Hello, and welcome to the Kroger Co. First Quarter Earnings Call. My name is Alex, and I'll be coordinating the call today. [Operator Instructions] 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. [Operator Instructions] 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 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 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 0 compromise. Rising inflation, as 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 #1 determinant of where to shop. We are meeting their needs with operational efficiencies and new technologies that extend days of freshness and…

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 Brands 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 write-down 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…

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.

[Operator Instructions] Our first question for today comes from Robby Ohmes of BofA Global Research.

Guys, great quarter. My question is, I was wondering if we could get a little more color on the ID sales. So maybe thoughts on what your -- the traffic component of that, what you're seeing in traffic, the ticket component and maybe specifically the inflation component in the ID sales. And then sort of along with that, some of your competitors that sell groceries and food and beverage are seeing very strong sort of double-digit same-store sales. Is the price spread versus your competitors widening because of the price investments you're making?

Thanks, Robby, and good morning. If you look at -- in terms of traffic, the 2 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 a 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-sized general merchandise business that affect it as well. And the comment that I made in the prepared comments, if you look at our fresh departments, they were up over 5%. So 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. And then 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. And 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 has been the case over the last couple of years. I don't know, Gary, anything you want to add?

I think you covered it well, Rodney. The only other point you mentioned around total households and loyal households growing, we also saw visits improving during the quarter as well, Robby, which was -- we were really pleased with that trend as well.

Our next question comes from John Heinbockel of Guggenheim Partners.

Yes. So let me start with our own brand, right? So it looks like own brand is probably growing 2x the rate of national brand. I'm curious, price spreads there, so maybe, Rodney, talk about that. Where you think own brand momentum goes from here? And I know historically, right, you guys have always said that own brand strength leads to increased CPG promotions. Do you think that will be true this time?

Yes. 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 and then Home Chef is our most recent owned brand. The -- that growth has been strong across all components. The only exception of 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, 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. And 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. We -- if you look at our leadership team, our -- we've gone and really upgraded our leadership team in terms of our focus on our brands. And for us, it really is -- we look at it the same as a national brand. Our customers do. And as I mentioned, over 90% of our customers include it in their basket. So 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. So 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. But if they're supply constrained, I would be surprised. And 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.

A quick follow-up to that. Forward buying, right? Normally, a big P&L benefit in inflationary times. It sounds like today, it's limited, right, because of their capacity constraints?

Yes. We do -- the excess warehouse space that we took on as part of COVID, a lot of that space, we've continued to keep. And I would say we're using that space to be able to get product when we can get it. So I think a lot of the CPGs are using it to level out production. So when they have excess production, we're taking that. And it, in essence, becomes forward buy, but I don't think it will be as big as it's been in past situations.

Our next question comes from Simeon Gutman from Morgan Stanley.

I'll ask my question and follow-up, one shot here. First, Rodney, I want to 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. And even Walmart mentioned 1.5 weeks ago they're not getting in too aggressive on price. I want to ask you, now that the consumer basket or consumer behavior is starting to change, might this environment change? Do we think -- do you think we're at a new normal in terms of promotional activity? Or do you think this is -- yes, I don't want to put it like a house of cards, but it feels like everyone's kind of playing nice and something can break.

Yes. 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. And what we find is it's the most important reason why somebody decides where to shop. And 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. So when you look at it, we think price is just one component. We're going to make sure that we always maintain a reasonable spread in 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 going to win in the marketplace. And we expect that to continue to be important in every imaginable environment going forward. So 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.

Our next question comes from Spencer Hanus of Wolfe Research.

Can you provide some more color on the FIFO adjusted gross margins in the quarter? Because it looks like that slowed sequentially. And then you said your price gaps are well positioned, but do you think you're going to 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?

