Good morning, welcome to The Kroger Co. First Quarter 2023 Earnings Conference Call. If you'd like to ask a question following the presentation, you may press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please note this event is being recorded. I would now like to turn the conference over to Rob Quast, Senior Director, Investor Relations. Please go ahead. Good morning. Thank you for joining us for Kroger's first quarter 2023 earnings call. I am joined today by Kroger's Chairman and Chief Executive Officer, Rodney McMullen, and 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. 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 from as many of you as we can, we ask that you please limit yourself to one question and one follow-up question if necessary. 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 2023, with results that reflect the strength of our go-to-market strategy. Kroger is continuing to navigate a challenged environment as our customers manage the effects of high inflation, fewer SNAP dollars, and macroeconomic uncertainty. Despite these conditions, customers continue to prioritize their spending on food, and our value proposition is resonating. The investments and productivity improvements we made over recent years have strengthened our business, allowing us to sustainably invest in price for our customers while maintaining margins. By delivering great value and driving strategic initiatives, we are sustaining momentum, which gives us the confidence that we will continue delivering on our commitments. Many of our customer preferences and trends that emerged last year have, as expected, accelerated into the first quarter. Customers are actively looking for ways to save, and we are focused on providing a fresh and affordable shopping experience with zero compromise on quality, selection, or convenience. As we've seen over recent quarters, our customers are saving through loyalty discounts, including weekly specials and yellow tag promotions, engaging in our broad assortment of Our Brands products, and redeeming personalized digital coupons and fuel rewards. During the first quarter, sales made on promotion increased approximately 380 basis points, and digital coupon redemptions increased to 180 million. We are delivering more savings opportunities, including working with our suppliers to fund more promotions. Kroger's value proposition offers something for every customer, which I'm pleased to say led to increased customer trips and our eighth consecutive quarter of household growth. That being said, we continue to see a split in spend across customer segments. The economic environment is more significantly impacting our budget-conscious shoppers, while our mainstream and higher-income shoppers are increasing their spend with us and deepening their loyalty. We grew mainstream households, which make up the largest segment of our customer base. We also grew our higher-income customer households as they migrate from specialty retailers to Kroger. These customers are extremely valuable because they are building larger baskets and spending more per item. We see these customers buying premium, Our Brands lines, more fresh items, and larger pack size. As a result, they are more profitable. In contrast, our budget-conscious households are buying fewer items, particularly as SNAP benefits declined during the quarter. In some cases, we see these households switching to lower-priced products and smaller pack sizes. The least loyal customer in this group are clearly prioritizing the price at shelf over other factors such as personalized offers, convenience, and quality. We expect customers, particularly those on tighter budgets, will continue to feel the effects of inflation and higher interest rates. We have started to see relief as year-over-year inflation levels moderate, particularly in fresh categories. We expect value and quality to remain in focus for the majority of our customers in the months ahead. Our attractive value proposition positions us well for this environment. In fact, our promotional pricing, personalized offers, and fuel savings work together to create an overall value comparable to everyday low price providers, those savings come with much more personalized experience. Along with our great value proposition, we will continue investing in and growing our strategic priorities of fresh, Our Brands, personalization, and seamless to create a full, fresh, and friendly customer experience. As you know, we lead with fresh. Our Fresh for Everyone promise connects strongly with customers and is a key differentiator that drives customers to us. We are constantly innovating by applying data and technology to improve the customer's fresh experience. A key to winning in fresh is our supply chain. We improved our supply chain's efficiency through investments in talent and technology, as well as controlling more movement of products across our network. As a result, our associates improved our in-stock rates, which drive higher sales. Through our end-to-end fresh initiative, we are streamlining our supply chain to minimize the elapsed time from farm to shelf. Combined with our convenient store network, these investments deliver even more days of freshness at home for our customers. Together, these improvements also reduce our expenses, allowing us to invest in price for customers while providing fresher choices and more options. Turning to Our Brands, Our Brands delivered another solid quarter that led by our namesake, Kroger brand, a national brand equivalent. Our Brands are always a winner with our customers. In this period of sustained high inflation, it helps our customers save money without sacrificing quality. While inflation may have been the reason for some customers trying our Our Brands products, the taste and quality makes the customer love these products and continue to repurchase them. For customers looking for more convenience, Home Chef plays an important role and continues to innovate and expand offerings to meet growing customer needs. This quarter, Home Chef expanded its menu to bring more healthy choices, premium meals, and new concepts. Our team unveiled its first dedicated family menu, designed to make family dinners easier than ever. The menu includes easy-to-prepare recipes for larger groups, with meals appealing to both adults and children, and at an attractive value. Next is personalization. For years, Kroger has been at the forefront of using data and analytics, including artificial intelligence, to build a better customer and associate experience. By applying our data and AI-based personalization, we can better understand what truly matters to our customers and deliver more targeted and effective experiences. As customers' digital engagement increases, we have new and more efficient channels to present the most relevant products