The paragraph is an introduction to The Kroger Co.'s Fourth Quarter and Full Year 2024 Earnings Conference Call. It begins with the operator explaining how attendees can participate and notes that the event is being recorded. Rob Quast, Vice President of Investor Relations, introduces the call, mentions the presence of Chairman and CEO Rodney McMullen, and interim CFO Todd Foley, and advises that forward-looking statements will be discussed. He reminds participants that actual results can differ from predictions and references SEC filings for more details. Rodney McMullen then shares his long-standing connection and commitment to the company, highlighting his career journey since he started working at Kroger in 1974.

The article paragraph announces that the speaker, a proud Kroger associate, will serve as interim CEO while the company searches for a new leader to guide its next growth phase. A search committee and a renowned firm are involved in this process. Kroger is in a strong position, having delivered solid financial results in 2024 and aiming for continued growth and an 8% to 11% shareholder return. The company is focused on providing fresh, affordable food and enhancing the customer experience. The interim CEO emphasizes executing strategies with speed and confidence for long-term growth. Todd Foley will provide a recap of Kroger's 2024 performance and financial results and discuss 2025 guidance.

The paragraph discusses the company's strategy of offering high-quality, fresh products and personalized offers to enhance customer engagement and loyalty. Despite macroeconomic challenges like inflation and high interest rates impacting budget-conscious households, spending remained stable among less budget-conscious customers. The company successfully grew its customer base and loyalty through affordable products, promotions, and operational excellence, aiming for long-term success. Freshness is highlighted as a critical factor in customer choice, with investments made to provide customers with more days of freshness by reducing distribution dwell time. The company plans to build on its current success to drive continued growth through 2024 and 2025.

The Kroger Co. experienced strong year-over-year growth in identical produce sales and aims to further enhance its sourcing and supply chain capabilities for increased freshness. The company's private label, "Our Brands," is a key differentiator, with over 90% of customer households purchasing its products in the past year. The portfolio expanded in 2024, introducing over 900 new products, including 370 fresh items. Kroger focuses on exclusive offerings like the Field and Bind brand of regionally grown berries and improved packaging. In digital sales, Kroger reported more than $13 billion in 2024, with significant digital profit improvements in the fourth quarter, emphasizing their priority on boosting profitability through automation and technology. Seamless digital integration is considered a major growth accelerator for the company.

The paragraph discusses the importance of capturing more digitally engaged households for growth, as they are more loyal and spend significantly more. The Kroger Co.'s alternative profit businesses, including media and health and wellness, experienced significant growth in 2024, with a notable increase in media-driven operating profit, although growth fell short of expectations due to slower advertiser spending. In 2025, there is optimism for growth with increased commitments from CPGs and agencies. Kroger Precision Marketing (KPM) aims to be a trusted media company by offering effective advertising solutions. Health and wellness saw positive sales results, supported by strong vaccine performance and a new agreement with Express Scripts, allowing sustainable operations and competitive pricing for customers.

The Kroger Co. is focused on rebuilding its ESI business and has not included potential benefits from a new ESI agreement in its 2025 guidance. The company is enhancing productivity, which is crucial to its value creation model, by implementing various initiatives. This includes a virtual AI assistant used by 70,000 associates for HR tasks and a generative AI-powered inventory management tool to optimize sales and margins. Financially, Kroger reported a 2.4% increase in identical sales (excluding fuel) in the fourth quarter, driven by strong grocery, pharmacy, and digital sales, with its Private Selection brand outperforming national brands. Additionally, the FIFO gross margin rate increased compared to the previous year.

In the fourth quarter, The Kroger Co.'s financial performance was influenced by several factors. The sale of its Specialty Pharmacy and lower shrink improved the rate, while lower pharmacy margins had a negative effect. There was a 16 basis point increase in the operating general administrative rate, primarily due to the sale of the Specialty Pharmacy, increased incentive costs, and wage investments, partially balanced by cost-saving initiatives. Adjusted FIFO operating profit was $1.2 billion. The company recorded a LIFO charge of $30 million, compared to a credit of $18 million the previous year. Adjusted EPS remained flat at $1.14. For the 2024 fiscal year, The Kroger Co. saw a 1.5% growth in identical sales without fuel, a 10% increase in digital sales, and an 18% rise in delivery solutions. Health and wellness, particularly GLP-1 products, also contributed to sales growth. The FIFO gross margin rate improved, driven by the sale of the Specialty Pharmacy, better brand performance, and reduced shrink, despite lower pharmacy margins.

