Core Insights - Kroger's Private Selection® brand celebrates its 25th anniversary, highlighting its growth to over $2.9 billion in sales since its inception in 2000 [1][2] - The brand offers more than 3,600 unique items, focusing on premium flavors and innovative ingredients to enhance customer experiences [2][3] Promotions and Events - To commemorate the anniversary, Kroger is providing customers with 4X Fuel Points on all Private Selection purchases until November 4, 2023 [3] - Select Kroger Family of Stores will host tasting events from October 11-19, allowing customers to sample various Private Selection products [4] Product Highlights - Recent product introductions include Private Selection Mini Seedless Cucumbers, Peanut Butter Cups, Fire Roasted Poblano Ranch Salad Dressing, Premium Skillet Penne Primavera & Chicken, Spicy Maple Bourbon Pickles Chips, and Grab & Go American Sandwich Combo [6][7] - The brand continues to innovate with seasonal releases and a focus on culinary creativity [2][6] Customer Value Proposition - Kroger emphasizes that customers can enjoy high-quality meals without sacrificing value, offering everyday low prices and simplified promotions [5] - The company aims to provide clear savings on thousands of items while maintaining quality through its Fresh & Quality Guarantees [5]

Core Insights - Kroger is reintroducing paper coupons in response to consumer demand, particularly appealing to older shoppers and those less digitally savvy [2][3] - The move reflects a broader strategy to enhance price perception and accessibility for all customer segments amid economic uncertainty [2][4] Group 1: Digital and Paper Coupons - Kroger has begun reintroducing paper coupons across all stores, indicating a shift in consumer preferences back to traditional shopping methods [2] - The interim CEO highlighted the importance of catering to a wider customer base, including those who may not have access to advanced technology [3] Group 2: Price Perception and Promotions - Since the start of the year, Kroger has lowered prices on over 3,500 items, leading to improved customer price perception across nearly all divisions [4] - The company is working with suppliers to simplify promotions and reduce costs, which is expected to enhance overall service [5] Group 3: Private Label Performance - Kroger's private label sales are outperforming national brands, with over $32 billion in sales last year, driven by premium-tier labels like Simple Truth and Private Selection [6]

Financial Data and Key Metrics Changes - Kroger achieved identical sales without fuel growth of 3.4%, marking the sixth consecutive quarter of improvement in this metric [10][22][36] - Adjusted EPS was $1.04, reflecting a 12% growth compared to the previous year, the strongest growth rate since 2023 [28][33] - FIFO gross margin rate, excluding rent, depreciation, and amortization, increased by 39 basis points year-over-year, primarily due to the sale of Kroger Specialty Pharmacy and lower supply chain costs [24][25] Business Line Data and Key Metrics Changes - Sales growth was led by pharmacy, e-commerce, and fresh categories, with e-commerce sales growing by 16% [10][14][29] - The pharmacy business saw strong growth driven by core pharmacy scripts and growth in GLP-1s, positively impacting gross profit dollars [22][23] - Kroger's Brands products outpaced national brands in sales growth, with Simple Truth and Private Selection leading the way [13] Market Data and Key Metrics Changes - Food inflation was slightly lower in Q2 compared to Q1, trending in line with original expectations [22] - The company noted that low and middle-income households are increasingly looking for deals and using coupons, while higher-income households are still spending on premium products [101][102][104] Company Strategy and Development Direction - Kroger is focused on simplifying the organization, improving customer experience, and enhancing value creation [5][6] - The company plans to open 30 major store projects in 2025 and increase store openings by 30% in 2026 [16][35] - Artificial intelligence is being leveraged to improve pricing, reduce shrink, and enhance fulfillment capabilities [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining sales momentum, although the second half of the year will present tougher year-over-year comparisons [55][70] - The company is proactively addressing the changing tariff environment and does not expect significant impacts on its business [24][104] - Management remains cautious about consumer sentiment and its potential impact on spending [81][104] Other Important Information - Kroger ratified new labor agreements covering approximately 54,000 associates, improving wages and benefits [31] - The company raised its quarterly dividend by 9%, marking the nineteenth consecutive year of dividend increases [33] Q&A Session Summary Question: Plans for e-commerce fulfillment using stores - Management confirmed that stores are heavily used for e-commerce fulfillment, with no significant changes needed for reworking stores [41][44] Question: Competitive pricing environment and price investments - Management noted that the competitive pricing backdrop remains rational, and they will continue to lower prices while managing margins responsibly [46][48][50] Question: Sustaining ID sales momentum - Management expressed confidence in sustaining ID sales performance, although the second half will have tougher comparisons [54][70] Question: Incrementality of e-commerce growth - Management indicated that new households are being added through e-commerce, and existing customers are increasing order volumes [91] Question: Performance by income segments - Management observed that low and middle-income households are looking for deals, while higher-income households are still spending on premium products [101][102]

