Welcome to the Albertsons Companies Q2 2021 Earnings Conference Call, and thank you for standing by. All participants will be in listen only mode until the Q&A session. This call is being recorded. I would like to hand the call over to Melissa Plaisance, GVP, Treasury and Investor Relations. Please go ahead. Good morning, and thank you for joining us for the Albertsons Companies Q2 2021 Earnings Conference Call. With me today from the company are Vivek Sankaran, our CEO, and Sharon McCollam, our new President and CFO. Today, Vivek will share insights into our Q2 results, as well as review our progress against our strategic priorities. Sharon will then go into the financial details of our Q2, as well as our updated full year 2021 outlook, before handing it back over to Vivek for some closing remarks. After the prepared remarks, we will conduct a Q&A session. I would like to remind you that management may make statements during this call that are or could include forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are not limited to historical facts, but contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements are, and will be contained from time to time in our SEC filings, including on Forms 10-Q, 10-K, and 8-K. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events, or otherwise. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures, and the historical financial information includes a reconciliation of net income to adjusted net income and Adjusted EBITDA. With that, I'll hand the call over to Vivek. Thanks, Melissa. Good morning, everyone, and thanks for joining us today. Before we get started, I would like to introduce Sharon McCollam to any of you that do not know her in her new role as President and CFO at Albertsons Companies. She will lead all areas of finance, IT, real estate, strategy, corporate development, and supply chain. As many of you know, Sharon officially joined us on September 7th and now has just over six weeks under her belt. She came out of retirement to join us on our transformation journey. Her prior experience at Best Buy and with the digital transformation of Williams-Sonoma will help us as we move forward. We are very excited that she has joined our team. I look forward to working with her to accelerate our transformation. We also want to congratulate Bob Dimond on his retirement and thank him for his seven years of service with Albertsons, and especially for his contributions to our successful IPO last year. Let me now turn to our Q2 results. I'm pleased to report that our results for the quarter exceeded our internal plans across all key metrics, increasing our confidence in the business going forward. Our identical sales increased 1.5% in Q2 and 15.3% on a two-year stack basis. We continued to gain market share in food on a one and two year basis, and in non-food, we are up on a two-year basis and down only slightly on a one-year basis. In addition, we achieved Adjusted EBITDA of $965 million and adjusted EPS of $0.64 per share, ahead of our expectations. Again this quarter, against a backdrop of digital sales growth exceeding 200% in every quarter of 2020, the benefits of our digital and omnichannel investments continued to resonate with our customers. In the quarter, digital sales increased 5% year-over-year and increased 248% on a two-year stack basis. Our DriveUp & Go and Home Delivery capabilities, reaching 95% of our customers, increased omnichannel households by over 4x versus Q2 2019, and retention has been strong. Omnichannel household growth is a key initiative as these customers spend three times more than any in-store only shopper. We also continued to drive year-over-year growth in identified households, another key initiative that is foundational to better understanding our customers through data analytics and allowing us to improve our offerings to drive recurring and incremental spend. In our just for U loyalty program, ongoing benefit enhancements continue to accelerate membership growth, which increased 17% year-over-year to 27.5 million members. Within the program, the number of actively engaged members increased by almost 9%. Actively engaged members are those that are redeeming rewards such as fuel or grocery rewards in the current quarter. In addition, we had a 93% retention rate with actively engaged members in Q2. Remember that actively engaged members spend approximately 4x more with us. We also saw better than expected in-store results as traffic in our stores continued to increase versus Q2 2020. We believe the increased traffic is being driven by our ongoing efforts to protect the health and safety of our employees, customers, and communities, and the higher vaccination rates that are helping customers become more comfortable in returning to stores. These results reflect the momentum we are seeing through the execution of our transformation strategy across all channels. The consumer backdrop remained strong throughout the quarter. I will now take a few minutes to walk through the pillars of our transformation strategy that helped drive these results and provide you with an update on our progress. These pillars include In-Store Excellence, accelerating our digital and omni-channel capabilities, increasing productivity, and strengthening our talent and culture. In-Store Excellence has been elevated by providing the right assortment in each local market using digital tools to enhance replenishment and in-stock conditions, encouraging friendly customer service, and enhancing speed and ease of checkout through frictionless and contactless payments. I will briefly touch on recent progress on two elements of our assortment, Fresh and Own Brands. In Fresh, our efforts to differentiate our offerings have generated elevated demand, with Fresh growth outpacing center store by approximately 250 basis points year-over-year. Sales in each of our Fresh categories remain ahead of pre-pandemic levels as customers continued to consume more meals at home. In Own Brands, the introduction of new products, as well as the rollout of Own Brands into Albertsons' legacy divisions, has generated strong growth. Our Q2 sales penetration was 25.2%, up approximately 60 basis points from Q2 2020. During the quarter, we launched 85 new products, including ready-to-eat meals, refrigerated Signature Reserve pastas, and several O Organics coffee items. Year- to- date, we have launched over 400 new Own Brands items and are on track to reach our goal of launching over 800 items this fiscal year. Finally, we continued to invest in stores. Through the first half of the year, we opened seven new stores and completed 76 upgrade and remodel projects. Our