and the right promotions at the right times, no matter where and how customers choose to shop with us. As AI advances, we continue to work and constantly evaluate potential use cases throughout the business with privacy and responsible implementation in mind. For customers, we see opportunities to further simplify the digital experience and offer more accurate, personalized recommendations. Our teams are working with search algorithms and generative AI to improve substitution accuracy and search results. Within our 84.51° customer research team, we are already piloting several large language models to summarize customer database sets. By applying AI to customer surveys and customer service logs, our team can analyze and categorize them in minutes versus days before. This allows the business to react to customer feedback more quickly and accurately, and then reflect these learnings in the customer experience. For our associates, we envision ways to further simplify work through advanced algorithms that optimize activities such as store orders. These, in turn, help reduce out-of-stocks, improve inventory management, and reduce expenses. Data is in our DNA. Our rich history as a technology leader gives us confidence that we will continue to effectively use AI, including more recent innovations. We also believe robust, accurate, and diverse first-party data is critical to maximizing the impact of innovation in data science and AI. As a result, Kroger is well positioned to successfully adopt these innovations and deliver a better customer and associate experience. On Seamless. Growth in both our pickup and delivery businesses led to a strong quarter of digital sales growth. A significant rise in both households and transactions fueled this growth. Pickup remains an important part of our Seamless ecosystem. During the quarter, our team's focus on associate training resulted in improvements in the customer experience. Pickup Net Promoter Scores increased as we improved fill rates and reduced customer wait times. Obviously, something we're very proud of. Seamless starts with our digital experience, which we built to be simple, convenient, regardless of how customers choose to shop with us. Whether our customers want immediacy of Kroger Delivery Now, or to place a large stock-up order through our Customer Fulfillment Centers, the customer experience is the same. This shifts complexity from our customers to Kroger. Even customers shopping only in store are beginning to shop their shopping trip through our mobile app or website, by clipping coupons and creating shopping lists curated for their store. These growing interactions contributed to the 13% increase in digitally engaged households this quarter. We value this behavior as digitally engaged households are more loyal, spend nearly 3x more with us, and help grow our alternative profit businesses like Kroger Precision Marketing. Our associates continue to provide our customers with an outstanding, full, fresh, and friendly experience. Better continuity on our teams and more engaged associates lead to a more consistent customer experience, and we are excited about the continued improvement in retention. This improvement reflects our focus on making Kroger a place where associates can come for a job and discover a career. Kroger is committed to training our future leaders and made significant investments this quarter. We enhanced our career development framework, expanded our leadership development course catalog, and introduced company-wide development days. In the first quarter alone, our leaders engaged in more than 445,000 leadership development courses to strengthen their skills. We are excited for our associates' commitment to developing their careers with Kroger. Our associates are driven by our purpose to feed the human spirit. Kroger's effort to build healthy communities are being recognized. This quarter, Kroger was selected as a 2023 SEAL Business Sustainability Awards winner in the environmental initiative category. We received this award in recognition for our progress in creating communities free from hunger and waste, which is a result of our team's collective efforts to more deeply integrate Zero Hunger | Zero Waste in our operations. We are incredibly appreciative of all of these efforts. In closing, Kroger delivered a strong first quarter by focusing on delivering customers value through our seamless ecosystem. We are growing customer households and trips. Our business remains well positioned for the environment ahead. With that, I'll turn it over to Gary to take you through our financial results. Gary? Thank you, Rodney, good morning, everyone. Kroger's first quarter results clearly demonstrate the durability of our business in a more challenged operating environment. The investments we have made in our value creation model over recent years are paying off, allowing us to continue to deliver value for customers, invest in our associates, and create attractive returns for our shareholders. As Rodney shared earlier, we are driving increased customer engagement through our go-to-market strategy, which in turn is fueling our flywheel, including growth in alternative profit businesses. I'll now walk through how our execution of this strategy translated into solid first quarter results. Identical sales without fuel is a key component of our growth model. During the quarter, we achieved Identical sales without fuel of 3.5%. Underlying growth would have been 5% after adjusting for the effect of the previously communicated decision to terminate our agreement with Express Scripts. As expected, the terminated agreement also had a positive effect on our FIFO gross margin rate, excluding fuel, and a negative effect on the OG&A rate, excluding fuel and adjustment items. The overall effect of on operating profit during the first quarter was slightly positive, and we would expect this to continue to be the case for the remainder of 2023. Our decision to terminate the agreement with Express Scripts reflects our commitment to making decisions that we believe are in the long-term best interest of our customers and shareholders. Turning back to our identical sales without fuel growth in the quarter, these results were underpinned by key elements of our go-to-market strategy. Our Brand sales grew 4.9%. Our Brands continue to be an important source of savings for our customers, who are attracted to the unmatched quality and value they provide. At the same time, Our Brands help drive stronger profitability, typically providing 600 to 800 basis points higher margin compared to national brands. Our merchandising team is doing an excellent job optimizing our portfolio of brands to drive improved penetration and margin performance. The launch of our new opening price point brand, Smart Way, has enhanced overall brand architecture, and our