The Kroger Co. (NYSE:KR) Q3 2016 Earnings Conference Call Transcript

Dec 01, 2016 • 10:00 am ET

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The Kroger Co. (NYSE:KR) Q3 2016 Earnings Conference Call Transcript

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Operator
operator

Good morning, and welcome to the Kroger Company Third 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 Mike Schlotman, EVP and CFO. Please go ahead.

Executive
Michael Schlotman

Thanks. Kate couldn't be with us here this morning, so I will wish you the good morning and thank you for joining us.

(Forward-looking Cautionary Statements)

Both our third 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 yourself to one question and one follow-up question if necessary. Thank you for that.

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

Executive
Rodney McMullen

Thank you, Mike. Good morning, everyone and thank you for joining us today. To start, I want to say how -- that I'm proud of our associates for their continuing objective and connecting with our customers in a very difficult operating environment. Their efforts helped us grow both total households and loyal households during the third quarter.

As expected, deflation persisted during the third quarter. And as we've said before transition periods create a difficult operating environment. This is the third time we've had deflation in 30 years, and in previous instances deflation lasted from three to five quarters in a row.

We are in the middle of the cycle right now and it's not fun. Still our tonnage continues to grow. Our total market share continues to expand. And we are focused on executing our strategy.

A silver lining of deflationary environments is that it reveals to us how we can run our business better, by shining a light on areas we can improve. It is really tough when you are in it, but we'll be in a position to benefit from changes we're making today once we're out of this cycle.

We are firmly focused on our long-term strategy of improving our connection with customers and associates, and continuing to work on process changes to lower costs. We don't change our strategy based on quarterly swings in results.

We remain committed to delivering our long-term earnings per share growth rate target of 8 to 11% plus an increasing dividend on a three to five year time horizon. We will continue to try to win every customer meal by driving our strategy and reacting appropriately to the environment.

Looking at the broader economy and customer shopping behavior, what we're seeing is mixed. Typically, our data shows our customers' economic concerns mirror what they see in the headlines. For example, health care costs continue to be a worry for customers.

Consumer confidence retreated during the quarter, with customers telling us they expect the economy to get worse in the next three months. It's important to