Jacob Aiken-Phillips • Melius Research

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CEO Dave Flitman explained that the initial cautious rollout of Pronto penetration was to ensure a premium margin profile and avoid cannibalizing the core broadline business. Having confirmed both, the company is now confidently expanding the program. CFO Dirk Locascio clarified that the reported double-digit case growth uplift is on a net basis. Regarding market share, Flitman emphasized it's a 'steady march' of consistent gains, evidenced by 17 and 19 consecutive quarters of share gains in independent restaurants and healthcare, respectively.

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CFO Dirk Locascio stated that the company is actively investing in expansions and a new semi-automated facility, ensuring it is not capacity constrained. Regarding M&A, he noted that the environment for tuck-in acquisitions has not changed and that the team continues to actively manage its pipeline of opportunities.

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CFO Dirk Locascio stated that the expectation is for ROIC to continue to increase, driven by responsible capital deployment and earnings growth, which is a component of long-term compensation. Regarding labor, he noted that the company is fully staffed and that overall labor inflation has moderated to a level that can be managed within the company's 3-5% productivity improvement targets.

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CEO Christine Barone stated they are still in the "early innings" of segmentation and are exploring new app functionalities to make rewards more fun and social. She differentiated the two marketing channels: paid advertising is for top-of-funnel brand awareness to drive a first visit, while the Dutch Rewards program is for building a direct relationship and driving frequency once a customer has engaged with the brand.

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EVP & COO, Mindy West, explained that while Q2 was still a well-supplied market, it was less so than Q1, and the direction of pricing movement had a different impact on non-controllable factors. On capital allocation, President, CEO & Director, Andrew Clyde, stressed that leverage is not for any single purpose but supports a disciplined 50/50 strategy between growth and shareholder returns. EVP & CFO, Gallagher Jeff, added that the company is comfortable with its leverage, which is currently at 2.0x, well below their 2.5x tolerance.

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CEO Andrew Clyde explained that new stores move toward breakeven as merchandise margin ramps up to cover the full operating costs over time. He and COO Mindy West provided examples of new processes to accelerate development, such as adjusting risk tolerance on permits and implementing fuel dispenser stress tests. CFO Galagher Jeff noted the development pipeline is now robust at around 250 sites.

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CEO Scott Boatwright emphasized that digital remains a key focus, with ongoing work to create a frictionless user experience and drive new member enrollment. On international, he described the effort as being in the 'early, early innings,' but highlighted strong progress in Europe and with franchise partners. He affirmed that international will be a significant long-term growth lever for the brand.

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CEO Darren Rebelez stated that new capabilities in procurement, data analytics, and culinary have made the company more resilient than it was 4-5 years ago. Regarding Fikes, he explained the margin difference is due to their protein-heavy mix versus Casey's high-margin pizza. The plan is to introduce Casey's pizza, optimize the combined menu, and eventually migrate Fikes to Casey's more favorable supplier contracts.

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CEO Darren Rebelez stated that Casey's value proposition remains strong against QSRs, especially in sandwiches, without needing more aggressive promotions. He noted that in half their stores, they face no major pizza competition and are already priced competitively in the other half. Rebelez explained the Fikes store remodels will take a few years, while the fuel procurement integration will happen more quickly, with the full integration process lasting 3-4 years.

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Chairman Eric Lindberg confirmed that the pipeline for both real estate and IOs remains healthy, with access to more opportunities than needed. He stated the reduction in openings was a strategic choice, not due to a lack of options. The focus is on execution and improving the ROI of the model. He noted that IO recruitment is strong, allowing the company to be selective in choosing the most capable operators.

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Interim CFO Lindsay Gray explained the Q4 comp guide is cautious due to a slight slowdown on a two-year basis and difficult comparisons, and reiterated the long-term 1-3% comp target for 2025. Interim President and CEO Eric Lindberg confirmed there is no issue with the 50+ store opening plan for next year, as the real estate pipeline is well-established with signed leases.

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CFO Patrick Hatcher defended the guidance as a confident 'beat and raise.' CEO George Holm added that Cheney is performing exceptionally well but is also investing heavily in hiring salespeople, which impacts near-term expense ratios. Regarding private labels, Holm explained that they will be cautious not to disrupt Cheney's go-to-market strategy and are currently evaluating which of Cheney's brands to retain.

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Interim CFO Todd Foley explained that the company's model allows them to balance wage investments with other profitability initiatives to leverage SG&A in the current environment. Chairman and CEO Rodney McMullen addressed tariffs, stating that the effect on Kroger is likely less than on other companies due to modest international sourcing, and they can manage any impact as competitors would face the same pressures.

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