Hello, and welcome to the Kroger Co. First Quarter Earnings Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. I will now hand over to your host, Rob Quast, Director of Investor Relations. Over to you, Rob. Good morning. Thank you for joining us for Kroger's first quarter 2022 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullen, and our Chief Financial Officer, Gary Millerchip. Before we begin, I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger Company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions. In order to cover a broad range of topics, we ask that you please limit yourself to one question and one follow-up question if necessary. In response to your feedback on allowing more participants during Q&A, we may provide abbreviated responses to your follow-up questions to hear from as many of you as we can. I will now turn the call over to Rodney. Thank you, Rob. Good morning, everyone, and thank you for joining us today. We're off to a great start in 2022, delivering strong performance by successfully executing on our strategy of leading with fresh and accelerating with digital. Our associates' relentless focus on providing fresh, affordable food to our customers is driving our strong results. During the quarter, we demonstrated the resilience of our business model, led by strong top-line sales ahead of internal expectations. In addition, our team navigated a challenging operating environment characterized by continued inflationary cost pressures and supply chain headwinds, which included higher diesel fuel costs. Through our strategic cost savings execution and sustained food at home trends, our team delivered 16% growth in our adjusted FIFO operating profit, providing once again the strength of our financial model in a variety of operating environments. Our teams are focused on delivering a great customer experience with zero compromise. Rising inflation has consumers rethinking their shopping and eating habits. While customers continue to cook more, we are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment. Many customers continue to shop premium products throughout the store, including Private Selection, Murray's Cheese, and deluxe meal solutions. For other customers whose budget are more directly impacted by food and fuel inflation, they are actively looking for ways to save. We're doing everything we can to help this customer stretch their budgets. I'd like to share more about the work we're doing for our customers and how our competitive moats uniquely position us to meet these challenging and changing customer needs. First, we are leading with fresh. Our customers continue to prioritize fresh as the number one determinant of where to shop. We are meeting their needs with operational efficiencies and new technologies that extend days of freshness and grow our selection of quality fresh products. In the first quarter, we achieved 5.2% identical sales growth in our fresh categories. These gains were led by the expansion of our end-to-end fresh produce program, which elevates standards and improves our ability to maintain freshness throughout the supply chain. We certified 355 stores this quarter, and the customer feedback has been overwhelmingly positive. We also continue to increase our use of forecasting and analytical tools, specifically leveraging 84.51° to improve our ability to maintain fresh products in stock, both in store and online. Our recent floral results are a great example of how we are leading with fresh. As the nation's largest florist, the first quarter was our time to shine for holiday celebrations, and our floral team stepped up, achieving record sales. In fact, we set an overall single-day floral sales record on Valentine's Day and a Mother's Day sales record with strong double-digit growth. Second is our brands. During the quarter, we saw tremendous growth in our brands, which had identical sales of 6.3% and outpaced all national brands. With 92% of households purchasing at least one of these products, we launched 239 new and innovative products during the quarter, reflecting many of the top food trend predictions we made at the beginning of the year. All of our new products continue to be tested and validated to ensure that they are as good or better than the comparable national brand. We continue to invest heavily in the quality of our brands, which preserves our strong price position and drives higher profitability. Next area is personalization. Our data science platform provides unique insights that creates personalized customer experiences. In this dynamic environment where customer behaviors are changing rapidly. We use our data and insights to be nimble and react quickly to ever-changing needs. Our broad-based audience data science approach helps us determine how to best implement price, promotion, and display. We are focused on delivering incredible value to our customers through relevant personalized offers and fuel rewards. Our loyal customers are using our fuel rewards program now more than ever, and in fact, more than 600,000 incremental households engaged for the first time this quarter. Finally, our seamless ecosystem continues to deliver fresh products to our customers anytime, anywhere, and with zero compromise. During the first quarter, more customers returned to in-store shopping, and as a result, we made strides to enhance that experience while introducing new tools that help our associates better serve customers. In pickup, we unveiled new technology that improved wait times 20% and expanded capacity based on customer needs. In delivery, we continue to introduce key initiatives that expand our reach and shorten delivery times. We strive to provide more customers access to high quality, affordable food, regardless of whether they have a physical store in their community. During the quarter, we opened two new customer fulfillment centers powered by Ocado's automated smart platform, one in Dallas, Texas, and one in Pleasant Prairie, Wisconsin, bringing our total CFC count to five. We also opened three new spoke locations for a total of six spokes. As we head into summer, our end-to-end cold solutions, including the custom-built refrigerated van, will ensure customers get the freshest product delivered directly to their doorstep. Finally, our Boost membership is delivering promising results. Our one-of-a-kind membership program offers incredible value where customers can get unlimited free delivery on orders of $35 or more, double the fuel points on every dollar spent at Kroger and other exclusive member benefits. We are encouraged by the