relentless focus on continuous improvement and innovation is driving strong momentum across the portfolio. We expect this momentum will continue to deliver value for the remainder of 2023. Digital sales grew 15% in the quarter. We saw 11% growth in pickup and 30% growth in delivery solutions, powered by our unique combination of CSCs and convenient store locations. Our Net Promoter Score continue to increase, and CSC volumes are growing in line with expectations in 2023. We are working closely with Ocado to make our CFCs even more efficient and productive. As a result of these joint efforts, our Monroe facility greatly improved the cost per order over the past quarter, and we're now in the process of applying these learnings across our other sites. As outlined at our business update back in March, we believe digital will continue to be an important growth driver and anticipate double-digit sales increases will continue for the remainder of 2023. Gross margin was 22.3% of sales. Our FIFO gross margin rate, excluding fuel, increased 21 basis points compared to the same quarter last year. Importantly, this increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. The improvement was primarily attributable to strong Our Brands performance, sourcing benefits, lower supply chain costs, and the effect of our terminated agreement with Express Scripts, partially offset by higher shrink and increased promotional price investments. As we've shared previously, our strategy to improve margin over time has many components, including utilizing technology to increase supply chain efficiency, improving fresh capabilities, expansion of Our Brands, improvements in digital profitability, and growth in retail media. The investments we have made over recent years to strengthen our business in these areas were reflected in our FIFO gross margin rate, excluding fuel this quarter, and we expect this trend to continue for the remainder of 2023. During the quarter, we recorded a LIFO charge of $99 million compared to a LIFO charge of $93 million for the same period last year. Kroger's OG&A rate increased 14 basis points, excluding fuel and adjustment items, reflecting planned investments in associates and the effect of our terminated agreement with Express Scripts, partially offset by sales leverage and continued execution of cost-saving initiatives. Associate investments are funded by removing costs from our business that do not impact the customer experience. This is an essential element of our go-to-market strategy, and we are on track to achieve our sixth consecutive year of $1 billion in annual cost savings. Adjusted FIFO operating profit in quarter one was $1.669 billion, and our adjusted EPS was $1.51. Both measures were up 4% compared to the same period last year. I'll now walk through how the other key components of our value creation model contributed in the quarter and support our plans to deliver sustainable growth in the future. Our health and wellness team delivered results ahead of internal expectations during the quarter, including positive ID sales growth, despite the effect of the termination of our agreement with Express Scripts. This performance was led by strong underlying results in our retail pharmacy business. Fuel is another important part of our strategy that drives customer loyalty and was a tailwind to profitability in quarter one. Fuel reward engagement remained high this quarter, with a 19% increase in discounts redeemed compared to the first quarter last year. The average retail fuel price was $3.55 this quarter, compared to $4.00 in the same quarter last year, and our cents per gallon fuel margin was $0.45 this quarter versus $0.42 in the same quarter last year. Turning now to alternative profit businesses. The significant traffic and data created by our food, health, and fuel businesses continue to enable strong growth in alternative profits. Retail Media is leading the way, and this quarter, KPM announced a new collaboration with Disney to bring its renowned targeting and measurement capabilities to Disney's portfolio of Connected TV. Connected TV is one of the fastest-growing areas of ad spend, tripling in the last three years to $20 billion and is expected to double again by 2027. We are excited about the opportunities to accelerate KPM's future growth through this recent addition to the KPM ecosystem. KPM is also innovating in other areas, including in-store digital marketing. We recently announced a rollout of Cooler Screens in our stores. These innovative screens will replace traditional refrigerator and freezer doors with a digital overlay that will offer customers information on products as well as KPM-curated advertisements. This will bring a differentiated shopping experience to our customers while also creating another powerful marketing tool for KPM to offer to our brand partners. Our first quarter results would not have been possible without our incredible associates, who are doing an outstanding job executing our strategy and delivering a great customer experience. Our go-to-market strategy is underpinned by a commitment to continue investing in our associates to ensure Kroger remains an employer of choice. During the first quarter, we ratified new labor agreements with the UFCW for associates in Atlanta, Louisville, and Cincinnati divisions, covering more than 51,000 associates. We also ratified a new agreement with the United Industrial Workers for our Columbus Distribution Center. We continue to negotiate contracts with the UFCW for associates in Smith's, Utah Clerks and Meat, Dallas Clerks, Dallas Meat, and Fry's Division. Turning now to liquidity and free cash flow. Kroger continues to generate strong free cash flow. Our operating results, combined with improvements in inventory and receivables, led to a reduction in net debt of $1.5 billion compared to Q1 last year. As a result of improvements in working capital, we now expect adjusted free cash flow to be in the range of $2.5 billion-$2.7 billion for the fiscal year 2023. At the end of the first quarter, Kroger's net total debt to adjusted EBITDA ratio was a record low of 1.34. This compares to our net total debt to adjusted EBITDA target ratio range of 2.3-2.5. The company expects to continue to pay its quarterly dividend and expects this to increase over time, subject to board approval. As a reminder, we have paused our share repurchase program to prioritize deleveraging following the proposed merger with Albertsons. In closing, I'd like to share some additional color on our outlook for the remainder of the year. As Rodney mentioned earlier, inflation started to show signs of deceleration throughout the quarter, particularly in the fresh categories, and ended the quarter approximately 400 basis points lower than the start of the year. We expect inflation will continue to decline as the year