customers can trust the quality and freshness of every item they purchase. This promise is only possible through our strong relationships with farmers and suppliers, which enables Kroger to source the freshest products. Field and Vine, one of the newest Our Brands lines, offers regionally grown berries picked to peak freshness. We are very pleased with the initial customer response to this line. Our Brands is an important differentiator for our business, enabling us to offer innovative products at a great value. This combination of quality and value led to Our Brands sales growth outpacing National Brands sales growth this quarter. More than 90% of our customer households purchased Our Brands products during that time. Across the portfolio of our brands, we are expanding into new categories and launching new products, with almost 600 already introduced this year. Each of these new products is thoroughly tested and validated to earn its spot on our shelves, competing aggressively with national brands with no compromise on quality. Smartway, one of our opening price point brands, is delivering exceptional value to customers on a budget. These are ultra low priced essentials and pantry staples that we know our customers need the most. We continued expanding the Smartway lineup in the second quarter to meet our customer needs for more value. We are also making progress on our brand's refreshment rollout with more of our brand's portfolio to be refreshed later this year. We are excited to see our customers respond to these new designs. As we innovate within the portfolio and expand to meet customer needs, we are improving our mix and driving better profitability. For example, our manufacturing plants allow us to make many of our own products, keeping costs lower as we pass those savings on to customers while preserving our ability to grow margins. Next is an update on personalization. Our loyalty program and personalized promotions enabled us to deliver value beyond the shelf price. We collect data and insights which enable us to enhance our personalization capabilities, delivering better product recommendations and more effective promotions. As a result, we are generating greater unit lift on promotions compared to the industry. Boost, our paid membership program, supports our personalization capabilities. This quarter, we held a Boost Bonus Days event, which provided Boost customers even more savings during the two-week special event. This event went well above and beyond the incredible value the membership already offers, with daily savings, free delivery on orders of $35 or more, and two times fuel points. Now turning to seamless, digital sales grew 11% driven by an increase in both households and traffic. One of the many ways we move customers up the loyalty ladder is to convert digitally engaged households into e-commerce households. This means we are moving customers from simply using our app or website to making purchases through one of these digital channels. This work resulted in our teams growing e-commerce households 14% this quarter. Households who shop with us digitally and in our stores are important because they are our most loyal and increase retail media monetization opportunities. Delivery solutions led our sales growth once again this quarter, with pickup also showing very strong demand. Demand across our Kroger delivery network, which provides customers a premium shopping experience, continues to grow. Customers tell us they love the convenience of on-time and refrigerated delivery right to their homes. Profitability remains a key focus as we drive volume growth through our customer fulfillment centers. Our teams are working hard to improve the shape of weekly and daily demand as well as refining trade areas to improve customer delivery density. By executing our go-to-market strategy, we are building loyalty and creating more growth opportunities. First, with alternative profit businesses, which had a strong quarter led by growth in Kroger Precision Marketing. Their results were in line with internal expectations, and keep us on track to deliver more than 20% media growth this year. Next is health and wellness. We continue to be optimistic about this area of our business. We know that grocery customers, who are also pharmacy customers, are more loyal to Kroger and spend more with us. While the pharmacy industry is going through a period of transformation and disruption, we have a unique opportunity to help our customers live healthier lives, and growth share. Over the long term, we remain confident and our teams are working hard to navigate industry challenges and position the company for future growth. During the quarter, sales outpaced internal expectations. Profitability was similar to last year, but behind internal expectations due to product mix pressures, specifically as a result of strong GLP-1 sales. We expect GLP-1s to have a similar impact on our results for the remainder of the year. Our vaccine efforts are ramping up now and should help offset some of the GLP-1 impact in the second half of the year. Turning to associates, our full fresh and friendly commitment is our roadmap to achieving a best in class customer experience. And we appreciate our associates for delivering again this quarter. We are facilitating this improved customer experience through our commitment to be an employer of choice. We are achieving this by investing in associate wages and by continuing to create an outstanding supportive work environment. It is great to see these efforts recognized with a perfect score on the 2024 Disability Inclusion Equality Index, making Kroger a best place to work for disability inclusion for the fifth consecutive year. With that, I'll now turn it over to Todd to take you through our second quarter financial results. Todd?