next priority is the acceleration of our digital and omni-channel capabilities. Digital transformation is an imperative in our growth strategy as we aim to provide an array of convenient shopping experience for our customers. To this end, we have expanded our DriveUp & Go locations to over 1,900 and expect to reach approximately 2,000 locations by year-end. Underlying the rollout of our digital and omni-channel capabilities is our focus on delivering a superior customer experience as well as improving profitability over time. For example, in DriveUp & Go, our average wait time for pickup is now down to three minutes. In delivery, we continued to speed up delivery times while reducing delivery cost per order by expanding our third-party delivery store network. We added DoorDash one-hour delivery to all divisions with a catalog of 40,000+ products. We also announced DoubleDash, allowing customers to combine delivery of a restaurant meal and a grocery delivery in one trip. In Micro-Fulfillment Centers, we are improving our productivity in our three existing MFCs, and we have plans for an additional four MFCs before the end of our fiscal year, bringing the total to seven. This is two less than previously estimated, as the launch of two locations has moved into fiscal year 2022, primarily as a result of delays in construction. In loyalty, our integrated loyalty and e-commerce app is now fully rolled out and offers a connected customer experience with redesigned rewards and other new features. To partially offset all of these investments and cost inflation, our third priority is driving productivity. During the quarter, we continued to eliminate waste and improve efficiencies through enhanced promotional effectiveness, reductions in indirect spend, labor efficiencies, and ongoing efforts to reduce shrink. We continue to expect to achieve the targeted $1.5 billion in annual gross savings by the end of fiscal year 2022. Our fourth priority is strengthening our talent and culture and supporting the communities we serve. We continue to add talent throughout the company at both the corporate and division level, including the recent appointment of Sharon, our outreach through job fairs for retail and distribution employees, and the training we've put in place to assist in the success of our new employees and enhance retention. Our pharmacy team continues to serve our communities with an array of services, including the COVID and flu vaccines. To date, the pharmacy team has administered over 7.5 million COVID vaccine doses. In support of our associates that were impacted and the communities we serve, the Albertsons Companies donated $500,000 to help provide food to those impacted by Hurricane Ida and the California wildfires. We also continue to take actions related to ESG and sustainability. We recently published our fiscal 2020 ESG report, which is available on our company website. As the next step from our recently refreshed materiality assessment, we will soon release a comprehensive set of goals in areas including climate action, diversity, equity, and inclusion, waste reduction and circularity, and community stewardship. Now I will turn to Sharon to provide remarks and cover the details of our Q2 financial results and outlook. Thank you, Vivek, and hello, everyone. I'm thrilled to be here today and couldn't be more excited to have joined this team at such a transformative time in the company's history. What I have found to be the most impressive since joining is the disciplined approach that the company is taking to leveraging the favorable backdrop that the industry is seeing today, while at the same time remaining deeply focused on the strategic priorities that Vivek just covered and are foundational to advancing the transformation longer term. Consistent with these priorities, where I am currently spending the majority of my time is in the acceleration of our digital and technology initiatives, the strengthening of our omnichannel capabilities, and the advancement of our productivity agenda, including identifying opportunities to further rationalize our cost structure, particularly in the technological enablement of our supply chain and our stores. I look forward to discussing all of these topics further, both today and in our meetings to come. Now we'll turn to the details of our Q2 results and provide an update on our fiscal 2021 outlook. As Vivek said earlier, we were extremely pleased with our sales trends as we delivered Q2 2021 identical sales growth of 1.5% on top of 13.8% growth in Q2 2020 for a two-year stack of 15.3%. Total sales in Q2 2021 were $16.5 billion, compared to $15.8 billion last year and $14.2 billion in Q2 2019. Gross profit margin was 28.6% in Q2 2021, compared to 29% in Q2 2020 and 27.8% in Q2 2019. Excluding the impact of fuel, however, our gross profit margin was flat compared to Q2 2020 as higher product, supply chain, and advertising costs were offset by productivity initiatives, favorable product mix, and pharmacy margins related to COVID-19 vaccines. Compared to Q2 2019, gross margin increased 85 basis points, primarily driven by improvements in our productivity, shrink expense, sales leverage, and improved pharmacy margins related to COVID-19 vaccines, partially offset by investments related to our growth in digital sales. Selling and administrative expenses as a percentage of sales were 25.6% during the Q2 of fiscal 2021, compared to 25.6% in Q2 2020 and 26.8% in Q2 2019. Excluding the impact of fuel, selling and administrative expenses increased 55 basis points year-over-year. This increase was primarily driven by higher employee costs, depreciation, and expenses related to the acceleration of our digital and omnichannel capabilities and other strategic priorities. These increases were partially offset by lower COVID-19 related expenses. As it relates to the year-over-year increase in employee costs, labor related to the reopening of certain fresh departments such as deli, bakery, and prepared foods, market-driven wage rate increases, and higher equity-based compensation expense contributed to this increase. On a two-year basis, our selling and administrative expenses were down 120 basis points versus Q2 2019. This decrease was driven by strong sales leverage, partially offset by higher employee costs and expenses related to investments in our omnichannel and digital capabilities and other strategic priorities. As a result of opportunistic refinancing transactions as well as continued debt reduction, Q2 2022 interest expense decreased by $20 million to $109 million versus Q2 2020. Adjusted EBITDA was $965 million in the Q2 of 2021 compared to $948 million