Kroger Co (KR)

Next Year's Outlook
Q: What are the expected tailwinds and headwinds for next year?
A: Management indicated it's too early for specifics on next year's guidance, especially as they await the merger ruling with Albertsons, which will affect guidance. However, they are optimistic due to momentum in growth areas like pharmacy, digital business, and alternative profits. They don't foresee any unusual headwinds or tailwinds at this time. -

Albertsons Merger Impact
Q: How will Kroger proceed if the Albertsons merger is rejected?
A: Management stated that if the merger doesn't happen, they won't seek another transformational acquisition. They'll continue to focus on organic growth, as they don't need mergers to be successful. -

Gross Margin Outlook
Q: How do you view gross margin trends into Q4 and beyond?
A: Excluding the impact of the KSP divestiture, gross margin improved due to strong growth in Our Brands and reductions in shrink. They expect margins to be relatively flat year-over-year in Q4, excluding KSP. Improvements in warehouse and transportation costs and favorable sales mix also contribute positively. -

Inflation Expectations
Q: What's your outlook on inflation into next year?
A: Management expects inflation to remain relatively stable, possibly with a slight expansion next year. They don't anticipate any significant changes and note that vendors are being more aggressive with trade dollars, which could affect inflation over time. - , -

Price Investments and CPG Trade Dollars
Q: Are you content with the level of price investments from vendors?
A: They observe that CPGs are becoming more aggressive with trade dollars. Kroger is open to partnering with vendors to drive tonnage growth. If vendors are less willing to invest, Kroger is content to promote its higher-margin Our Brands, as customers respond well to them. -

Alternative Profit Business Growth
Q: How is the alternative profit business performing?
A: The alternative profit business continues to meet growth expectations, with margins meaningfully higher than the supermarket business. Digital growth at low double digits supports both the core business and alternative profits. -

Pharmacy and Digital Sales Growth
Q: How are pharmacy and digital sales contributing to performance?
A: Management is pleased with strong results in pharmacy, particularly in vaccine growth. Digital sales grew at low double-digit rates, aligning with expectations and driving both core and alternative profit growth. - , -

Consumer Sentiment and Customer Segments
Q: How are different customer segments performing?
A: Mainstream customers connected better in Q3 than in Q2; they report feeling better. Lower-income customers remain under strain due to accumulated inflation and higher interest rates, affecting them more significantly. - , -

Media Growth and Alternative Revenues
Q: Is retail media growth slowing down?
A: Management expects retail media growth to be around 20% for the year, continuing to be a fast-growing part of the business. They acknowledge more advertising platforms are available but are confident due to strong returns on ad spend for CPGs partnering with Kroger. -

SG&A Leverage and Wage Investments
Q: How will SG&A leverage relate to wage inflation going forward?
A: They will continue to balance wage investments with profitability enhancements, aiming to leverage SG&A even with stable inflation and sales. They are committed to investing in wages while maintaining SG&A leverage. -

In-Store Order Selection Efficiency
Q: Can costs for in-store order selection decrease significantly?
A: Management expects to reduce costs per order by double digits over the next 2–3 years through productivity initiatives, starting with high-volume locations. They see potential to apply technology in other areas as well. -

Fresh Initiatives and RFID in Bakery
Q: What's the progress with RFID tags in the bakery?
A: They are testing RFID tags in bakery and are happy with initial results, which help associates and improve product freshness and stock levels. It's too early for budget estimates, but they are excited about the potential. -

Boost Membership Program
Q: Are you satisfied with Boost membership sign-ups and retention?
A: They are very happy with Boost membership, noting high renewal rates and high NPS scores. They are excited about its potential and aim to educate more customers about the program's value. -

GLP-1 Drug Contribution
Q: How will GLP-1 drugs impact sales next year?
A: They expect continued growth in GLP-1 prescriptions as more manufacturers enter the market and supply increases, driving further sales growth in the pharmacy segment. -

Fuel Margin Trends
Q: Can you provide color on fuel CPG contributions?
A: Fuel performance was challenging in Q3, with declines in gallons and cents per gallon. They expect fuel profitability to be more stable year-over-year in Q4, based on recent trends. -

Prepared Food Offerings
Q: How are you competing with restaurants in prepared foods?
A: Management sees a huge opportunity in prepared foods, noting that over half of meals bought at restaurants are consumed at home or in cars. They are trying different approaches and working with outside companies but are just scratching the surface. -

Tariffs Impact
Q: How might tariffs affect your business?
A: Tariff impacts on Kroger are modest since they import a small percentage of products. In fresh departments, less than 20% is imported, and even less in center store. They believe they can manage any tariff-related challenges effectively. -