progresses and believe the environment will remain challenged for our customers as they deal with higher interest rates and an uncertain economic outlook. These were factors we anticipated when we issued our original guidance. The investments we have made over recent years to strengthen our value creation flywheel give us the confidence to reaffirm our full year guidance for identical sales without fuel and adjusted EPS. Looking towards the balance of the year, we would expect identical sales without fuel to be at the low end of our guidance range of 1%-2% for the remaining three quarters of 2023, reflecting continued slowing inflation, partially offset by underlying improvement in unit growth. Recall, this guidance includes the effect of Express Scripts, which is a headwind to identical sales without fuel of approximately 150 basis points. We expect adjusted EPS to grow within our full year guidance range of 2%-5% in each of the remaining quarters, excluding an expected $0.15 benefit from the 53rd week in the fourth quarter. We would expect Q2 adjusted EPS to be at the low end of our guidance range as we cycle unusually high fuel margins for the same quarter last year. As you've heard from Rodney and myself this morning, Kroger is operating from a position of strength. While there remain macro uncertainties that could affect our operating environment across the remainder of 2023, we believe we have the right strategy and a flexible business model that continues to generate strong free cash flow. This will allow us to continue to deliver value for our customers, invest in our associates, and create attractive returns for our shareholders. I'll now turn the call back to Rodney. Thanks, Gary. Before we open the floor to your questions, let me provide a brief update on our pending merger with Albertsons Companies. Integration planning has progressed nicely, and I'm energized by the people and talent across both the Albertsons and Kroger teams. I'm even more confident in the opportunities ahead as we accelerate our strategy and deliver more value for our associates, customers, communities, and shareholders. We remain on track and continue to expect the transaction to close in early 2024. We are working cooperatively with the regulators and at the same time to identify potential buyers for the stores we expect to divest to obtain clearance for the transaction. We will find well-capitalized buyers with experienced management teams that will maintain competitiveness. We are very pleased with the level of interest received thus far and will work towards finding a solution that benefits all stakeholders. We continue to engage with various stakeholders in addition to the regulators, and are actively working to address inaccuracies and misrepresentations about the merger. We made a commitment on the day we announced the deal that this merger is about growth and that we will not lay off any frontline work associates as a result of this merger. We are also committed to not closing any stores, distribution centers, or manufacturing facilities as a result of the merger. We're very proud of our ability to make such a commitment, especially at a time when many companies are announcing job cuts, and this is consistent with Kroger's track record in recent mergers. We remain incredibly excited about our future together with Albertsons. We are confident that as many of our stakeholders learn about Kroger's history of growth through mergers, they will understand the meaningful and measurable benefits this will have for our customers, associates, and communities. We are proud of the results our team delivered while navigating a challenged environment. We are focused on delivering lower prices and more choices to our customers than ever before. Our value proposition is growing households and customer trips, which positions us well for long-term growth. We are confident that we have the right strategy. The strength of our value creation model positions us well to continue investing in our business, our customers, and our associates, which powers our ability to deliver attractive returns for our shareholders. With that, Gary and I look forward to taking your questions. Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Chuck Cerankosky from Northcoast Research. Chuck, your line is now open. Please go ahead. Good morning, everyone. Nice quarter. Good morning. You mentioned the increased amount of promotional activity that Kroger was in during the quarter. To what degree are the CPGs involved in that, and how much of it is Kroger spending its own, call it, gross profit dollars to promote your own brands? They, they are extremely engaged in that process. Obviously, we're targeting those based on each individual household and what's important to that household. If you look at items that are national brand items, it would be heavily financed by CPGs. We would see CPGs as supply chains have gotten much fuller, products are starting to flow. We have started seeing CPGs more starting to worry about tonnage and supporting that. Obviously, with targeted promotions on our products, those are funded out of by Kroger, and it would be a pure economics in terms of the increase in tonnage and the investments we're making. Overall, you know, we're pleased because it's helping people that's on a budget be able to stretch their money further, which is helpful, and we're able to do that at the same time while managing our margins as well. Rodney, when you go back to that 30% increase in delivered digital orders, could you put a dollar amount on that? How much of that 30% is coming out of the Ocado-related CFCs and spokes? The majority would be coming through their sheds. In terms of dollar numbers, I don't remember the specifics. I know the total overall, but I don't know the specifics. The majority of that would be driven by the sheds. As Gary mentioned, we have a great partnership with Ocado, and we're making good progress, especially on Monroe, on ramping that facility up, and now we're in the process of rolling those learnings out to the other sheds. In fact, Gary, anything you want to add? All I would add, Chuck, is that, as you may recall, we announced a couple of years ago that our digital business reached $10 billion in total sales. When you think about the 15% growth, it would be growth on one quarter of a number north of $10 billion. Got it. Thank you. Thanks, Chuck. Thank you. Our next question comes from Simeon Gutman of Morgan Stanley. Your line is now open. Please go ahead. Hey, good morning, everyone. My first question is also on the price investments and promotions. Good morning. This isn't the first quarter you've talked about making price investments. It seems like it stepped up a bit. The tone is a little more elevated. Is that right? It seems like that's in response to the competitive environment. I'm