in Q2 2020. This increase in Adjusted EBITDA was primarily due to increased sales, partially offset by higher selling and administrative costs. Adjusted net income in Q2 2021 was $370 million, or $0.64 per fully diluted share, compared to $356 million or $0.60 per fully diluted share in the Q2 of fiscal 2020. I would now like to discuss free cash flow and capital allocation. During the Q2 and year-to-date, we have generated significant free cash flow driven by better than expected operating results as well as lower working capital. From an investment perspective, capital expenditures year-to-date were approximately $823 million as we continued to invest in our digital and technology platform, completed 76 remodels, and opened seven stores. For the year, we continue to expect capital spending in the range of approximately $1.9 billion-$2 billion. Regarding debt reduction, subsequent to the end of the quarter, we provided notice of redemption of the remaining $200 million of Albertsons 5.75% unsecured notes due in 2025, which will save us $11.5 million per annum in interest expense going forward. Finally, in regard to returning cash to shareholders, we announced today a 20% increase in our quarterly dividend from $0.10 to $0.12 per share based on our confidence in future cash flow generation and our strong operating performance. I will now turn to our updated outlook for fiscal year 2021. Given the outperformance in Q2 and recent trends, we have updated and raised our guidance for fiscal year 2021. We now expect identical sales in fiscal 2021 in the range of -2.5% - 3.5%, compared to prior guidance of -5%- 6%, representing an updated two-year stacked ID range of 13.4%-14.4%, compared to prior guidance of 10.9%-11.9%. We expect adjusted EPS in the range of $2.50-$2.60 per share, up $0.30 from our previous guidance range. We expect Adjusted EBITDA in the range of $3.95 billion-$4.05 billion, up $250 million from our previous guidance range. We also expect our tax rate to be in the range of 23%-24%, compared to 25% previously. I will now turn the call back over to Vivek for some closing remarks. Thank you, Sharon. In summary, I would like to reinforce a few messages. Our omni-channel strategy is working with our customers. We're adding customers to our franchise, they're spending more with us, and engaging in more ways with us. We continue to gain market share in dollars and units, and our trends improved with each successive period in the quarter, and especially around holidays. Our digital initiatives continue to drive engagement and growth. We remain focused on elevating service quality and speed. Our productivity initiatives are delivering, strengthening the middle of our P&L. We're also navigating the uncertainties of the times, inflation, product supply, labor challenges to name a few, with agility and creativity. Our strong performance year-to-date and continuing positive trends give us the confidence to raise our full year 2021 outlook for the Identical sales, Adjusted EBITDA, and EPS. While we celebrate progress, we remind ourselves that we are still in the early innings of our transformation with significantly more potential to capture. Finally, none of this would be possible without the efforts of our 285,000 associates who take care of our customers and the communities we serve day in and day out. I want to thank each and every one of them for their contributions to our ongoing success. We will now take your questions. Thank you. At this time, we'll be conducting a question- and- answer session. If you'd like to ask a question today, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is coming from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions. Hey, everyone. Good morning. Good morning, Simeon. Hi, Sharon. How are you doing? Good. Hey, Vivek. Hey. Hey, Vivek. My first question is on inflation. I guess just straight housekeeping. Can you talk about product cost inflation or retail price inflation to the customer? Where is it and how is it trending sequentially, and trying to figure out what the benefit could have been during the quarter? Thank you, Simeon. I'm going to turn that over to Vivek. Yes, Simeon. The CPI inflation was around 2% in the quarter. Ours was about 3% on cost, okay, for the quarter. As I had said earlier, we expect inflation to be higher as we go through the year, but we expect it still to be in the 3%-5% range, which in our opinion is extremely manageable, and you're seeing that come through in at least the quarter we just delivered. We feel good that we can manage it through both, we have a strong customer, so with that backdrop and what we have going in productivity, we are able to manage that in our P&L. Got it. Okay. That's helpful. My next question, I want to ask Sharon about the phrase table stakes. I think you remember it was mentioned a lot at Best Buy, I think it was related to pricing and making sure prices were at parity to large competitors. I know we've talked about this with Albertsons in the past, but I'm curious, Sharon, your own perception as a customer of Albertsons, and the industry so far, what do you think or where should pricing be? Where should you operate? I'm curious if you have a view yet. Where would it make sense, where wouldn't it make sense to level the playing field against other competitors? Yes, Simeon, thank you for that. I think I'll let Vivek talk first about where we have been with pricing, and then I will follow up with my view as it relates to Albertsons in that comparison you spoke to. Vivek, why don't you take the first part, and I'll take the second. Simeon, I just want to be sure that I reinforce our approach to pricing, right? The first thing we look at is, are we gaining market share in dollars and units? Gaining market share in units gives us a good indication that the value we are providing our customer across the mix of our portfolio, the Fresh portfolio we have, our Own Brands portfolio, and the Branded portfolio, resonates. That's the first thing. The second principle on pricing, I want to reinforce again, is that we take an incredibly surgical approach to it. In every single quarter, you should know that we are investing in pricing, and we invest it by price area in specific markets. Again, it's with the outcome that we care about, which is growth and market share gains in dollars and units. Please keep that philosophy, and then Sharon, you might want to add to that. Yeah. Simeon, I would say that interestingly enough, there are great similarities to what we were doing in my previous life. I would say overall, the company has a very surgical approach to pricing, and that is actually not new. We are