number of new members in the 4 current pilot divisions. Importantly, delivery sales increased significantly compared to non-Boost divisions, and delivery retention improves approximately 600 basis points. Because of this early success, we are proud to announce today that Kroger Boost is launching nationwide beginning in the next few weeks. This next generation loyalty program is deepening our relationships with customers as they continue to look for value and convenience. Turning to supply chain, our 2022 business plan anticipated ongoing supply chain challenges. By planning ahead and focusing on staffing, technology and process efficiencies, we managed our costs effectively. By owning and operating a portion of our fleet, we better control and manage transportation costs. Despite diesel fuel cost headwinds, we were also proactive about forward buying and securing capacity for goods, resulting in better vendor rates. Through our supplier relationships, we saw sequential improvement in product availability. We are well positioned to adapt to the evolving environment, and we are cautiously optimistic in a broader supply chain recovery throughout the year. We also continue to invest in our associates and an associate experience that facilitates an amazing customer experience. We firmly believe that exceptional financial and operating performance connects directly to the ways we support and invest in our associates. During the quarter, we took numerous steps to meet our associates' needs while they delivered for our customers. We continue to invest in associate wages, and we expect hourly wages to grow throughout the year. We launched new initiatives to simplify day-to-day work, including the modernized scheduling tool, MyTime. We took steps to improve communication across all of our teams and bring meaningful training to all of our associates, no matter where they work. One example of this commitment is the addition of Microsoft Teams rooms across most of our store locations. This technology improvement will facilitate deeper connections and improve the associate experiences. As an employer of choice, more people are applying to work for Kroger, and more associates are choosing to stay with us. While we still have work to do, we experienced a meaningful improvement in both hiring and retention in the months after the Omicron surge. We are also seeing more boomerangs. These are associates who left to work elsewhere and ultimately came back to us. Kroger's strong culture invites associates to come for a job and discover a career. We're glad that so many value and appreciate our work environment, our culture, and the people they work with every day. Our winning culture is rooted in living our purpose to feed the human spirit. During last year, our teams took significant steps to support our customers and communities through our Zero Hunger | Zero Waste social and environmental impact plan. We introduced a new Kroger and USO co-branded mobile unit to nourish active duty military service members and their families at military bases and USO centers across the country, as well as provide community disaster relief. The first of four units hit the road in May. In summary, we're off to a very strong start in fiscal 2022. We are widening our competitive moats, creating a shopping experience with zero compromise, investing where it matters most to our customers and associates, and strengthening our purpose in large and small ways every day. When we do all this well, our teams, our customers, and our shareholders all win. Now I'd like to turn it over to Gary to take you through our first quarter results. Gary? Thank you, Rodney, and good morning, everyone. Kroger delivered another quarter of strong results as our team did an outstanding job executing our go-to-market strategy while navigating a dynamic operating environment. Our results again highlight the strength and resilience of Kroger's financial model, which allowed us to continue to invest in our associates, deliver fresh, affordable food for our customers, and create value for our shareholders. I'll now provide more detail on our results in the quarter. Led by our competitive moats, we achieved identical sales without fuel growth of 4.1%. Fresh categories and our brand's identical sales both outpaced overall company results. Adjusted EPS was $1.45, up 22% compared to the same quarter last year, driven by increased sales and exceptional cost management during the quarter. Digital sales declined 6% in the first quarter, broadly in line with our expectations. We continue to ramp the digital growth initiatives shared at our Investor Day, including enhanced personalization capabilities, Boost membership, customer fulfillment centers, and Kroger Delivery Now. As a result of these initiatives, we grew digitally engaged households during the quarter, and we would expect digital sales to accelerate as the year progresses. Gross margin was 21.6% of sales for the quarter. The FIFO gross margin rate, excluding fuel, decreased 26 basis points compared to the same period last year. This decrease was primarily attributable to continued strategic price investments and higher supply chain costs, offset by sourcing benefits and the cycling of a writedown related to a donation of personal protective equipment inventory in the prior year. Our team continues to do an excellent job managing higher product cost inflation. We are leveraging our data and sourcing expertise and working closely with our suppliers to help minimize the effect on our customers and our financial model. We are investing where it matters most to our customers and are using our proprietary data to deliver additional value through personalization. Our brands are also proving to be an important differentiator for our customers in this environment, providing an unmatched combination of great quality and great value. We will continue to leverage these proven and unique capabilities to help our customers manage their grocery budgets more effectively and maintain a strong value proposition relative to our competitors, as we believe inflation will remain front of mind for many of our customers for the remainder of 2022. In recognition of current product cost inflation and our outlook for the rest of the year, we recorded a LIFO charge for the quarter of $93 million compared to $37 million in the prior year. This increase represents a $0.06 headwind to EPS in the quarter versus 2021. Our OG&A rate decreased 46 basis points, excluding fuel and adjustment items. We were successful in offsetting inflation headwinds in many parts