curious if it's, you know, something sustainable, you're seeing this as a one-time... You know, how should we read this? Is this a permanent change that you think will be persistent for the, for the time being? I wouldn't, I would read it a little different than the way you asked the questions. If you look, it's really broad-based, but it's, we continue to get better on using our own algorithms and AI to make sure that we're offering promotions that are most attractive to customers by household. Some of that, it, increased engagement is being able to do a better job targeting. You know, as I mentioned to Chuck on the CPGs, a significant portion of that is funded by CPGs, which, we think it's good for our customers and obviously, good for tonnage over time. In terms of, talking about it more, I would say it's more in terms of trying to be, share what's really going on behind the numbers to the best of our ability. I wouldn't say that we're talking about it more. I would completely agree that more customers are engaging in those promotions than before. Some of that is because of the economic environment. Some of it's because of the targeting algorithm. I think maybe it ties a little bit as well, Rodney, your comment earlier around the different customer segments and how they're changing behavior in the current environment. Simeon, we mentioned earlier in the prepared remarks, we're seeing the mainstream customer and then the higher income customer. In many cases, they're engaging more in fresh products, engaging more in brands like Private Selection. We saw Private Selection outperform our overall sales growth during the quarter. There are certain customers that we're certainly using our personalization to target, to drive greater loyalty, greater engagement, and then that customer that we clearly see is on a very constrained budget and have been impacted by the lower number of SNAP dollars in the market, really focusing our marketing effort to ensure that we're personalizing offers to resonate with those customers and help them manage their budgets more effectively. Maybe related follow-up, we're talking about how inflation is pressuring the wallet. You mentioned that we're seeing some price come down. You mentioned fresh food in some places. I mean, at what point first, what is the elasticity? Are you seeing any pickup in volume in prices or in categories in which prices are going down, or is it just too much weight on the consumer wallet right now? At what point do you expect that intersection when inflation comes down enough, you'll start to see a pick back up in unit or even trading back up? If you look historically, as you, as the context that you mentioned, as inflation gets lower, you do see tonnage increases. We would expect, as you look over the balance of the year, that would happen again. I would say we're too early in the process to really be able to say specifically. We are seeing trend improvements in market share in some of those aspects and very good share gain in mainstream and less price-sensitive shoppers. So, it really is a bifurcation where certain customers are behaving as if the way the economy's always been. The customers that are on a budget under SNAP, you know, there's a significant reduction in SNAP dollars in the marketplace, they are making significant modifications, including before maybe buying something that was a unit of 12 and now they'll buy a unit of four. They're coming more frequent, but buying less each trip and things like that. We would expect, as you look over the balance of the year, tonnage would improve, as inflation continues to decline on a year-on-year basis. I always think it's important to remember that inflation is cycling high inflation, which usually causes inflation increases to be less moderate. As we look out through the balance of the year, we would still expect to have inflation, it's just less than what it's been in the last couple of years or year and a half. Okay. Thanks, guys. Good quarter. Thanks. Thanks. Thank you. Our next question comes from Michael Lasser of UBS. Michael, your line is now open. Please go ahead. Good morning. Thanks a lot for taking my question. Given your updated- Welcome ... updated expectation for IDs to be at the lower end of your full year comp guidance, does that imply that you do expect IDs to be negative in the back half of the year? What has changed within the updated expectation, especially within the grocery business? You did say that the pharmacy business, despite the loss of Express Scripts, is doing well. Presumably, you're fulfilling a lot of GLP-1 prescriptions, and that's supporting the overall IDs, and so grocery is getting worse than what you had originally thought. Yeah, thanks for the question, Michael. I think you may have misunderstood what I mentioned in the prepared remarks. What we were saying was that we would expect the identical sales for the final three quarters of the year to be at the low end of our range, and that's essentially what we would have contemplated within our original guidance. That still supports the 1%-2%, excluding Express Scripts, or 2.5%-3.5%, including Express Scripts. What I was really calling out was the trying to give you some specific sort of understanding of how we're thinking about those final three quarters of the year and what they may look like. We're not, certainly not indicating that we expect the full year, we won't intend to signal the full year would be at the bottom end of that range. It was really specific to the final three quarters. You expect each one of those quarters to be positive? Does that embed the expectation that tonnage has to be positive? We would expect the identical sales to be positive in each of the final three quarters. We would be assuming on inflation, that inflation continues to decline as the year progresses and end the year at low single digit inflation back to sort of more normalized levels. We've seen really the fresh department start to reach that point, the grocery department has started to decline but would still be at elevated levels. I think it really ties back to Rodney's comment. Certainly, we would expect to see a continued improvement in unit trajectory to offset some of the decelerating inflation. I'd say we've seen a little bit of that during the first quarter because our ID sales didn't decelerate at the same rate as inflation decelerated during the quarter. Okay, my follow-up question is the, you know, the perception is that Kroger might be losing a little bit of share, at least within certain customer segments, given that Walmart's doing double-digit grocery sales increases. The point that you made is a lot of the price investments or promotional investments that are Kroger's being made this year are being funded by the CPGs. How far is Kroger willing to use its own P&L to fund further