definitely building capabilities in this area. I would say that they have moved their capabilities in this area materially over the last 12 months. When I look at that, lightning rod products, we might call them something different in the grocery space, but they are products that we offer in our store that mentally customers are consistently benchmarking. To the extent that we see that, of course, we are going to be reacting because that is what is good for our customer. It is different in every category. We have a much more expansive number of products that we offer. I would say that you will continue to see us invest in surgical ways into pricing over time where it makes sense to do it. Okay, great. Thanks. Nice quarter, everyone. Take care. Thank you, Simeon. Our next question is coming from the line of Edward Kelly with Wells Fargo. Please proceed with your question. Hello, Ed. Hi. Good morning, everyone. Good morning, Ed. I wanted to start with just a follow-up, and then I had a bigger picture question. Just on the inflation front, you mentioned last quarter, sort of 3%-4% being a good number for the business. Today you said sort of 3%-5%. PPI is running much higher than that. I mean, CPI is kind of closer to the high end. I'm just kind of curious, sort of taking a step back, can you just provide a bit more color on how you're thinking about this in terms of how you manage it strategically, what your competitors are doing, and how we should be thinking about the gross margin in the back half of the year against that backdrop? Ed, I'll let Vivek take that. Yeah. Let me start with the gross margin question, Ed, because that's ultimately what we're trying to manage to at the top, right? We want the top line growth, and we want to make sure that it comes with a healthy gross margin. I've always maintained the fact that in our company, we obsess about this notion of gross margin tailwinds. Gross margin tailwinds come from better mix management, better shrink management, smarter promotions, supply chain benefits, and cost of goods benefits. Those first three have been programs that we've been doing for a while now. The last two, as we talked about earlier, we are going to see more and more benefits from that towards the back half of the year. From the management of the gross margin and the P&L, while we can't predict what's going to happen with inflation, we certainly are prepared with what we can do with what's in our control. Think of it that way. Secondly, with my 3%-5%, to me, with the CPI projections came up, I think they've gone up to 3.5% for the full year. So I expect it. I expect that it will continue to increase a little bit over what we've seen through the rest balance of this year and maybe the first part of next year. But i t's still, in my opinion, Ed, very much in the manageable realm for a company like ours, especially with the consumer, with the backdrop we're seeing with the consumer. The last thing I'll leave you with is, you'll see that a big part of inflation is proteins. Protein inflation, it tends to be more cyclical. I suspect that some of that may come back. Protein inflation, you'll see it in different parts of protein. It's a very manageable part of the business, especially when we have butchers in our store who can manage and give different choices for consumers. That's how we manage the protein inflation, so consumers can always have something that they pick up to meet their budget. Great. That's helpful. I just wanted to follow up related to the broader category of investments. You're ramping investment in the business and in digital transformation. I'm curious, is this changing at all with Sharon joining? What I mean by that is, either in urgency or the size of the spend. I'm kind of curious, Sharon, how you think about the position of the company's stores or technology or supply chain, and how that could impact areas like CapEx going forward. We have seen companies sort of ramp CapEx into transformation. I'm kind of curious as to how that may apply here. Ed, I think that they have had a very disciplined strategy around the capital investments that they are currently doing. We could accelerate those investments, we would. From my perspective, these investments create gradual and incremental returns over time. The early stages of these kinds of transformations start with having to build the foundations. Where the company is now is very much on getting out of systems that are old enough to drink and vote in most states, and actually putting in platforms that they can build on quickly. Right? This is a story that you hear from every large retailer who has legacy systems. They have been working on that for the last 18 months, 24 months, since Vivek joined the company. We are in the process. The analytics behind these investments and the work to determine direction is very well on its way on many of these projects, and now it's the execution that needs to happen. Rest assured that our goal is going to be to accelerate the pace at which we are rolling this out. One of the key things we had to do was to get ourselves into the cloud, and as you know, that is a significant undertaking, and the company is making great progress on that. We still have a ways to go, but we are making very good progress in that space, thus being able to move much faster in the future. Your question was, how do I feel about it? I feel the discipline around it, and the strategic discipline around it, has been excellent. I think there is always the opportunity to accelerate, which is something that I mentioned in my prepared remarks that I'm very interested in doing, both on the technology side and on the supply chain side of it. As we look forward and we get into our guidance for 2022, this has been a question that I've received numerous times from many of you in the private meetings before our call today, and I will be providing some additional color when we go into 2022, as we get a clear picture of the 2022 capital spending expectations and budgets. As you know, they have taken them up. I feel very confident that we will be able to execute against the initiatives that they've originally laid out. Great. Thank you. Thank you. Our next question is from the line of John Heinbockel with Guggenheim. Please proceed with your questions. Hey, guys. I wanted to start with omni-channel households. Right? Up 4x. I would imagine that's still less than 5% of your total households. Is that fair? Then when you think about maybe the next two years, can you double again the number of omni-channel households over that time period to 2x? What do you think drives that? Obviously, organically, just having