The Kroger Co.

Good morning and welcome to the Kroger Co. fourth quarter earnings conference call. My name is Alex and I'll be coordinating today's call. If you'd like to ask a question at the end of the presentation, you may press star float by one on your telephone keypad. And if you'd like to remove that question, that's star float by two. Please note this event is being recorded. I'd now like to turn the conference over to Rob Quast, Vice President Investor Relations. Please go ahead.

Good morning. Thank you for joining us for Kroger's fourth quarter and full year 2025 earnings call. I am joined today by Kroger's newly appointed Chief Executive Officer, Greg Foran, Chairman Ron Sargent, and Chief Financial Officer, David Kennerly. 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 Ron.

Well, thank you, Rob, and good morning, everyone. Thank you for joining our call today. Before we start, I'd like to just take a moment to welcome Greg Foran as Kroger's Chief Executive Officer. Greg's a strong leader with a proven track record of driving growth in large and complex businesses. He has spent most of his career in food retail, and he understands what it takes to run great stores and build a strong e-commerce business. His priorities align closely with the work we've been doing over the past 12 months, putting the customers at the center, moving with urgency, strengthening our e-commerce business, accelerating media, and improving productivity to invest in lower prices. Many of you will know his background. He started as a store associate at Woolworths in New Zealand and eventually led Walmart US, where he was responsible for thousands of stores as well as over a million associates. During his tenure, the business delivered consistent sales growth while improving store operations and building e-commerce capabilities. Most recently, Greg led Air New Zealand during the pandemic, one of the most challenging periods in the history of the airline industry, helping position the company for a solid recovery and leading their digital transformation. Greg is the right person to lead Kroger, and we're excited to have him. He will close our prepared remarks today with his early impressions and focus areas as he steps into the new role. Now turning to the fourth quarter. We're pleased to report another quarter of strong results, capping off a strong year for Kroger. Importantly, in the final period of the year, we achieved positive market share growth for the first time this year. For the full year, we nearly doubled our identical sales without fuel from 1.5% to 2.9% and grew earnings per share by 9%, which was at the high end of our earnings expectations. This performance speaks for itself. We're executing on our priorities and delivering results. This year, we've been intentional about focusing on what matters most to our customers, and this work has laid the foundation for long-term growth. Today, I'll talk about the things we got done and the proof points of our progress. In the fourth quarter, we continue to make meaningful progress on our core priorities. improving the customer experience, simplifying our business, and ensuring we have the right talent in place to move with speed. These actions are strengthening our competitive position today and are building a more efficient customer-focused company for the future. Serving our customers better starts with delivering value and making the customer experience easier. This quarter, we again made price investments to lower everyday prices and to offer more promotions, and this improved our value perception with our customers. We also added store hours during the holidays, particularly in high-traffic departments, so more associates were available when customers needed them most. These changes improved checkout times and contributed to positive trends in customer satisfaction. As part of simplifying the business, we announced the sale of Vitacost and planned to close nearly 50 underperforming little clinic locations. We also continue to review all non-core assets to determine their ongoing contribution and role within the company. These decisions reflect our commitment to running a more efficient company and focusing on priorities that add the most value. A strong leadership team is also essential to moving faster and executing our strategy. This quarter, we promoted Victor Smith, the Senior Vice President of Retail Divisions, along with new division presidents in Atlanta, Fry's, and Ralph's. each with deep operational experience and a track record of running great stores. These leaders were developed within our organization, which speaks to the depth of talent we have across the company. This week, we also elevated Milan Mahadevan for a newly created role to lead artificial intelligence work across the company, reinforcing the priority that we're placing on AI. Millen most recently served as president of 8451. We see AI as a meaningful opportunity to both improve the customer experience and drive productivity across our business. We're already seeing results from more competitive pricing, improved shrink to faster fulfillment and tools that help our associates work more efficiently. As we move forward, we plan to expand these capabilities, including agentic shopping on our digital properties. Millen's appointment ensures we have dedicated leadership to accelerate this work. As we look back over the full year, we took several important steps to position Kroger for future growth. We lowered prices on thousands of products, making it easier for customers to see the value we offer. Customer price perception improved across