of our business and continued investments in our associate wages by reducing costs in areas that do not impact the customer experience. As an example, this quarter, we introduced a new bakery forecasting tool, which is improving product freshness, reducing waste, and at the same time simplifying the associate ordering process. We have a strong pipeline of process improvement initiatives and innovative technology-driven solutions that will lower digital fulfillment costs, increase store productivity, and reduce waste and shrink. For the fifth consecutive year, we remain on track to deliver $1 billion of cost savings in 2022. The traffic and data generated by our supermarket business continue to create a strong flywheel effect for alternative profits. Led by retail media and Kroger Personal Finance, alternative profits are on track to contribute meaningful growth in 2022. During the quarter, Kroger Precision Marketing added more than 100 new brand partners. We continue to enhance our market-leading capabilities and have entered into new agreements with three leading advertising management platforms, allowing our CPG partners to manage their on-site ad campaigns more effectively. Fuel remains an important part of our overall value proposition and a key offering to help customers stretch their dollars, especially when fuel prices are high. We continue to deliver significant value through our loyalty program, which saves customers up to $1.25 per gallon. As Rodney shared earlier, more customers engaged with fuel rewards this quarter, and our gallons grew at a faster rate than the market. The average retail price of fuel was $4 this quarter versus $2.79 in the same quarter last year. Our cents per gallon fuel margin was $0.42 compared to $0.35 in the same quarter last year. Our associates continue to do an outstanding job executing our strategy and serving our customers. We introduced a number of new initiatives to support associates this quarter, as well as continuing to invest in hourly wages. These investments are fully contemplated in our guidance and long-term financial model. During the first quarter, we ratified new labor agreements with the UFCW in Denver, Southern California, Houston, Little Rock, Memphis and Seattle, covering more than 67,000 associates. We continue to negotiate contracts with the UFCW in Las Vegas, Southern California for Ralphs pharmacists, Indianapolis, Roanoke, Chicago and Columbus. Turning now to cash flow and liquidity. Kroger continues to generate strong free cash flow. Our net total debt to Adjusted EBITDA ratio is 1.68 compared to 1.79 a year ago. The company's net total debt to Adjusted EBITDA ratio target range is 2.3-2.5. Consistent with our financial strategy, we are investing in the business to drive sustainable future earnings growth and continue to expect capital expenditures of between $3.8 billion and $4 billion in 2022. During quarter one, we were disciplined in returning cash to shareholders. In total, Kroger returned $819 million via a combination of share repurchases and dividends. We are operating from a position of financial strength and will continue to evaluate opportunities to deploy excess cash to accelerate our growth model and deliver sustainable total shareholder returns. In closing, let me share additional color on our outlook for the rest of the year. While there are a number of uncertainties in the macroeconomic and inflation outlook for the remainder of 2022, Kroger is laser focused on executing the plans outlined at our Investor Day, and we believe our go-to-market strategy will serve us well in navigating the current environment. Based on the strength of our quarter one results and sustained food at home trends, we are raising our full year guidance. We now expect full year identical sales without fuel of 2.5%-3.5%. Adjusted FIFO operating profit of $4.3 billion-$4.4 billion and adjusted net earnings per diluted share of $3.85-$3.95, representing an annual growth rate of 5%-7%. Our updated guidance assumes inflation will remain at heightened levels for the remainder of the year. Although we would expect the year-over-year rate to moderate in the second half of the year as we cycle higher inflation from quarter three and quarter four 2021. Due to this higher outlook for inflation, we now expect our LIFO full year charge will be in the range of $300 million compared to $197 million last year. As a reminder, while the actual LIFO charge is calculated at a point in time at the end of our fourth quarter, we recognize the projected charge evenly throughout the year. Our guidance also assumes retail fuel profitability will be a headwind for the remainder of 2022 as we cycle higher CPG margins from 2021. Our full year projected tax rate has been lowered from 23% to 22%, primarily due to higher than expected tax deductions related to employee stock option exercises. Overall, we are extremely pleased with our start to the year, which provides another proof point of the strength of our financial model. Looking forward, we remain confident in our ability to deliver sustained earnings growth and total shareholder returns of 8%-11% over time. Now I'll turn it back to Rodney. Thanks, Gary. I would like to once again acknowledge and thank our outstanding associates. Their hard work and dedication fuel our leading with fresh and accelerating with digital strategy and our obsession for our customers. We continue finding new ways to help customers stretch their dollars through everyday prices, data-driven promotions, personalized experiences, trusted our brand products, and a seamless e-commerce platform. We believe this relentless focus on delivering for customers will help us maintain robust sales and drive growth. Moving ahead, we remain confident that we have the right strategy to deliver value for all stakeholders, including our shareholders. Now we'll turn to your questions. Thank you. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Robbie Ohmes of BofA Global Research. Robbie, your line is now open. Good morning, guys, and you know, great quarter. My question is, I was wondering if we could get a little more color on the ID sales. So maybe thoughts on the traffic component of that, what you're seeing in traffic, you know, the ticket component and maybe specifically, you know, the inflation component in the ID sales. And then sort of along with that, you know, some of your competitors that sell groceries and food and beverage are seeing very strong, you know, sort of double-digit same store sales. Is the price spread versus your competitors, you know, widening because of the price investments you're making? Thanks. Thanks, Robbie, and good morning. If you look at in terms of traffic, the two areas that we felt really good about is if you look at the number of loyal shoppers we have and our household count both improved. Now the typical basket size for a customer coming in continues to decline. Part of that is just driven because of the economic environment some customers are having. If you look at identicals during the quarter, toward the end of the quarter, they finished a little stronger than where we were during the quarter, and that's continued so far early in the second quarter. Obviously, we're extremely early in the quarter. Obviously, we do have a reasonable size general merchandise business that affected as well. The comment that I made in the prepared comments, you know, if you look at our fresh departments, they were up over 5%. Overall, we think the customers are doing a lot of work on balancing their total budget, and we continue to balance it as well with promotions. Customers are aggressively starting to buy our brands, and what they're finding is the quality of that product, and there's no compromise with that versus some of the other products. If you look at our price spreads, we check pricing obviously every week. We look at pricing spreads for different types of customers, and those spreads continue to be where they've been or improving slightly, as been the case over the last couple of years. I don't know, Gary, anything you wanna add? I think you covered it well, Robbie. The only other point you mentioned around total households and loyal households growing. We also saw visits improving during the quarter as well, Robbie, which we were really pleased with that trend as well. Thanks, Gary. Great. Thank you. Thanks, Robbie. Thank you. Our next question comes from John Heinbockel of Guggenheim Partners. John, your line is now open. Yeah. Let me start with own brand, right? It looks like own brand probably growing 2x the rate of national brand. You know, I'm curious, you know, price spreads there, maybe Robbie, talk about that, where you think own brand momentum goes from here. I know historically, right, you guys have always said that own brand strength leads to increased CPG promotions. Do you think that'll be true this time? Yeah. I love the question, John, and as you know, we're super proud of our brands and super proud of Private Selection, the banner brand, and Simple Truth. Then you know, Home Chef is our most recent own brand. The growth has been strong across all components. The only exception to that is Simple Truth was a little soft earlier in the quarter because we did have supply issues with one of the chicken suppliers. But other than that, its growth is nice as well. As you know, what we've always found is over time, our brands gain share, and that's been true for over 25 years. When the economy is tight, our brands always gain share, and then once the economy is good, we may lose a little or maintain, but that's been the case all throughout. Because what customers find is once they try it, they love it. If you look at our leadership team, we've gone and really upgraded our leadership team in terms of our focus on our brands. For us, it really is, we look at it the same as a national brand our customers do. As I mentioned, you know, over 90% of our customers include it in their basket. Feel really good. Your second part of your question about the national brand change, I think there's still a lot of capacity constraints among some of the national brands. I would expect if it's a national brand with capacity, you'll see a typical trend where they get more aggressive in promoting as their tonnage goes down. If they're supply constrained, I would be surprised. Part of that is just because all of us are exiting COVID at a level of volume higher than what we had going in, which has put different people at different points on supply constraints. Quick follow-up to that, forward buy, right? Normally a big P&L benefit in inflationary times. Sounds like today it's limited, right, because of their capacity constraints. Yeah. The excess warehouse space that we took on as part of COVID, a lot of that space we've continued to keep. I would say we're using that space to be able to get product when we can get it. I think a lot of the CPGs are using it to level out production. When they have excess production, we're taking that, and it in essence becomes forward buy, but I don't think it'll be as big as it's been in past situations. Thanks, John. Thank you. Thank you. Our next question comes from Simeon Gutman from Morgan Stanley. Simeon, your line is now open. Hey, good morning, everyone. I'll ask my question and follow up one shot here. First, Rodney, I wanna ask about the competitive environment. It feels like it's pretty rational out there, and it seems like the consumer has been price taking for the last, call it, number of months. Even Walmart mentioned a week and a half ago they're not, you know, getting too aggressive on price. I wanna ask you now that the consumer basket or consumer behavior is starting to change, you know, might this environment change? Do you think we're at a new normal in terms of promotional, you know, in activity? Or do you think this is you know, I don't wanna put it like a house of cards, but it feels like everyone's, you know, kind of playing nice and something can break. Well, it's a good question, and obviously, we always spend a lot of time focused on it. Your first comment, we are seeing the competitive environment pretty similar to what it's been. As you know, our go-to-market strategy really is leading with fresh. What we find is it's the most important reason why somebody decides where to shop. Our teams are really working hard to take our fresh experience to the next level, and our customers are telling us they appreciate what they're doing and they're seeing that improvement. When you look at it, we think price is just one component. We're gonna make sure that we always maintain a reasonable spread. The things that we're good at with our rewards program, our fuel rewards, and our fresh go-to-market strategy, those things matter, and that's where we're gonna win in the marketplace. We expect that to continue to be important in you know every imaginable environment going forward. You know to me it's one of those things where it's important we continually check, but we always think it's important to remember it's the total customer experience that we're focused on rather than price alone. Okay. Thanks. I'll leave it there. Thank you. Okay. Thanks, Simeon. Thank you. Our next question comes from Spencer Hanus of Wolfe Research. Spencer, your line is now open. Good morning. Can you provide some more color on the FIFO adjusted gross margins in the quarter? 