capabilities will be some of that, but more, is it really your outreach marketing wise, that drives that growth from here? I'm going to let Vivek take that. Hey, John. Good morning, John. We are below our competitors in terms of our overall omni-channel mix in the business, and we've said that before, and we continue to grow that. We're excited about the growth rate, but we're also excited about the quality and the speed at which we're providing it, right? To your question, I do think we can continue to increase it at the same pace, if not more. There's a couple of things. One is just making sure we are covering the entire market. I'll give you an example, John. When we open up two-hour delivery in our markets, we see even more incremental growth, right? People love the speed. Our coverage is in the close to, say, 60% of the market, and we're going to continue to grow that. Our philosophy here is to keep giving customers more choices on DriveUp & Go, a three-minute service when you pull up to the parking lot. We want to make sure we give you more speed in delivery and more choices in delivery. I think those fundamentals, and as we open it up, continuously increase the number of omni-channel customers we get. To your point, we haven't turned on a big marketing blitz or anything because we see a lot of customers coming to our stores, and we just convert them at that point. They see the availability, and they start engaging in it. John, I would add to that- Yes -that over time this past year, we have been adding capabilities. The app that customers were buying online with has been upgraded materially. All of these initiatives that we're working on in the e-commerce side of the business are gradual and incremental. You implement them, customers learn to use them. They see how much more efficient they are, they have a better experience, and then they use it more. We've really soft launched the majority of these. We're also making similar progress in the loyalty area. We talked in Vivek's prepared comments about the fact that we are increasing our number of loyalty members. As we enhance the benefits and enhance the efficiency and the experience the customer has in redeeming loyalty, et cetera, that will also be greatly helpful to advancing this. Maybe as a follow-up. I don't know if it'll be a double in omni-channel customers, but certainly the demand is going to increase exponentially. Maybe talk to, and I know the MFCs tie into this, but it's broader than this, bringing the cost to pick. I don't know if you guys look at cost to pick a piece as opposed to an entire order, but cost to pick down. How much can you bring the cost to pick down by? Can you bring that down 25%, 30%, or possibly even more? Vivek? John, the cost to pick down, there's two steps. One is how do you become more and more efficient in the store? That's through technology. Then in some of our stores, we've created what we call a war room, so that your fastest moving items can be picked even faster in a very small space. You're going to reach the physical limits. Our long-term strategy will not be about picking everything from the store. In certain locations, we'll have to do that, but that's where the MFC comes in. What I can tell you is this, that we see the MFCs getting to a point where the cost to pick becomes about the same as the labor cost that we have for an order in a store. Because of the productivity it gives you. At some point, you start becoming indifferent to whether, when somebody shopped the store, or whether they shopped it through the MFC. That's the ambition. When that converges, this thing opens up in a big way for us because you're kind of indifferent. The MFCs are going to take a little while, John. As we said, two MFCs we couldn't get done because of delays. Permitting takes a little longer, construction takes a little longer in today's environment. Thank you. Our next question comes from the line of Karen Short with Barclays. Please proceed with your question. Hi, thanks very much. Just a question regarding guidance. Your comp guide is obviously improved, but when we look at the second half EBITDA dollars, they're more or less in line with consensus. Wondering if you could give a little color there, meaning you obviously raised top line, but you didn't really change the second half EBITDA dollars. Tying into that, you did say sales accelerated throughout the quarter, but the full year ID guide implies a deceleration in the one and two year ID. Some color on that, and then I had a bigger picture question. Karen, on the bigger view for the back half, I'll let Vivek take that, then I'll take more of the detailed financial side of the question. Karen, the way to think of it as, let's say we've got about 2.5 points additional ID growth. That's about, let's say about $1.65 billion or so at a 15% flow through is an additional $250 million for the year. That's how I would think of it. Remember that the back half of the year is going to depend a lot more, we're getting a lot more of our productivity. That's how we had framed at least the model for how we think about the full year. Okay. Karen, when you look at the back half, if you do the math, basically you're in the back half at in the midpoint of it somewhere around flat. Obviously that will flow through as Vivek just described. I would say this, as we look at the back half, like all of you, like every report that I've read, that many of you have written, we are very thoughtful about whatever dynamics will result in the back half as it relates to the stimulus changes that will be upon us, which some have already happened. However, I will point out there's been some new ones. We went from the SNAP increases throughout the first part of the year. Now they are paying out the childcare credits on a monthly basis. As we understand it, the industry looks like it's seeing a lot of that going into grocery and into everyday necessities. We are thoughtful about the back half, and we will continue to push the business. As we see it right now, I think we've played in a very balanced view of what the back half could look like on the comp side. Okay, that's helpful. Then, Sharon, in your comments, you obviously said there were great similarities at Albertsons to some of your former experiences. One comment you made was that you're taking, I think, a very surgical approach to pricing and have moved significantly in the last 12 months on that front. Can you just update us on where you're at in terms of that and what is to be expected going forward? As it relates to my comments on the pricing, the company is building a very strong pricing team. Considerable resources have