investments to confront maybe some market share losses to more price-leading players in the marketplace? Michael, you know, as I mentioned before, if you look at the different customer segments, customer segments that are mainstream and upscale customers, we continue to have strong household growth and strong market share growth with those customers. The ones that we would not be as happy with is our, the, our price-sensitive shopper, shoppers on a budget. One of the things that we've done a lot of analysis on, if you look at our total go-to-market value, when you look at our price, plus, looking at our promotional activity and the way people shop our ads, our rewards programs, our, we used to call them loyal customer mailings, but now they're mostly online. Personalized offers for each household. Our total value equation is extremely close to what the EDLP merchants would be. We just go to market in a different way. Obviously, the customers that are on a budget, that customer is more focused on this week's shopping, and you'll see us continuing to make modifications to make sure that we're able to help achieve and support their weekly budget. Some of that will be in packs, product sizes and other things. It's not just price alone. As you know, we introduced our brand called Smart Way. That's really focused on that entry price point as well. There's a lot of things that's within it, well beyond just the price itself. We've always been very personalized with pricing in terms of doing things for each household individually. Thanks, Michael, for the question. Thank you very much. Keep going. Thank you. Our next question comes from Robert Ohmes of Bank of America. Robert, your line is now open. Please go ahead. Oh, hey, good morning. I think my first question is maybe for Gary. Can you speak a little more about what the FIFO gross margin assumptions, you know, ex fuel, how you're thinking about the puts and takes, at least for FIFO gross margin, ex fuel, for the next, you know, three quarters? You know, just, obviously, just broad brushstrokes, but like maybe some things we should think about in terms of investing in price versus in more promotions and shrink, versus, you know, what would be offsets to that in gross margin? Sure. Good morning, Robbie. I think, you know, as you know, we don't generally give specific guidance by line in the P&L, but I do think if you look at what happened in quarter one, we would see that as a very good proxy for how we think about the rest of the year. From an investment point of view, as Rodney mentioned, continuing to make sure we're delivering value for customers and remaining highly competitive as customers are managing inflation and the interest rate environment. We do think that shrink will continue to be somewhat of a headwind. It's really in the center of the store. I would say that we're the team is doing a fantastic job in managing fresh shrink, but there are a lot of structural challenges right now in center store shrink, as you've heard, I think, from a number of different retailers in the marketplace. Those would be the two big investments that we'd be fully contemplating for the rest of the year. Really the tailwinds are the pieces that we called out in our communication this morning around our Q1 results. It's really a combination of many of the different plans coming together that we've talked about at our investor meetings over the last couple of years. First of all, Our Brands is performing really well as we continue to drive sales growth, mix improvements, and improve the innovation and new products in that area, sourcing benefits and continuing to manage cost and product design really closely. As you heard us mention, we did see Express Scripts as a tailwind to gross margin during the first quarter. That will continue through the rest of the year, although to some extent, the GLP-1 product sales offset a meaningful part of that. It's not necessarily that health and wellness is a major driver of the gross margin rate, but certainly Express Scripts has an impact. We're seeing strong performance in supply chain in the first quarter, and we believe that's sustainable as well for the rest of the year. Of course, alternative profits. As you know, we continue to grow at double-digit rate, our alternative profit business. As we continue to improve the optimizing the KPM business and growing Kroger Personal Finance, we would expect alternative profits to be a continued tailwind to the model. All in all, I think, the best way, I think, to characterize it would be to look at the different pieces that we shared for Q1, and we would expect similar kinda impacts and drivers in the rest of the year as we think about gross margin rate. Got you. Net, net basis up, FIFO, gross margin, ex fuel, you know, maybe similarly to the way it was up in the first quarter? Yeah, obviously. There's always kind of puts and takes at different times of the year, and we're very focused on balancing the model, but directionally, I think you're interpreting correctly. That's right. Got you. That's helpful. Just a quick follow-up in Our Brands. You know, the, do you think Our Brands penetration accelerates from here? Also the, it sounds like you're being more promotional in Our Brands. Does the margin benefit from Our Brands penetration stay the same, or is it sort of, as you promote it more, it has less benefit to gross margin, or is it, you're still gonna net ahead because you're driving more volume? When you look at Our Brands, the margins are typically 600-800 basis points better on Our Brands than national brands. It would have been actually at the high side of that this quarter. If you look within it, and Gary and I both mentioned it briefly, but if you look at Private Selection and some of those parts of Our Brands grew even faster, which are extremely unique products that customers, what we find is they love the uniqueness and the quality of it. It's really the whole mix. Smart Way obviously has a lower margin, but when you look at all the pieces together, we feel good about where we are. We would expect it to continue to be margin accretive for the balance of the year as well. Also, we're continuing to leverage our own manufacturing plants in many places, too, which is helpful. Robbie, just to the first part of your question on what we expect in terms of growth in Our Brands, I think, you know, we don't target specific growth for Our Brands because we really do use our customer-led approach, so that data and what the customer is looking for really drive where the growth comes from in the business. Having said that, typically during a more challenged economic environment, Rodney mentioned it in his prepared comments as well, we do see more customers engage with Our Brands products, and as they start to see the quality and the value, often we find there's