The Kroger Co. (NYSE:KR) Q2 2016 Earnings Conference Call Transcript

Sep 09, 2016 • 10:00 am ET

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The Kroger Co. (NYSE:KR) Q2 2016 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good morning, and welcome to The Kroger Company Second Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kate Ward, Director of Investor Relations. Please go ahead.

Executive
Kate Ward

Thank you, Laura. Good morning, and thank you for joining us.

(Forward-Looking Cautionary Statements)

Both our second quarter press release and our prepared remarks from this conference call will be available on our website at ir.kroger.com. 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. Thank you.

Please save the date for our 2016 Investor Conference, which will be held in Cincinnati on November 1 and 2. Details will be coming soon, and we hope that you can join us.

I will now turn the call over to Kroger's Chairman and Chief Executive Officer, Rodney McMullen.

Executive
Rodney McMullen

Thank you, Kate. Good morning, everyone, and thank you for joining us today. With me to review Kroger's second quarter results is Executive Vice President and Chief Financial Officer, Mike Schlotman.

Our core business remains strong in the second quarter as we continue to increase market share, improve tonnage and grow loyal households. As we often say, we are focused on the long-term performance over a three to five-year horizon. We have the right strategy, the right people and the financial flexibility to execute our strategy, which allows us to continue investing in our associates, our business and grow market share.

By remaining focused on our strategy, we create long-term value for our shareholders. An example of staying on our strategy is continuing to add hours to support tonnage growth in a deflationary environment. This increases our cost as a rate of sales, but without this investment, the shopping experience, an important element of our Customer 1st Strategy, would be negatively affected.

The transition from inflation to deflation creates a difficult operating environment. We estimate that we had deflation without pharmacy of 1.25%, including 1.5% deflation in the grocery category. I want to stress that we've been through economic environments like this before.

In 2009, we transitioned from inflation to deflation in a very similar way. Of course, in 2009, we also had a much more difficult macroeconomic backdrop. Even though the current environment is volatile, we are confident that we will navigate today's challenges and continue to deliver value for our customers and shareholders.

While we've revised our identical supermarket sales growth and net earnings per diluted share guidance for the year, our growth objectives are on a three to five-year rolling cycle, and we remain confident in those targets. We are in this long-term range run and not a 12-week cycle or particular year. We have demonstrated our ability to invest at the appropriate times to create momentum when the