been added to that. This is one of those investments that we continue to talk about on our strategic priorities. Again, this is all about data, Karen, and as you think about the time, the benefits of that are gradual and incremental. I hate to keep saying that, but it is true for just about every one of the underlying projects and the strategic priorities that Albertsons Companies has. As we think about pricing. Again, what I said is the company has always been known for its deals. While the price that you see, customers are getting special pricing through loyalty, they are getting special pricing through deals, and actually, we have data that would tell you that people come to us for our deals. It is interesting to see how well the company is managing that at this point. Now, do I think we need to go further? I do, and there's no one here that doesn't think that you have to keep pace with what others are doing in the industry. I feel like we will continue to see benefit in pricing, and I think we will be looking at the gaps like we always have been looking at them, and where we believe it is important and it will create more stickiness with our customers, we will be adjusting that pricing. I just don't think that Simeon said earlier that this is a lot like Best Buy. I think it isn't in the pricing arena. At Best Buy, we did match price. There were many products that you can't match, and that is always the case. Happy to have some further conversation as we talk about this over time, but I feel very confident that we are building a much stronger pricing capability in the company, and we will see benefit from that. Yeah, Karen, if I can add to that, we talked some time ago about a promotion tool that we are launching. That is national. All our promotions are going through that tool. While we are doing less promotions, we are a lot smarter with our promotions. We know which ones to do to drive traffic, which ones to do to drive margins, et cetera. A lot of that is also going digital. From a promotion standpoint, we are so far ahead of where we were a couple of years ago from a data and technology capability to do it. That's the principle we're going to continue to go down. The other thing we're doing when Karen says surgical, is that in these different price areas, we also adjust everyday pricing, and we do that every quarter. There's some parts of our markets in our franchise where we're adjusting it on an everyday basis. That's the combination that we continue to play, and we're getting better and better at it because we have the data and the tools to do it. Great. Thank you very much. That was very helpful. Our next question is coming from the line of Ken Goldman with JP Morgan. Please proceed with your question. Hi. Good morning. Thanks. Sharon, you mentioned that one of your priorities right now is working on the productivity agenda. We've seen overall for the grocery sector, margins decline for decades now. I'm curious, when you think about productivity, are you thinking about the net effect potentially being that margins over the very long term could reverse course and start to rise over time? Or is the idea you really just need more tools so that the headwinds just aren't, or offset partially a little bit better? I'm just trying to get a better sense of how you view this, because I think there's a belief out there overall that margins will continue to decline forever in this industry, and I'm just not sure how you see that. Since Vivek had made some comments about this in the last conference call, I'll let Vivek take this first, and then I'll give you my view. Yeah, Ken. Good morning, Ken. The approach here is we want to make sure we don't grow this business simply by expanding gross margins. We want tailwinds and gross margins, but we always want to have room for reinvestment of that for growth. That's number one. Number two, you could speak about the industry, but I want to speak about Albertsons. We've got plenty of room in the middle of the P&L to drive more and more productivity. Why is that, Ken? It's because we went through the integration in the past, but we haven't yet learned how to fully operate with scale benefits. A lot of the initiatives that we're driving are driven by improving, leveraging initiatives that get us better costs because of scale benefits. We haven't implemented all the technology that many others have. That drives productivity benefits. In the middle of the P&L, you're seeing our productivity being driven by initiatives, frankly, that are not new to the sector, but new to us, right? Which gives us more flow through in the middle of the P&L. Think of that philosophy, Ken. It's managing the gross margin through tailwinds and investments so that we're driving customers back to us and engaging more with customers and driving the top line, and a set of technology and scale-based initiatives that improve the middle of the P&L that end up with margins. Right? If we could keep that engine going, which we think we can, we'll continue to not only deliver growth, but healthy margins. Ken, I would just add to what Vivek said, that there are other ways as well that we think are going to help offset some of those cost pressures. I first and foremost want to say that there is no doubt in my mind that there will continue to be cost pressures on all of retail. Grocery, consumer electronics, pick one, home furnishings, it doesn't matter. There will be cost pressures. There is also the incremental cost of adding these online businesses, which we're all aware of. In order to combat that, first of all, growth has to be the foundation of the strategy. We are making great strides in continuing to gain market share, and it is a deep focus of the organization to gain market share. As Vivek said, on a two-year basis, we've gained it on both metrics. We are gaining on dollars and we're gaining on units. The second thing that we have that other retailers in the space have already taken advantage of is the penetration of Own Brands. We still in the IPO, if you even go back to the IPO, we talked about the fact that we have an increased opportunity for penetration in Own Brands. We have not yet, Vivek mentioned a 25.2% penetration today. We still have significant opportunity there, and we will continue to capitalize on that. Another area that we have opportunity to create a tailwind or an offset to some of these pressures is going to be in the mix of Fresh. We continue to talk about the fact that we are growing faster in Fresh than we are in the center store. That is giving us a margin benefit, and we will continue to grow in that area because we believe that this is one of the