a sort of a higher penetration level that occurs during that time. Typically, it stays at a more elevated level even after the economic challenges have dissipated. We're not targeting a specific number, but we do expect that customers will continue to resonate with those products and continue to engage with them at a high level. Great. Thanks so much, Thibault. Thank you. Our next question comes from Ed Kelly of Wells Fargo. Ed, your line is now open. Please go ahead. Yeah. Hi, guys. Good morning. I've got a follow-up to that Michael Lasser. I was hoping that you could quantify the benefit that the GLP-1 drugs are providing to the ID. I mean, it seems material because your pharmacy business is up despite losing, you know, a decent chunk, of that through the Express Scripts issue. Then what are you seeing related to the attachment on the Express Scripts business, meaning the impact to in-store from those scripts exiting? If you look at the second part of your question, it would be extremely modest. It's single-digit basis points, which I'm not comfortable that the data is that precise. Our team has done a great job. I think one of the things that's important to remind people is our pharmacy team has done an incredible job of helping people identify other ways of getting those prescriptions filled through alternative networks and discount cards and other things. That has been a huge positive in retaining a huge percentage of those ESI customers, which obviously flow through too. It's not like you just lose all of that business. What we're finding is in over half the cases, we're actually able to save the customer money versus what they were paying before with ESI. It's worked out. Our teams have done an incredibly great job. Obviously, it's a lot of hard work. On terms of the other drug, the margins on that is extremely small in terms of. It's the sales dollars are a lot bigger than the margin dollars. The margin is basically almost no impact. I don't know, Gary, anything you'd want to add to either one of those? No, I think you covered everything. Okay. Thanks, Ed. Thank you. Our next question comes from John Heinbockel of Guggenheim Partners. John, your line is now open. Please go ahead. Hey, guys. Wanted to drill down on the segments, right? Mainstream, is that about 60% of your business in that ballpark? If you look at how that segment and maybe the upper income are performing, is more of the growth transactions, I imagine it would be, versus items per basket? Just lastly, right on the budget guys, is that, are they comping negative, right? Or they're just not growing as fast as the other two? If you look at, our mainstream, would be a little bit more, than the percentage you suggested. Okay. Our upscale customer, if you look at percentages, the upscale and value customer is about the same. Okay ... but if you look at the profitability, the upscale customer is a lot more profitable than the value customer. We would see a very nice positive in the upscale strong positive in the mainstream, and then negative in the value customer. If you look at in total, as I mentioned, you know, we had a positive household growth in total. Okay. Maybe one quick follow-up. I know you guys do a lot of survey work, right? You talked about the work you've done on value proposition versus EDLP. Is that something that is the work you do that is understood and perceived by customers or not? Perception has not caught up with reality. Yeah, it's a great question, John. What we find is, certain customer segments understand it really well. Other customer segments understand it. If you only have so much money to spend, you really don't have the ability to stock up on something. You know, customers that are more mainstream and upscale, they love, you know, they would tell us that they feel like they're beating the system by fuel rewards offers that are personalized to them. You know, they buy, instead of buying one of something, they buy five of it, so they stock up at a great price. They very much understand the way we go to market. More the customer on a budget. What we're finding is, the customer may understand it, but their budget is such that they don't really have the money to stock up. That's the reason why we introduced Smart Way and some of the other things that we've been doing. Okay. Thank you. Thanks, John. Thank you. Our next question comes from Kenneth Goldman of JP Morgan. Kenneth, your line is now open. Please go ahead. Hi, thank you. You know, one of the reasons there's some anxiety among investors about the whole industry is that, you know, deflation, I guess, evokes memories of 2016, 2017, 2018, when, you know, ID slowed, but also, you know, gross margins, ex fuel, struggled, not just for you, but for others. It's great to see that this past quarter, right, deflation or disinflation, rather, didn't correspond with that kind of decline. The gross margin was up. What's different this time that gives you confidence in your ability to kind of maintain profitability and margins into this disinflationary environment? I know last time was deflation, and you're not calling for that, so maybe that's the answer. Is there also an element that the competitive environment just isn't as intense now as it was back then? I'm just trying to get your sense of, you know, how different it is to be a grocer now than it was back then, and how the world has changed in terms of competition. Yeah, I guess I would always hesitate to ever say that it's not as competitive, because when you're in the middle of it feels massively competitive every day. You know, I guess I don't look at that as a negative because at the end of the day, the customer gets a better experience and a better value. It's our job to figure out a way to grow our business and create value for all the important groups in terms of being able to invest in wages and giving a great value for customers and then creating good value for shareholders as well. You know, that combination, like, for us, it's one of the reasons why we think it's so important to continue to look for process changes and other things to get costs out of the business, and we will achieve, we expect to achieve over $1 billion of cost reductions this year, and that will be the sixth consecutive year that we've done that. If you look at our importance of our alternative profit business and growing that, and other elements and the growth in terms of more prepared type products and products that have value add items, those are things for us that give us confidence in the long-term sustainability of our model and gives us the capacity to continue to invest in wages and continuing to invest in great value for customers. It's really the total ecosystem that we're focused on. I feel much better about our total ecosystem today than, you know, 2016, but I feel comfortable that in