The Kroger Co.

Good morning and welcome to the Kroger Co. First Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. Please note this event is being recorded. I would 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 first quarter 2026 earnings call. I am joined today by Kroger's chief executive officer, Greg Foran, 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. I will now turn the call over to Greg.

Thank you, Rob, and good morning, everyone. I said it on day one, and it's still true today. This is the best job in retail, full stop. I'm a believer in grocery, physical and digital. It's essential. It's resilient. People want fresh food. They want it close to home. And they want it at a price that works for them. And supermarkets done well is a fantastic business. Now Kroger. We've got terrific assets. We're outperforming many traditional grocery competitors, and we're proud of that. But beating other grocers isn't the same as leading the industry. Customers today are shopping across more channels, with more of their spend going outside of traditional grocery. But I don't see that as a problem. I see it as an opportunity. Right industry, right moment, right foundation. The runway in front of this business is significant. We have what we need. Now we need to execute. Over my first 100 days, I've been in the business every week, in stores, manufacturing plants, distribution centres and offices. I've spent time with associates, customers and suppliers, and with many of you. And I've walked our competitors, because you can't lead in this industry without understanding it from every angle. So let me give you my assessment. First, our operating costs have been growing faster than our sales. That's not sustainable, and frankly, it's not acceptable. Taking costs out of this business is not optional. It's the starting point for everything else we want to do. Second, the way we operate behind the stores needs to improve. We need to move faster, make decisions more quickly, and get more out of the assets and the talent we already have. Third, our execution in stores and online needs more consistency. When we operate well, we perform well. We attract households, grow sales, and deliver strong earnings. But when execution slips, we fall short of our potential. And today, the gap between our best stores and the rest of the fleet needs to improve. And closing it is one of our biggest near-term opportunities. On top of that, we've not been opening enough stores. Competitors have continued to grow their footprint while we stepped back. Our existing footprint is one of our strongest assets, but standing still in store growth means standing still in market share. The good news is we've started to ramp our pipeline thoughtfully, focused on the markets and formats that can generate the strongest returns. And finally, we have opportunities to strengthen our price position and make it simpler. Customers are being more deliberate with their spending and at times shopping us selectively. We're getting too many promotional trips and not enough of the full basket. Our ambition is clear, to be America's best grocer. We're going to lead with what we are, a great grocer focused on food, and we're going to win by doing it better than anyone else. To become America's best grocer, there are five things we need to get right. Priorities that connect to every associate in every store every day. This is what we call the five Fs. Let's start with fresh. Fresh is the single biggest reason customers choose a grocer. If the produce isn't right, if the protein disappoints, if it doesn't last at home, we've lost them. We're raising our standards and measuring freshness the way customers experience it, not just on our shelves, but in their homes. Fast. Customers are busy. When we're out of stock, when the checkout is slow, when the promotion is too complicated, that costs us trips. Fast applies just as much online as it does in our stores. Quick trips in store, fast delivery at home, a perfect order on time, every time. For you, we have more data and more customer insight than just about anyone in this industry. We need to use it better. Personalisation our customers actually feel and the offers they get and the experience they have in the trip itself. Friendly, our associates are one of our biggest competitive advantages and we're going to act like it. Friendly is a hard metric. When we measure it and manage to it, it improves the customer experience. That starts with how we invest in our associates, better training, simpler tools, and the support they need to do their best work. Affordable. And yes, I know it doesn't start with an F, but it belongs on the list. We have opportunities to sharpen our pricing and make value simpler for customers. Over time, our promotions have gotten too complicated and our price position has not kept pace where it needed to. Let me be clear on what this means. We do not need to be the lowest price retailer. We need to be more competitive, more consistent, and easier for customers to understand. When a customer is deciding where to shop, we want more of them choosing Kroger more often because the value is clear, the experience is great, and the trust is there. To do this, we do not need a one-time reset. Every dollar we invest in customer value, we earn through cost savings and efficiency. That's the standard we're holding ourselves to. Over time, we'll move towards simpler, more consistent everyday value. We will still be promotional. That is part of who we are, but sharper and easier for customers to understand. That requires discipline, and here's where we're pushing to fund that. On cost of goods, we will press harder on supplier negotiations and lean further into direct sourcing. On goods not for resale, we will remove complexity and waste in addition to buying better. And we need to operate more efficiently. That means fewer organisational layers, smarter ways of working, standing up our Kroger Capability Centre and applying AI across the business. Let me turn to e-commerce and media, two businesses that are