'Cause it looks like that slowed sequentially. You said your price gaps are well positioned, but do you think you're gonna need to invest further in price in the second half as we just see sort of inflation pick up and that consumer gets under more pressure? Thanks for the question. Yeah, I'll cover that and Rodney can add any additional color he'd like to. You know, generally, our gross margin rate was in line with our expectations for the quarter. As you heard us share, we had two major investments during the quarter, which was investing in value for the customer and also the supply chain headwinds that we, as Rodney mentioned in his prepared comments, we'd fully expected during the year. Overall, you know, we feel like we were right in line with what we expected to be. I know we called out in our comments around the PPE inventory write-off that really wasn't material enough to sort of be something that I think investors should be thinking about is gonna be a factor in our expectations for the rest of the year. I think we shared in our original guidance for the year that we believe gross margin would be a headwind during the year as we made the investments in price and supply chain. The first quarter played out largely as we expected. You know, we don't call out all the puts and takes in the quarter and, you know, things like COVID vaccines would have been a tailwind last year that wouldn't been a tailwind this year. I think there's a lot of extra, you know, moving parts in there. What we try and do is call out the pieces that we've communicated previously, so we're consistent and also give you a flavor for the major moving parts. Overall, we felt the quarter was very much in line with strategy, and we wouldn't be pointing to a change in that for the rest of the year. I'll maybe just add one piece of additional color because I know it's kind of something I've seen as a sort of question floating around before the call started. Certainly the gross margin outlook hasn't changed. That's not a factor in how we think our guidance looks for the rest of the year. We're very confident with how we think about the outlook for the rest of the year. I think the Some of the factors to bear in mind when you think about the second half, I mentioned it in my prepared comments, but LIFO for the year is going to be about $150 million higher than budget and about $100 million higher than prior year spread across the four quarters. We do expect fuel margins will be a headwind for the rest of the year and directionally think of that as maybe $50 million or so headwind as well. I think about it more of the underlying trends that we've shared during the quarter, you know, as something that we feel is right on track with our plan. There are some unique factors that will influence the second half of the year. You know, from our perspective, those are generally gonna be things that you won't have to cycle in 2023, but they are obviously headwinds in the rest of this year in terms of our overall financial outlook. The other thing I think it's always important to remember is, we always look at gross margin in light of our OG&A cost as well. Obviously, our teams did an incredible job of managing OG&A costs. We always will invest some of those OG&A savings in trying to extend the customer's budget, and especially in an environment like this where it's important. I think some of those reasons are the reasons why our customer counts have improved as well. Thanks, Spencer. Got it. That's helpful. Thank you. Thanks, Spencer. Our next question comes from Karen Short of Barclays. Karen, your line is now open. Hi. Thanks very much. I had a couple questions, just and they can all kind of tie into one, but the first is on your actual volume versus your comp. So as you look at your guidance, we know where CPI is and we know what your implied 2Q to 4Q guidance is. It certainly implies, you know, demand destruction, from a volume and tonnage perspective. Wondering if you could talk about that. Then specifically on your full guide, you know, obviously we can back into the FIFO guide for operating profit for 2Q- 4Q. It looks like you'll be down about 6% on that operating profit number versus where you were at this quarter, which is up around 16%. Wondering if you could triangulate those two. Sure. Thanks, Karen. Yeah, I think the first part of the question would be, as I mentioned a moment ago, when we look at the guidance for the rest of the year. Our overall outlook for inflation is that we do expect inflation is gonna be higher for the rest of the year than we originally expected when we sort of entered 2022 and provided our original guidance. Having said that, it's important, I think, to remember that we don't have a perfect crystal ball, of course, like we all are trying to figure out. There are multiple scenarios that could play out. I think our central scenario, though, is that we think inflation will remain higher. As we cycle about a 4% increase in inflation in the second half of last year compared to the first half of last year, absolute annual inflation, we may well actually start to see a more moderated number in the second half of the year. We're currently assuming inflation in the second half as a headline rate may be a couple of percentage points or so lower than the first half of the year. If you think about our sales guidance, we are assuming that we'd see some momentum in our units because of the way we're thinking about inflation. Now, of course, that outcome could be different and that will impact the outcome of the results that we report. Our overall assumption is based on that kind of high level view, which we think takes into account all the different data points that we've been able to to look at both internally and externally. Then from an operating profit perspective, as I mentioned a few moments ago, from really the way we think about the rest of the year, you know, our overall EPS guidance, if you kinda look at the midpoint of our new range for the rest of the year, it would be flat to slightly down. I think the really key messages in that would be, think about the, as I mentioned a moment ago, the LIFO charge will be having a major impact on that both versus budget and versus prior year. As I mentioned, whereas fuel would have been a tailwind in the first quarter, it'll actually be a