The paragraph discusses The Kroger Co.'s financial performance and strategic initiatives. It highlights an improvement in the FIFO gross margin rate due to long-term margin strategies and acknowledges opportunities for further enhancement through technology and product mix improvements. The OG and A rate increased by 31 basis points, driven by factors like the sale of the specialty pharmacy, higher incentive costs, and investments in wages, partially offset by cost savings initiatives. Adjusted FIFO operating profit was $4.7 billion, with a reduced LIFO charge of $95 million. Adjusted EPS was $4.47 per share, with a decline if the 53rd week is excluded. Fuel sales and profitability decreased, impacting results negatively. Inflation aligned with expectations, with a forecast of 1.5% to 2% for 2025, excluding recent tariffs, while external factors, like avian flu, caused significant egg inflation.

The paragraph discusses The Kroger Co.'s strategies for managing inflationary pressures while focusing on keeping prices low for customers. The company emphasizes the importance of its associates by improving wages, benefits, and career development, which has led to improved retention and a better customer experience, ultimately driving sales growth. In 2024, Kroger increased associate wages, resulting in an average hourly rate of over $19 or more than $25 with benefits included, marking a 38% wage increase over seven years. The company remains committed to sustainable investments in wages and benefits, reflected in their 2025 guidance and long-term growth plans. They also ratified new labor agreements, including with Fred Meyer Alaska stores. Kroger's financial strategy includes using a strong balance sheet and free cash flow to invest in the business and provide returns for shareholders, with a net total debt to adjusted EBITDA ratio of 1.79 at the end of the fourth quarter.

The Kroger Co. aims to maintain its debt to EBITDA target ratio of 2.3 to 2.5 while focusing on capital allocation priorities that enhance shareholder returns by 8% to 11% over time. The company plans to increase investment in new stores, having completed 29 major projects in 2024 and expecting to complete 30 more in 2025, which will contribute significantly to long-term growth. Kroger authorized a $7.5 billion share repurchase plan, initiating a $5 billion accelerated share repurchase (ASR) program, acquiring 65.6 million shares, with the ASR to conclude by fiscal 2025's third quarter. Following ASR, Kroger plans open-market repurchases with the remaining $2.5 billion. The company issued $10.5 billion in new debt but redeemed $4.7 billion after a merger termination, leaving $5.8 billion in new debt.

The paragraph outlines financial expectations for The Kroger Co. in 2025, including an anticipated increase in interest expenses due to higher debt. The company forecasts net interest expenses between $650 million and $675 million, and predicts identical sales growth without fuel at 2% to 3%. Adjusted FIFO operating profit is expected to be between $4.7 billion and $4.9 billion, with adjusted net earnings per diluted share projected at $4.60 to $4.80. The LIFO charge is estimated at $130 million if inflation aligns with current expectations. Sales growth is expected to be consistent throughout the year, with improvements as the year progresses. Adjusted net earnings in the first quarter are expected to mirror last year's, with higher performance in subsequent quarters. Margin rates are predicted to remain flat year-over-year, excluding impacts from the sale of Kroger's specialty pharmacy business. The company expresses confidence in achieving its 2025 guidance, highlighting a stronger and more diversified business model poised for future growth, aiming to deliver for customers, invest in associates, and generate sustainable shareholder returns.

In the paragraph, Rodney McMullen, speaking on behalf of The Kroger Co., expresses optimism about the company's future and discusses plans for growth in 2025, including building more stores, attracting new households, and increasing customer loyalty. The company maintains a strong balance sheet, allowing investment in growth while returning cash to shareholders. However, the planned Investor Day in April 2025 is postponed due to the ongoing search for a new CEO. David Kennerly from PepsiCo Europe will succeed Todd as CFO in April 2025. During a Q&A session, Simeon Gutman from Morgan Stanley asks about the 2025 EBIT growth guidance of 2% to 3% and seeks clarification on the contribution from the core business versus alternate areas.

The paragraph discusses the topic of CEO succession planning at The Kroger Co. Simeon asks how the board is considering both internal and external candidates for the CEO position, given the complexities of the supermarket industry and its mixed market share results. Todd Foley responds by discussing the company's operating profit growth estimates, mentioning that the core business and alternative profit sources are expected to contribute to profit growth. Rodney McMullen then explains that the board updates the CEO specifications annually as part of the succession planning process, to adapt to changes in the business and operating environment.