greatest things that we can do for our customers, is to create an incredible Fresh experience. It also has margin benefit from a mix point of view. Those are just a few things I would add to what Vivek said that will give us some tailwinds to help offset the cost pressure that we would all agree, is certainly coming. Great. Thanks very much. Thanks, Ken. Our next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question. Hey, guys. Thanks. I'm curious about the categories where you're seeing the highest levels of inflation, and Vivek, I think maybe you mentioned protein earlier. How you've chosen to pass through or not pass through those higher prices to the customer. What has been the customer reaction in terms of elasticity of demand, and how does that compare to what you had expected? Thanks. Vivek? Yeah, Paul. Hey, good morning, Paul. Let me start with this. We have not seen a material change in customer behavior. I think it speaks to the strength of the customer. It speaks to the fact that they're, in my opinion, still consuming a lot at home. They're enjoying cooking and so on. We're seeing those trends stick. In fact, in the research we are doing with our shoppers, we don't see that changing dramatically. We don't see their intent changing dramatically over the next several weeks and months. That's number one. Number two, remember, we are always optimizing for a basket, and that's important to keep in mind because you can see the protein inflation going up and so on. We're always managing for two things. One is what's the right way to pass the inflation so we make the basket affordable and yet keep the gross margins that we want? The second thing we do is manage it locally, and that's something we can do with our model because we've got the divisions that know what's necessary in their market versus the competition they have. In those two dimensions, we're able to manage that pass-through, if I can call it, very locally. That's the combination that's giving us the ability to deliver the gross margin, without compromising the sales. Is that helpful? Yep. Thank you. Just another follow-up. On the SG&A front, can you quantify some of the year-over-year changes just in terms of which were moving the dial? I'm also kind of curious about the productivity initiatives. Where do you stand in that $1.5 billion by 2022? How is that progressing relative to your plans? Thanks. Yes. Why don't I take that one, Paul. On the SG&A and the increases, there's a couple dynamics during the quarter that we discussed in the press release. The first one was that we had the reopening of many of our Fresh departments, deli, bakery, prepared foods. That creates a mix difference within our stores and the labor hours that of course go along with that. That was one of the big drivers and one of the largest drivers. The second area that we saw increases is in the market wage rates. While we do have union contracts across the majority of our employee base, we still have annual increases that come along into those contracts. Of course, I don't have to describe for you the wage pressure that you would see in any role, and we can start with stores, and we can work our way all the way through the corporate headquarters. We have wage pressure in virtually every area in the company like every other retailer. We also had a higher stock-based compensation this quarter based on a credit that flowed through the P&L last year. In the order of magnitude, they are in the press release in the order of magnitude. Got it. Thanks. Just that $1.5 billion? Yes. We have not disclosed our progress against that. However, we are progressing as you would expect them to progress, and we continue to be committed to delivering on that promise. Thank you, guys. Good luck. Thank you. Our next question is coming from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions. Good morning. Thanks for taking my question. I wanted to follow up on the gross margin line. I was wondering if you could provide more color on the puts and takes you see on the balance of the year. I think last quarter you guys indicated you could be close to flat with the prior. I just wanted to get a sense of what your updated expectation is for the full year. Vivek, do you want to talk about the back half gross margin? Yeah. Rupesh, I think the way to think of it is some of the initiatives that are going to help us the back half of the year in gross margin, in addition to the things we talked about before, mix, shrink, promotions, own brand penetration and so on, is the new flow-through coming from supply chain benefits and the new flow-through coming from cost of goods reduction, right? Which both are fair amount leveraging our scale. I talked about those initiatives earlier. We feel good about the overall gross margin tailwinds that we have coming with us, and we'll continue to use that appropriately to drive growth where we need to make investments. There should be no fundamental change to the thinking on gross margins, Rupesh. That helps. We don't guide- Okay, great. Oh, I'm sorry. We don't guide by gross margin. We only guide Adjusted EBITDA, just as a reminder. Okay, great. Maybe just one follow-up, just on the supply chain. Just curious where you guys are on the out of stock front right now. Yes, I'll let Vivek speak to that. He was just in a meeting on it. It's surprising that we're still talking about out of stocks and we have out of stocks, but the fact is, it's like whack-a-mole, Rupesh. On any given day, something is out of stock in the store. Let's talk about how we manage it. We give customers alternatives, right? If you come in, you may not get exactly what you want when you want it, but you might get an alternative. If you come in another day, you'll probably find it. This comes down to execution. This comes down to local execution, finding ways to make sure that the store is supplied, finding ways to make sure that the stuff is not in the back room but at the front. That's where I'm proud of what the teams are doing just to be that much, a little bit better than others in what's on the shelf. I'll just add to that, Rupesh, that for the next three months, Q4 holiday, actions that you've seen that are being taken by many of the largest retailers, we have been all over those and have a list of probably 25 things that we are approaching differently this year than we have in the past in order to ensure that we offer our customers the best in stocks we can. Great. Thank you. Our next question comes from the line of Scott Mushkin with R5 Capital. Please proceed with your questions. Hey, guys. Thanks for taking my questions. I wanted to talk about something a