headwind for the rest of the year. We think of the sort of supermarket business as being robust and relatively on track in terms of what we would have expected and continuing to build momentum. It's really around those other factors that are driving the lack of sort of carry forward of the momentum on year-over-year growth in the first quarter when you look at that relative to the rest of the year. As well as the vaccine headwind, correct? Vaccine headwind would have been in the first quarter, probably a factor, and then it would also be a factor in Q two and Q three. Again, I wouldn't think of that as being a major headwind. That was probably a bigger factor in Q one than any quarter. I wouldn't think of the gross margin performance that we saw in the first quarter of the year as being, you know, dramatically different from expectation in the remaining quarters based on the impact of vaccine or the factors. Okay. Thank you. Thanks, Karen. Thank you. Our next question comes from Rupesh Parikh from Oppenheimer & Co. Rupesh, your line is now open. Good morning. Thanks for taking my question. I just wanna go back to grocery market share. Just wanna get a sense of how your market share held up in the grocery category. I guess related to that, it sounds like the general merchandise category had some headwinds. Just wondering if that contributed maybe to the weaker ID performance. If you look at the grocery market share for the overall, it's pretty much close to where we thought it would be. We would expect continued improvement throughout the year, which was reflected in the original guidance. Your comment on general merchandise is correct. If you look at our identicals in total, without general merchandise, it would be pretty similar to where the fresh IDs were. The general merchandise, obviously, households are starting to change their behavior on shopping, and it shows up there. Obviously, some of the savings and things that customers had from not being able to spend money on services as well is showing up there. We are making progress on market share overall and would expect to continue to make improvements as we go along in the year. Great. Maybe just one quick housekeeping question. I know last quarter you gave quarterly cadence guidance. Is that still intact on the comp and EPS line or I don't know if there's any updated views there? Sure. Yeah. Just briefly, I would say on the EPS side of things, I mentioned a moment ago, Rupesh, that I think if you look at the guidance for the back, the last three quarters of the year, it would sort of predominantly be around the sort of flat to slightly down. I would think of that if you look at the cadence last year, it'd be relatively consistent if you think about the next three quarters. I wouldn't call that any dramatic year-over-year variance to that overall. I think on a sales perspective, as we mentioned, we would expect the first half to be a little bit better than the second half in terms of sales. That's predicated on this belief, though, that inflation continues at heightened levels, but on a year-over-year base in the back half would be potentially a few basis points lower because we're cycling 4% higher inflation in the second half of last year than the first half of last year. Great. Thank you. Thanks, Rupesh. Thank you. Our next question comes from Edward Kelly of Wells Fargo. Edward, your line is now open. Yeah. Hi, guys. Good morning. Good morning. I want to go back to the question just on tonnage and underlying unit volume. Rodney, I think when we were, you know, sort of all looking at this quarter, I think we would all on the, you know, the investor side, you know, agree that we probably thought your ID would be better, given the trends that we saw in inflation. I'm kind of curious as to what you are seeing in underlying tonnage. Then you talked about. I think I heard you right when you said, you know, the basket is down, you know, despite that backdrop. I'm just kind of curious as to what you're seeing, you know, on, like, that side. Are you seeing anything that it's being caused by changes in consumer behavior, right? Whether that's sort of like channel shifting, seeking value, that type of stuff. If you look at the basket size, that's driven by units per basket, and what we're finding is customers are coming in more frequently than before, but they're not buying as many items on each shop. That's what we're seeing. We're also seeing customers, especially customers that aren't as sensitive to their budget, upscaling or buying bigger packs, especially earlier in the month, when depending on when people are getting money. We continue to see both of those dynamics. If you look at the fresh departments, the trends there would be better than the overall. If you look at overall units, for most of the CPG partners, we would be tracking pretty similar to where their unit changes are overall in the marketplace, if you look at our top 25. I don't know, Gary, anything you wanna add to that? I know you were pulling up some. Yeah. Well, I think just to clarify maybe at the comment we made, the total basket size is actually up. It's the number of units in the basket that are down. If we look at our overall metrics, households are up, loyal households are up, visits have turned positive. Basket size is up, but the number of items in the basket, as Rodney mentioned, is the item that I think customers are adapting behavior as they you know start to manage the inflationary environment. That's obviously a focus area for us to use our data personalization and different tools around rewards to really aim to continue to drive that up. As I mentioned, if you look at our second half guidance as we expect in our current assumption, inflation would be on a year-over-year basis, maybe not as quite as high, even though remaining at sustained levels than our guidance reflects the expectation that we continue to make progress on that front. Okay. Just a quick follow-up. I think that you said that you sort of expected the gross margin trend for the rest of the year to be similar to Q1. Did you mean, you know, the year-over-year decline, or did you mean multi-year? Just kind of curious as to what you were talking about there. Yeah. I wouldn't wanna get into specific guidance because of the comment that Rodney mentioned around we do try and manage the business dynamically. I think what I was really saying, Ed, was it was specific to the current year and really saying that when you think about Q1, I think there was some concern that the PPE write-down would somehow need to be reversed out, and