The paragraph discusses the ongoing process of selecting a new CEO for The Kroger Co., highlighting that both internal and external candidates are being considered, with a focus on finding a leader to drive growth and enhance shareholder value. The board is confident in selecting the right candidate with the help of a nationally recognized search firm. Additionally, the conversation shifts to Leah Jordan from Goldman Sachs, who inquires about the company's digital strategy. Todd Foley responds by explaining the sequential improvement in profitability of the digital channel, particularly in pickup and delivery services. He credits improvements in cost efficiency and operational advancements, partly due to collaboration with Ocado, for this positive trend.

The paragraph discusses the company's current position and future outlook, highlighting that while they haven't yet reached their desired state, they are encouraged by recent progress and trends. They have various strategies and levers to generate business value, focusing on margin enhancement and productivity improvements across different business areas, such as supply chain and transportation. This value creation is crucial for continued investment in competitive pricing and employee support. Their consistent yearly investment in these areas remains a priority to benefit both customers and associates.

In the paragraph, Michael Lasser from UBS asks about the company's ID sales guidance for the year, noting that volumes might be flat or down due to inflation expectations and performance from the health and wellness segment. He also inquires about actions the new CEO, Rodney, might take to address business shortcomings observed as a board member. Todd Foley responds by acknowledging the sales guidance and confirms that the volume expectations are aligned with inflation predictions, noting improvement over the year and expecting positive growth. He also addresses the question about flat EPS in the first quarter, implying a strategy to achieve steady growth.

In the paragraph, Rodney McMullen discusses The Kroger Co.'s financial performance and strategic outlook. He mentions that the first quarter financials were influenced by the return to standard union pension expenses, compared to the previous year's pension relief. The company's 2025 plans are solidified, with an emphasis on long-term shareholder value and maintaining the current go-to-market strategy. McMullen intends to ensure effective execution by the management team. Despite a focus on these established plans, he conveys that he does not want to be regarded as a status quo CEO. McMullen looked forward to continued progress toward these strategic objectives. Michael Lasser wishes him luck, and the operator introduces the next question from John Heinbockel concerning digital growth prospects for 2025.

In the paragraph, Todd Foley discusses expectations for improvement in 2025, building on positive momentum from the fourth quarter. He highlights that improvements in throughput, delivery density, and other operational aspects are contributing to better performance. Foley indicates that there is no single solution; instead, incremental improvements across various areas are driving progress. Before expanding operations by opening new sheds, it is crucial to achieve desired profitability and ensure new sheds can operate effectively from the start, which was not always the case previously.

In the paragraph, a conversation is taking place during an earnings call where Michael Montani from Evercore ISI asks about the breakdown of identical (ID) sales concerning traffic versus ticket, inflation rates during the quarter, and the impact of GLP one on sales. Todd Foley responds by indicating that both ticket and traffic contributed to fourth-quarter sales, with a slight emphasis on ticket. Inflation slightly increased, with specified future expectations of 1.5% to 2.5% inflation, particularly in key commodities like eggs. Foley also notes that the company's GLP one impact aligns with industry experiences but does not provide specific quantification.

The paragraph addresses the impact of tariffs on a domestic retailer's inflation guidance, noting that their exposure to international tariffs, such as those related to China, is minimal. The only area with some exposure is the fresh business, particularly produce from Mexico and Canada, which is still a mid-single-digit effect. The retailer is closely monitoring this situation. Overall, the retailer's portfolio is steady on inflation, with a slight increase expected in 2025 due to outlier categories like beef and other proteins.

The paragraph discusses a company’s proactive approach in managing its supplier base to mitigate the impact of tariffs by diversifying sources from different geographies. This strategy aims to keep store prices low. During a Q&A session, Ed Kelly from Wells Fargo asks about share repurchasing strategies and how they affect the company’s balance sheet. Rodney McMullen defers the response to Todd Foley, who explains that the company has plans for an accelerated share repurchase to be completed in the third quarter and mentions an additional $2.5 billion authorization for continued share repurchasing.

The paragraph discusses the company's financial strategy, focusing on a planned $2.5 billion share repurchase expected to occur later in the year, which will use cash from the balance sheet and involve a debt refinancing. The company anticipates utilizing most of the $2.5 billion towards the end of the year, adjusting its leverage ratio to around 1.8, within a target range of 2.3 to 2.5. They are also monitoring potential impacts from changes in SNAP (Supplemental Nutrition Assistance Program), as past changes affected consumer spending patterns, particularly in essentials like food. However, they find it premature to predict future effects and plan to adapt based on recent experiences.