little bit more short term, which, Sharon, I think you always had the reputation of being pretty conservative on the guidance. Is that the philosophy you're going to bring to Albertsons? Should we assume kind of a continuation of that? Yes, there would be no question that I believe that, especially in the environment that we're operating in today, that that would be appropriate. I couldn't affirm more strongly that I believe that is a good strategy. Okay, great. I know it's a little early to think about 2022, but we get a lot of questions on this. As you think about it, is it going to be possible to grow earnings next year to a degree, or is that something that's going to be just really hard given the cost pressures on the business, with the union contracts and labor and other things going on? Yeah, Scott. We will not be talking about 2022 until we get closer to the end of this year. There is so much learning that needs to happen with the changes in the consumer and what, quote, "post-COVID." There is never going to be a post-COVID, but the next chapter of where this goes. When we get into the Q4 and we look at next year, we'll try to give you a lot more color on that. I think this needs to unfold before we start talking about 2022. Yeah. The only thing I'd add, Scott, is that, remember, cost and things are a controllable item. We can work that with productivity initiatives. I think the biggest unknown, as Sharon points out is, where is the consumer? How is consumer behavior going to change? As we've all seen, I don't know if we predicted what's happening now. Perfect. If I could slip one last one in. Just the philosophy, is there going to be a change, and what's the philosophy on capital efficiency and ROIC, given that we are going into an investment period a little bit with the company, it sounds like f urther investment? Yeah. Scott, I would say this. I think it is a philosophy of discipline, but it is a philosophy of do it as fast as you can. Time is not your friend. Philosophically, that is very much how we will be moving forward. We have a lot of opportunity. Vivek mentioned earlier, we have brought together a lot of companies, and they've done a good job of getting them solidified onto a similar platform, common platform. As we move forward, we still have opportunities in better buying. We just consolidated some of that. We have significant opportunities that, by the way, other retailers don't have in their tailwinds. I think, yes, the diligence around those investments will be high, and we will continue to accelerate to the extent we can over the next 12 to 24 months. Okay. We're going to run over time by just a little bit. We'll take three more questions, operator, but if you could keep it to one question a piece, we'd really appreciate it. Thank you. Your next question will come in from the line of Robert Ohmes with Bank of America. Oh, hey, thanks. Hi, Vivek and Sharon. Okay, for my one question, I think the guidance implies kind of similar to lower Identical sales in the back half. What I was hoping, can you give a little more color on sort of the traffic versus transaction size assumptions in that? Maybe speak to what you're seeing. Are you seeing consolidation of trips remain similar, or is that dropping off? In that customer behavior assumption, what do you think is staying the same versus changing, especially on that size of the transaction versus visits to the stores? Yeah, Robert Ohmes, when we talked about Q1, we had seen that in store traffic was going up a lot. We saw digital traffic, while it was higher, the rate was coming down. What's interesting is that over the last several periods here, the traffic seems to have stabilized in the store. We're seeing healthy, stable traffic in store, and we've seen a pickup again in digital traffic. About three weeks into this quarter, we started seeing a pickup in digital traffic. We had just launched our new app, and we've started this faster service and so on. We've seen the digital traffic go up. I'm predicting that to me, that we're going to see some stability on store traffic. People starting to get to a new pattern over here. I don't know how Thanksgiving changes that, Robert Ohmes, but I hope that gives you some color. That's how we've thought about the rest of the year. That's great. Thanks so much. Our next question is from the line of Michael Montani with Evercore ISI. Please proceed with your question. Hey, thanks for taking the question. Just wanted to follow up, if I could quickly, Vivek and Sharon, on the competitive environment and what you're seeing in terms of promotions throughout the quarter and then obviously to start this quarter and into year end. Yes, Vivek. Yeah. Pretty stable, Mike. We're not seeing a fundamental change. My sense is all the large players are doing more digital promotions, are doing things we're doing, like being smarter about promotions. We also have supply challenges, right? We're not seeing any material change on the promotion environment. Thank you. Our next question comes from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your question. Good morning, everyone. Great quarter. Thanks, Chuck. If you could comment a little bit on how your prepared foods business evolved during the quarter as some of these new, excuse me, the old sections of Fresh reopen, and also your progress in meal solutions, please. Yeah, Chuck Cerankosky. We were very cautious as we brought those back in, and we saw different take rates in different markets on salad bars, hot bars and such. The general sense I get now is that customers are back on the Fresh side of the store, on the self-service side of the store. Certainly you can see that in most markets. On the meals program, we are excited about what we are doing. It's a very difficult thing to pull off, to develop the meals in store, manage and keep the shrink down, yet keep the offer really Fresh. It's a difficult thing to do, and I'm delighted that the team seems to have cracked the code on that. We've launched it in about four markets already. Our plan is to continue to drive that through. Chuck, the crazy thing is that the biggest challenge there equipment. Like everything else, that too is constrained in how quickly you can get it. All right. Thank you. Okay. Thank you everyone. I'm sorry we weren't able to get to everyone today, but we ran a little bit over. We appreciate your interest. Cody and I will be available for the balance of the day for questions, and Sharon is going to join us on the follow-up call. Thank you very much, and we'll talk with you soon. Bye-bye. Thank you. Thank you all. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.