that would be the trend that we're seeing in terms of gross margin rate. I think the guidance that we shared at the beginning of the year was we expected gross margin to be a headwind. We didn't expect the volatility to be, you know, as significant as we've seen in the past. As I mentioned, the PPE is really one of a number of puts and takes. Because we called it out last year in the first quarter, we didn't wanna not clearly mention it again in the current quarter, but I wouldn't see it as a major factor. It was related to Q1, you know, that's the kinda directional shape of gross margin, which is, I think, consistent with what we shared when we gave our guidance for the year. Okay. Thank you. Thanks, Ed. Thank you. Our next question comes from Michael Montani from Evercore. Michael, your line is now open. Hi. Good morning. Thanks for taking the questions. Just wanted to ask first off, you know, looking at food at home inflation, looks like it was up just about double digits for your quarter calendarized. If we adjusted that given your gen merch mix a little bit, maybe it's a point or two below. Just wanted to see, is that kind of the right way to think about, you know, what you might have been able to pass through to the consumer given the PPI is so much ahead of those levels? Yeah. Well, I always think it's important to look at CPI and PPI together. It's also the reason why we shared a little bit more details about our brands than normal because you have customers are doing their own behavior in terms of changing the way they shop. You know, if you think about in some cases a national brand item may cost $3 and our brand might be $1.50 or $2. That would show up and would cause our inflation rate not to be as high as what's in the marketplace. I also think it's important to remind people that when you look at our brands overall, our gross margin's about 600 basis points better than the national brand. If you look at profit per item, it's similar or in many cases, actually higher. You know, to me, I would look at those numbers as general directional things, but not specifics to be able to compare directly just because customers' behavior is changing. If you look at like in pork as an example, customers aggressively moved to pork during the quarter. Some of that movement was at the expense of people not buying as much beef because it's such a great value for the money, as an example. You know, within all the data, you have a lot of customer behavior changes, but I think it's helpful directionally, but not exactly. Okay. Then for a follow-up, if I could, was just around the $1 billion plus of gross cost savings. Was just wondering if that would be kind of meted out evenly throughout the course of the year and how it might compare to kind of inflationary pressures you might be seeing in wages and/or transportation with diesel at record highs. Yeah. The $1 billion of savings would certainly be a sort of an ongoing flow of initiatives. Certainly think about it as being consistently sort of building. We've got a certain number of benefits from last year that flow through, and then we're introducing new initiatives this year. Because we're on this five-year journey of $1 billion of savings, it's very much a continual flow of new initiatives that are being implemented in the business to drive those efficiencies and savings. I'd certainly think of it in general terms as being fairly consistently throughout the year. Now, of course, there are a number of puts and takes in lines, and we continue to invest in average hourly rates. I think we mentioned in the first quarter there was a benefit from lower pension contributions during the first quarter. I wouldn't think of the OG&A rate improvement that we saw in Q1 as being typical for the year. We do expect to continue to see OG&A rate in the year being an improvement and a tailwind for the year. Thanks, Michael. Thank you. Thank you. Our next question comes from Michael Lasser of UBS. Michael, your line is now open. Good morning. Thanks a lot for taking my question. Good morning. In light of the perception that your food categories were up, call it 5% in the quarter, and Nielsen was up 6%, the mass merchants were comping in food and beverage up high single digits, double digits. There's a perception out there, Rodney, that Kroger lost market share during the period. Why would that have been the case? You had made a comment that you expect your market share trends to improve in the next couple of quarters. What do you expect will drive that improvement? If you look, all of us, our quarters end at a little different time, so it's always difficult to be exactly comparable. I know some of the competitors don't break out specifically by category. I know for us, obviously, general merchandise is a bigger part of our business than some of our traditional competitors, not as much as some of the big box competitors. If you look, during the quarter, our trends improved as we went along during the quarter. As Gary mentioned, you know, our household count went up, increased. Our loyal household count went up, and our visits in total also increased, and our trends improved as well. Those are the things that gives us confidence in terms of the things that we're doing and the direction we're headed is continuing to move in the right direction. Yeah. The only other thing maybe I would add, Rodney, is the comments we made, Michael, about digital growth and the expectation of with the investments we're making in customer fulfillment centers. The announcement, the exciting announcement that Rodney shared this morning around Boost membership launching across the whole of the company. We feel the momentum that we're seeing starting to build in digital will also be an important component of that growth in the future as well. If I could add a quick clarifying question on that. The perception is also that over the next couple of quarters, economic pressure across a broader swath of consumers, not just those at the lowest income demographic, that pressure is gonna increase. That might push people to shop more at the dollar stores, might push them to shop more at the warehouse clubs, where the perception is that they may be able to stretch their budgets a little further. In response to that, what is Kroger gonna need to do, invest more in price, change pack sizes and other actions that could impact its profitability to prevent customers from going elsewhere? Thanks, Michael. Yeah, I think briefly, we see that as an opportunity actually for Kroger, because what we tend to see in those more economically