the company, and we maintained our competitive positioning against our major competitors. We created a dedicated e-commerce team. and completed a comprehensive strategic review of our e-commerce operations. That led to an updated hybrid fulfillment model, which will better meet customer expectations. These changes will make our e-commerce business profitable in 2026. We delivered substantial cost savings across the organization through operational efficiencies and modernizing how we work. We then reinvested those savings directly into lower prices and improved customer service. We made difficult but necessary decisions to close underperforming stores and reduce corporate headcount to create a more agile and focused organization. We accelerated our new store investments in 2025, completing 29 major projects. And in 2026, we expect to increase new store openings by 30% with plans to expand into two new regions, including Jacksonville and Kansas City, two high potential markets that will support our long-term growth. Collectively, these actions simplify how we operate and sharpen our focus on the core business. They also position us to reinvest in the areas that matter most to our customers, more value and better service. We've made strong progress and there's more to do, which Greg will touch on later. This is how we're building a stronger foundation for sustainable growth in the years ahead. Before walking through the quarter, I want to briefly comment on the customer environment. Customers remain focused on value in the fourth quarter, which was consistent with the trends that we've seen throughout the year. And we're continuing to invest in price to make sure we're delivering the value customers expect. Now turning to our results. Identical sales without fuel grew 2.4% this quarter, which includes nearly a 40 basis point headwind from the Inflation Reduction Act. Weather had a neutral impact on our year-over-year basis. For the full year, identical sales without fuel grew 2.9% in line with our full-year guidance. We saw continued strength in e-commerce and pharmacy, along with solid performance in key areas of the store like Fresh. Importantly, food volumes improved and grocery sales were a larger portion of our sales mix, which is a positive sign going forward. Our market share trends improved in the fourth quarter and for the full year, and I'm pleased to report in our final period, we delivered positive share gains, our strongest share performance since 2021. We believe the price investments we've made throughout the year are resonating with customers and are contributing to these results. And we made these investments while still improving our full year gross margin rate, excluding fuel and adjustment items by improving shrink and productivity. We're committed to this balance, investing in lower prices while being disciplined in our margin management. And the work we're doing to find efficiencies across our business allows us to do both. David will speak to these factors in more detail. Our brands had a solid quarter, excluding the impact of egg deflation. Sales continued to outpace national brands. Simple truth and private selection again led our growth, with customers continuing to choose these products because they deliver high quality at an affordable price. Innovation continues to be a priority. This year, we introduced more than 1,100 new Our Brands products, up from more than 900 last year. A growing number of these products are focused on health, an area where customer demand is growing, and our brand's portfolio is well positioned to lead. Our e-commerce business continued to be an important growth driver and one of the key ways we attract new households. Adjusted e-commerce sales grew 20% this quarter, and we've now built this into a $16 billion business. We also continue to make meaningful improvements in e-com profitability. As this business grows, the profitability improvements we're seeing become increasingly significant to our P&L. E-commerce growth also fuels our media business. More customer shopping online means more impressions, more data, and more value for our advertising brands. That connection between e-commerce and media is key to how we accelerate profitability, and we see significant runway ahead. The early results from our new relationships with DoorDash and Uber Eats have exceeded what we originally planned. They've extended our reach to customers and shopping occasions we wouldn't otherwise capture. They're incremental and they are profitable. Together with Instacart, we expect our convenience offerings to deliver over $1.5 billion in sales in 2026, which will help us accelerate our e-commerce growth. Before I turn it over to David, I'd like to take a moment to reflect on the progress we made this year. We took important steps to strengthen Kroger for the long term, lowering prices and improving store execution to better serve our customers, enhancing our e-commerce business to deliver growth while improving profitability, accelerating our store footprint, taking meaningful action on our non-core assets, and strengthening our leadership team with key appointments. These actions reflect our focus on serving customers better, running great stores, and simplifying the company so we can move faster. And to our associates listening in, thank you. I'm proud of what this team has accomplished. The work you delivered has built a stronger, more focused company, and I'm confident in where we're heading. It has been a privilege and a honor to continue serving on the board as we enter this next chapter. And with that, I'll turn it over to David.