The paragraph discusses the current state of pricing within the food retail industry, where there's a perception that the industry is not fully passing wholesale inflation onto retail prices. Todd Foley notes that most suppliers have not significantly increased prices yet, with some exceptions in fresh categories like eggs and proteins. The company remains focused on competitive pricing, recognizing its importance to customers. The company assumes competition will intensify, so it continuously monitors and compares its pricing strategy to its competitors to ensure prices remain low. Progress in maintaining competitive pricing was noted in the fourth quarter.

In the fourth quarter, the company improved its price gaps with competitors and plans to continue investing in price adjustments to further narrow these gaps. Karen Short from Melius Research inquires about the current price gaps compared to ten years ago, noting that Kroger previously had a 5% to 8% gap with its biggest competitors. Todd Foley explains that they assess price gaps at multiple levels, including shelf tag prices and the overall value considering promotions and loyalty rewards, and states that their current all-in price value is more favorable than the 5% to 8% range mentioned. Additionally, there's a discussion on the difficulty of distinguishing between traditional four-wall operating profit and profit from alternative revenue streams.

The paragraph discusses efforts to reduce the gap between perceived and actual value for customers by simplifying promotions so that customers can better appreciate the value delivered. It highlights that feedback from customers indicates room for improvement and that these changes are crucial for the company's current strategy. The discussion then shifts to the connection between four-wall profit and overall operating profit, noting their intertwined nature in the company's business model. Both contribute similarly to profit growth, with expectations of balanced growth through 2025. The conversation ends with Chuck Cerankosky from Northcoast Research asking about The Kroger Co.'s strategy for accelerating new store openings, a move seen as more aggressive than the rest of the retail food industry. Todd Foley acknowledges this as an important point, suggesting deeper strategic considerations behind this approach.

The company has been enhancing its digital capabilities over the past few years and is now in a phase of continuous improvement and maintenance to meet customer needs. With these digital enhancements in place, the company plans to reallocate capital towards expanding its physical presence, which it believes is crucial for growth and increasing market share. The company sees a synergy between digital and physical engagement, noting that its most loyal and profitable customers use both channels. This dual engagement helps build customer loyalty and can drive market share. The company considers the time spent focusing solely on digital as an opportunity to now expand its physical footprint. Additionally, Krisztina Katai from Deutsche Bank inquires about the company’s strategy for its own brand business in 2025, noting the recent launch of over 900 new items in 2024.

Todd Foley discusses the company's strategic use of its brand offerings to enhance margins and differentiate itself in the market. He highlights the importance of product innovation and the introduction of new items, which numbered around 900 this year, similar to previous years. The company conducts in-depth analyses of each product category to understand its competitive standing against national brands and identify opportunities for introducing innovations or adding new price points. Foley indicates that about a third to forty percent of these analyses have been completed, with expectations to continue through 2025 and beyond to drive growth and contribute positively to the company's gross margin.

The paragraph is part of a conversation from a financial earnings call. Joe Feldman from Telsey Advisory Group asks about potential pension issues for the year, noting that there usually are one or two pension negotiations annually. Todd Foley responds, clarifying that the so-called "pension issue" was not actually a problem, but an opportunity from the previous year where due to prior contributions, no required contributions were needed for part of that year. This absence of contributions last year created a unique comparison (comp) for the first quarter, but the situation has returned to normal expectations for the rest of the year. Kelly Bania from BMO then asks a question regarding the underlying gross margin at TEG, noting solid expansion over the last few years and questioning why the plan for the year is flat despite past outperformance.

In this passage, Todd Foley discusses the company's performance and strategies for growth. He highlights the improvement in their business, particularly noting a positive development in tackling issues like organized retail crime and shrinkage, thanks to strategic efforts and technological advancements. While they do not provide specific guidance on alternate profit, Foley expects dollar growth in 2025 to surpass that of 2024. Rodney McMullen expresses gratitude for the questions raised in the meeting.

The CEO of The Kroger Co. expressed appreciation and encouragement to associates during an earnings call, emphasizing the company's focus on retail fundamentals, running great stores and online services, and taking care of customers. The CEO highlighted the company's strength and momentum heading into 2025 and thanked everyone for participating in the call. The call was then concluded by the operator.

This summary was generated with AI and may contain some inaccuracies.