challenged times is that the customer that's less stressed, as you describe them, actually views Kroger as a high quality place to get more value compared to maybe shopping a larger number of stores. We even see it with some of our own brand performance. Rodney mentioned the strong value and ingredients for cooking at home, but we also saw strength during the quarter in Private Selection and meal solutions. We see that as an opportunity for us to really connect with that customer as they start to maybe determine the best places to shop for quality and value combined. Thanks, Michael. Thank you. Thank you and good luck. Thank you. Our next question comes from Kate McShane of Goldman Sachs. Kate, your line is now open. Hi. Thanks. Good morning. Thanks for taking our question. I wondered if you could talk a little bit about how conversations are going with your vendor partners currently, especially in light of the ongoing inflation to the second half. Have you been able to push back with regards to some of the cost inflation? Will you be getting more aggressive in those conversations like some of your competitors have suggested? It's an ongoing dialogue, and obviously, overall, we try to make sure that we have a partnership relationship. It's also one of the values in having our brand so such a strong component, so we understand true cost increases versus somebody just wanting to raise margins. In many cases with the CPG partners, we're identifying areas where we can work together to take costs out so that we can reduce it. Like on backhauls is an area that we're making great progress on by using technology, both of our technologies and databases, to understand how to change. I would say that we're gonna always push back on any type of cost increase that's not justified, and we're gonna also try to work together to figure out a way to reduce our combined costs whenever we can. I think it's a difficult answer to say how we are doing versus competition or competitors. You know, I'm super proud of our procurement team. As Gary mentioned earlier, one of the big component on the cost savings is renegotiating both things not for resale and resale both. We feel good about where we are, but it's an ongoing dialogue, and obviously, it's a little more difficult dialogue when you have such high inflation. Thank you. If I could just ask, an unrelated follow-up, just with regards to the Boost rollout. Are there any more details, with regards to the timing of that? I know there was higher retention and other metrics you cited, but was there also a comp lift impact from Boost during the quarter in those three test regions? Yeah. If you look at the test regions, it would positively affect our identicals. You know, the thing that's most important to us is it causes that customer to be stickier to our overall ecosystem, not just on delivery. You know, our strategy is if a customer thinks food, we want them to think Kroger's. We feel good about where we are, and it's continued in the right direction. Thanks, Kate. Thank you. Our final question for today comes from Chuck Cerankosky from Northcoast Research. Chuck, your line is now open. Good morning, everyone. Good morning. Rodney, if you talk about your e-commerce sales, they were down 6% overall. Can you shed some light on the components of that? Because I don't think it reflects what's going on with the new CFCs and spokes. Where's the negative numbers coming from, and how's the Ocado-based facilities performing? Yeah. Thanks, Chuck. If you look at pickup would be the area where we would have the biggest decline. As I mentioned, what we're finding is that customer is, as they get comfortable, they move back into stores, and the retention rate is better than the overall retention rate. If you look at the sheds, the NPS scores continue to be outstanding. The retention rate and repeat purchase rate on the sheds is very strong, and they're continuing to move in the right direction. If you look toward the end of the quarter and the recent few weeks, our performance on year-over-year for online has actually turned to positive. The first quarter was pretty similar to where we thought it would be, because we were cycling some strong numbers early in the quarter, and the trend has moved back into the positive neighborhood. Thanks, Chuck. On the increase in working capital dollars spent during the quarter, does a lot of that simply reflect inflation, or is Kroger in fact getting more aggressive on forward buying or just trying to grab stuff when it's available? Hi, Chuck. Yeah. I think there's a couple of different factors just briefly in there. Overall, we've been on a plan for a number of years to continue to optimize working capital, so I wouldn't say it's a dramatic change in strategy. We're very focused on continuing to drive improvements there and have seen good tailwinds in our cash flow because of that. This quarter, we would have seen an increase in inventory. Part of that would be to do with sort of starting to get back towards pre-COVID levels, as the in-stock and supply chain improves. Nothing that would be concerning to us from a sell-through perspective, but we do think it's important to make sure we continue to improve the supply chain. Of course, inflation would have also impacted that number as well, but nothing out of the ordinary. Thanks, Chuck. Thank you. Thanks, Gary. Thank you to everyone for joining us today. I'm incredibly proud of the way we are beginning 2022, with a continued focus on our leading with fresh and accelerating with digital strategy. As always, I'd like to share a few comments with our associates listening in. First, obviously, thank you. The past several years have been challenging and weigh on all of us differently. While each of us react in a unique way, no one should have to struggle alone. That's why we offer a variety of resources from in-person and virtual counseling sessions through our well-being assistant to tools to help leaders of others foster a supportive environment. I would encourage each of us to take time to ensure we have the support systems we need in place. If we don't, please ask for help. We are all our best advocates and know what truly we need. Thank you for everything you do for each other. Thank you for what you do for our customers every day, and thank you for what you do for our communities every day. I'm inspired every single day of the week by your amazing work that you do. Thanks again for joining us today, and that concludes our first quarter earnings call. Thank you for joining today's call. You may now disconnect.