Financial Data and Key Metrics Changes - Kroger achieved identical sales without fuel growth of 3.4%, marking the sixth consecutive quarter of improvement in this metric [8][20][34] - Adjusted EPS was $1.04, reflecting a 12% growth compared to the previous year, the strongest growth rate since 2023 [25][31] - FIFO gross margin rate, excluding rent, depreciation, and amortization, increased by 39 basis points year-over-year [22][23] Business Line Data and Key Metrics Changes - Pharmacy sales growth was strong, driven by core pharmacy scripts and growth in GLP-1s, contributing positively to gross profit [20][21] - E-commerce sales grew by 16%, led by delivery performance, with a notable shift where delivery sales surpassed store pickup sales for the first time [12][26][42] - Fresh product sales continued to outpace center store sales, reflecting customer demand for healthier options [8][9] Market Data and Key Metrics Changes - The company noted that food inflation was slightly lower in Q2 compared to Q1, trending in line with original expectations [20] - Low and middle-income households are increasingly looking for deals and using coupons, while higher-income households are still spending on premium products [98][100] Company Strategy and Development Direction - Kroger is focused on simplifying operations, improving customer experience, and enhancing value creation [4][5] - The company plans to open 30 major store projects in 2025 and increase store openings by 30% in 2026 [14][33] - Artificial intelligence is being leveraged to improve pricing, reduce shrink, and enhance fulfillment capabilities [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining sales momentum despite tougher comparisons in the second half of the year [52][68] - The company is closely monitoring the consumer environment, which remains uncertain, and is prepared to adjust strategies accordingly [80][81] - Management expects to maintain a relatively flat gross margin rate for the full year while balancing price investments and margin initiatives [23][34] Other Important Information - Kroger ratified new labor agreements covering approximately 54,000 associates, improving wages and benefits [29] - The company raised its quarterly dividend by 9%, marking the nineteenth consecutive year of dividend increases [31][32] Q&A Session Summary Question: Plans for using stores for e-commerce fulfillment - Management indicated that stores are already heavily used for e-commerce fulfillment, with no significant changes needed for reworking stores [40][42] Question: Competitive pricing environment and price investments - The competitive pricing backdrop remains rational, and Kroger plans to continue lowering prices while managing margins responsibly [46][48] Question: Sustaining ID sales momentum - Management expressed confidence in sustaining ID sales momentum, although the second half of the year presents tougher comparisons [52][68] Question: Incrementality of e-commerce growth - E-commerce is adding new households and increasing order volumes from existing customers, contributing to overall growth [89][90] Question: Pharmacy performance and its impact on other business areas - Pharmacy performance is expected to provide incrementality to the rest of the business, with a normalization of vaccine approvals anticipated [93] Question: Performance by income segments - Low and middle-income households are seeking deals, while higher-income households continue to spend on premium products [98][100]

Core Viewpoint - Kroger's shares increased by approximately 9% following the company's raised full-year sales outlook, driven by consumer demand for lower-priced store brands and alternatives to dining out [1] Group 1: Sales Performance - Kroger now anticipates identical sales, excluding fuel, to rise by 2.25% to 3.25% year-over-year, an increase from the previous forecast of 2% to 3% [2] - For the fiscal first quarter ending May 24, Kroger reported net sales of $866 million, or $1.29 per share, with identical sales, excluding fuel, growing by 3.2% year-over-year [3][4] - E-commerce sales experienced a year-over-year growth of 15% [4] Group 2: Company Changes and Leadership - Kroger has undergone significant changes, including the resignation of longtime CEO Rodney McMullen and the hiring of a new CFO, David Kennerley, previously of PepsiCo Europe [5][6] - The company is currently searching for a new CEO, with the board collaborating with a search firm [14] Group 3: Competitive Landscape - Kroger faces increased competition from Walmart and Costco, particularly as consumers are more price-conscious due to tariff uncertainties [6] Group 4: Consumer Behavior and Strategy - The company is focusing on value-oriented shoppers by simplifying promotions and lowering prices on over 2,000 products [7] - Kroger's private label brands have outperformed national brands for seven consecutive quarters, with Simple Truth and Private Selection being the top performers [8] - The company plans to launch 80 new protein products under the Simple Truth line to capitalize on health trends [9] Group 5: Cost Management and Store Operations - Kroger is reviewing its costs to modernize its business and improve e-commerce profitability, which is currently not profitable [12] - The company plans to close about 60 stores over the next 18 months, resulting in a $100 million impairment charge in the first quarter [12] - Despite store closures, Kroger intends to open new locations in higher-growth areas, with plans to accelerate openings in 2026 [13]