increasingly central to how we win and how we grow. Starting with e-commerce, most of the growth in grocery today is happening online. That's where the customer is moving and that's where we have to lead. Our omnichannel customers spend nearly two and a half times more with us than our in-store only customers. The good news is that we have the right assets to do it. A strong store footprint, deep customer data, and a fresh offering that travels well into the digital basket. Now a strong e-commerce business does something else. It powers our media business. Kroger Precision Marketing is a high margin business built on first party data that very few retailers can match. What sets us apart is the depth of our data. 95% of all transactions are tied to a loyalty card, backed by over 20 years of history. That means we can measure actual purchase behaviour, not just intent, and that's increasingly valuable to brands and advertisers. The fundamentals of this industry are moving in our direction. We operate the technology layer closest to the customer, giving us a distinct advantage in how we engage and monetize those relationships. As data and direct customer relationships become the most valuable currency in advertising, those with scale and trusted customer connections will be the long-term winners. And that gives us real confidence in our ability to lead. Over time, this will become an even more important driver of both growth and margin. I want to spend a few moments on culture. None of this work happens without the right people moving at the right pace. Through my first 100 days, one thing has become clear. We need to move with more speed. We need to be more intentional and smarter about how we work at every level of this organisation. And that starts with me. We are building a culture where the work is never done, where we improve the business every week. Before I turn to the quarter, let me say a word about what you can expect from us this year. We are balancing two things at once, delivering results in the short term while making the changes required to improve the business long term. Both matter, and we intend to do both. We will be transparent with you every step of the way on what's working, what isn't, and what we're doing about it. With that as the backdrop, let me turn to what we're seeing in the business, starting with the customer. The customer is under pressure. High gas prices and reduced SNAP benefits are squeezing budgets. Customers are managing spend carefully and shopping with real intent. That pressure is showing up in the market. Food at home growth decelerated 100 basis points compared to the last quarter. The encouraging news is that our work on affordability is starting to resonate and you can see it in the data. Traffic is up. Customers are coming through our doors more often, which tells me our value message is starting to land and our loyal households have now grown for 17 consecutive quarters. We've started to pull away from the middle of the pack, both in units and in dollars, and had our best performance against Sakana's restive market, a benchmark of traditional grocery competitors, in over three years. That's a meaningful shift, and it tells me that the team is doing the right things in the right way. We delivered identical sales, excluding fuel of 1%, led by strong performance in e-commerce, fresh, and our brands. Three areas I'm spending a lot of time on. Our brands continue to be a real strength. This quarter, our brands gained share and outpaced national brands by 175 basis points, even with the headwinds from deflation and dairy. with strong momentum in simple truth and private selection. New items like the private selection sparkling mineral water and our globally inspired frozen meals are resonating with customers. As a business, we're changing our mindsets to think more like item-level merchants. Customers don't buy assortment, they buy items. The garlic and herb rotisserie chicken, the black diamond watermelon, The Guatemalan, Antigua, coffee, every item has to earn its place on the shelf and every item is an opportunity to delight a customer or lose one. That's a discipline we need to use in our brands and frankly, across the entire store. E-commerce also performed well, growing 19% led by delivery. We improved perfect order rates by 8% and attracted a record number of new households. And on the back of that progress, we hit a milestone we've been working toward for years. Our e-commerce business, including media, turned profitable this quarter. That's a real step up and we intend to keep building on it. What gives me confidence this is sustainable is the work behind it, particularly our shift to more store-based fulfilment, which is improving the economics of the business as we scale. Our intent is to grow this business faster than the market over time. On costs, we are moving with urgency. We delivered savings ahead of plan this quarter, and I can tell you we're just scratching the surface. There is more to come. Margin performance was solid. We balanced productivity and savings with investments to grow. We saw some unexpected pressure in transportation from higher diesel costs that wasn't built into our original expectations for the year, but it's a manageable headwind and we're confident we can work through it. Stepping back, this quarter was a step in the right direction. We're making progress on the fundamentals. The strategy is coming into focus and the team is energized about what's ahead. We're building toward a clear, long-term framework we plan to share at our investor update on October 20. Between now and then, we'll keep you posted on progress. Let me leave you with this. Right industry, right moment, right foundation. The opportunity is enormous, and we know the work. First, we break clear of the pack. Then we close the gap to the leaders. I'm encouraged because the work is already underway and we are seeing positive signs. But the work is never done. Better every day, better every week. We have what we need. Now we go execute. We will now turn the call over to David.