three or four years, we'll say the same thing and then versus today, because we'll continue to get better and better, and our customers get the benefit of that. Our associates get the benefit of that. Gary, looks like you want to say something. Just one thing I would add, Rodney, I think you said it really well around we've obviously built, I think, a more diverse business model now when you think about alternative profits and the size of fuel and health and wellness alongside the core supermarket business. The only other thing I would add, Ken, is I do think through COVID, I know I've mentioned this on previous calls, but just the% of customers that now start their shopping online, whether it's through a tablet, through their phone, through a PC, it does give you significantly greater ability to personalize the value to the customer. I think you can channel the investments in a far more effective way than you could have done, for example, five to eight years ago. Obviously, we feel we're in a very good spot to be able to do that most effectively because of the power of our 84.51° data science business and how they can truly use customer information to help save money and save time for the customer. Great. Thank you. Thanks, Ken. Thank you. Thank you. Our next question comes from Kelly Bania from BMO. Kelly, your line is now open. Please go ahead. Hi, good morning. Thanks for fitting us in. Good morning. I'm sorry if I missed this, but. Good morning, just wanted to maybe unpack just the magnitude of this, the health and wellness, outside of the Express Scripts. That sounds like it's coming in line, but the GLP-1 impact on just the total comp and the total transactions for the quarter and what is in the plan for the rest of this year at this point? Are you planning on this kind of health and wellness momentum to continue through the rest of the year? Yeah, as I mentioned before, the impact on sales is a lot more than margin. The margin on that product is, you know, very marginal. You know, the thing that I think our teams have done a great job on, and they've actually delivered, is the number of customers or patients, and that we've been able to retain that had ESI and through the discount cards and other things, that we've been able to retain those. If you look at for the balance of the year, we would expect the GLP-1 type drugs to continue. Remember, the impact on profitability is pretty narrow. I don't know, Gary, anything you want to add to that? I think you said it well, Rodney. Certainly for us, Kelly, because of the PBM change, you know, it may not have been as dramatic for us as some others have shared, but it certainly would have been a tailwind during the quarter on sales, as Rodney mentioned. Really, if you look at the gross margin impact, it eliminated much of the benefiting gross margin rate that we saw from Express Scripts. That's helpful. I guess just maybe one more follow-up. In terms of the budget-conscious consumers that you talked about, and the comment that they're really prioritizing shelf prices, can you just elaborate on what's happening there? Are they not valuing the total rewards and the personalization and everything that you can offer your consumer? Does that make you think about communicating with them in a different way, your value, or changing your strategy and how you connect with that customer segment? Yeah, we would certainly be modifying the way we connect with that customer. If you go back a few months ago, that's the reason we introduced Smart Way, and we continue to expand that, where the focus of that brand is more of an everyday price position. We'll promote it, but not as aggressive as other things. We've also focused a lot in terms of making sure that we have entry price point items for that customer on things that are most important to them. You know, those are things where we are modifying, you know, how we merchandise in a store and some of the products we offer to that customer, and we're leveraging our own plants as well for that customer. Thanks, Kelly. Thank you. Our final question for today comes from Rupesh Parikh from Oppenheimer. Rupesh, your line is now open. Please go ahead. Good morning, and thanks for taking my question. I just wanted to go to the. Good morning. - to the promotional backdrop. Just curious, you know, on the promotional backdrop, what you guys are seeing today, expectations for the remainder of the year. As, you know, supply is improving, I'm guessing there is also normalization where CPG players would just be more promotional and fund more promotions. Just wanted to get a sense of what may be normalization and then, you know, what could just be driven by a more competitive backdrop. Yeah, from my perspective, and Gary, if you disagree, just say so, but I think it's much more supply-driven and access to supply. I say that because there are still a few categories that are constrained and you don't see as much. The, you know, the CPG companies, the supply chain in most categories are back to normal. I think there's probably 3 or 4 areas that it's not. It, you know, it's more in terms of how things were before COVID. People are coming to you with offers. We're looking at those promotional offers in terms of how will customers react to them, and it's really, I would say back to the way it was before COVID, in terms of probably by far the majority of it's that, as opposed to just being a more promotional environment. Great. That's helpful, Collin. Just on quarter date trends, I'm not sure if there's any commentary to provide in terms of what you guys are seeing quarter to date. Yep. Quarter to date, IDs would be kind of in the middle part of the range that Gary talked about, in terms of identical, so that's where we're tracking so far. Thank you. Thanks a lot. Thanks, Rupesh. Appreciate it. Thank you all for the questions today. As always, before we close, I'd like to share a few comments directly with our associates listening in. In May, we celebrated Kroger's longest-serving associate, Mary Tennant, who has worked at our Moundsville, West Virginia store for 65 years. Mary, at 85 years young, loves her fellow associates and her customers, and she plans to keep working at her store. If you have a chance to watch Mary's video, you'll understand why I said 85 years young. We can all aspire to have that attitude and that just, chippiness and funness at that age. Mary is in a great example of coming to Kroger for a job and discovering a career, and she's worked in almost every role at her store. Congratulations, thank you, Mary, on this impressive milestone and your recent birthday. We are so happy you picked Kroger to build your career with us. I hope everyone has a fantastic summer, thank you for joining us today. That concludes the call. Thank you all for joining today's call. You may now disconnect your lines.