Yes, thanks for the question. Yes, I'll cover that, and Rodney can add any additional color he'd like to. Generally, our gross margin rate was in line with our expectations for the quarter. As you heard us share, we had 2 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 fully expected during the year. Overall, we feel like we were right in line with what we expect it 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 going to 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. We don't call out all the puts and takes in the quarter. And things like COVID vaccines would have been a tailwind last year, that wouldn't have been a tailwind this year. So I think there's a lot of extra moving parts in there. And 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. But 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…

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. And obviously, our teams did an incredible job of managing OG&A costs. And we always will invest some of those OG&A savings in trying to extend the customer's budget, especially in an environment like this where it's important. And I think some of those reasons are the reasons why our customer counts have improved as well.

Our next question comes from Karen Short of Barclays.

I have a couple of questions. I 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. So it certainly implies demand destruction from a volume and tonnage perspective. So wondering if you could talk about that. And then specifically on your full guide, obviously, we came back into the FIFO guide for operating profit for 2Q to 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%. So wondering if you could triangulate those 2.

Sure. Thanks, Karen. Yes, I think the first part of the question would be, as I mentioned it a moment ago, around we look at the guidance for the rest of the year. Our overall outlook for inflation is that we do expect inflation is going to 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 all of us 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. But 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. So we're currently assuming inflation in the second half as a headline rate maybe a couple of percentage points or so lower than the first half of the year. So we're actually -- if you think about our sales guidance, we are assuming that we 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, but 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 look at both internally and externally. And 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, our overall EPS guidance, if you kind of 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. And as I mentioned, whereas fuel would have been a tailwind in the first quarter, it will actually be a headwind for the rest of the year. So 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 carryforward 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 Q2 and Q3. But again, I wouldn't think of that as being a major headwind on what -- so that was probably a bigger factor in Q1 as any quarter. So I wouldn't think of the gross margin performance that we saw in the first quarter of the year as being dramatically different expectation in the remaining quarters based on the impact of vaccine and other factors.

Our next question comes from Rupesh Parikh from Oppenheimer & Co.

So I just want to go back to grocery market share. Just want to get a sense of how your markets are held up in the grocery category. And I guess related to that, it sounds like the general merchandise category had some headwinds. So just wondering if that contributed maybe to the weaker ID performance.

If you look at 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. Our general -- if you look at our identicals in total, without general merchandise, it would be pretty similar to where the fresh IDs were. And the general merchandise, obviously, households are starting to change their behavior on shopping and it shows up there. And obviously, some of the savings and things that customers had from not being able to spend money on service as well is showing up there. So we are making progress on market share overall and would expect to continue to make marked improvements as we go along in the year.

Great. And then 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. Yes. 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 3 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 would be relatively consistent if you think about the next 3 quarters. So I wouldn't call out any dramatic year-over-year variance to that overall. And then 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 basis, 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.

Our next question comes from Edward Kelly of Wells Fargo.

I wanted to go back to the question on -- I want to go back to the question just on tonnage and underlying unit volume. Rodney, I think when we were sort of all looking at this quarter, I think we would all, on the investor side, agree that we probably thought your ID would be better given the trends that we saw in inflation. And I'm kind of curious as to what you are seeing in underlying tonnage. And then you talked about, I think I heard you right when you said that basket is down despite that backdrop. So I'm just kind of curious as to what you're seeing on like that side. And do you think any -- are you seeing anything that is being caused by changes in consumer behavior, right, whether that's sort of like channel shifting, seeking value, that type of stuff?

Yes. If you look on the basket size, that's driven by units per basket. And what we're finding is customers are coming in more frequently before but they're not buying as many items on each shop. And that's what we're seeing. We're also seeing customers, especially customers that aren't as sensitive to their budget, upscaling with or buying bigger packs, especially earlier in the month when -- depending on when people were getting money. So we continue to see both of those dynamics. If you look at the fresh departments, the trends there would be better than the overall. The -- if you look at overall units, we -- for most of the CPG partners, we would be tracking pretty similar to where their unit changes are overall in the marketplace in -- if you look at our top 25. I don't know, Gary, anything you want to add to that? And I know you're pulling up some...

Yes. Well, I think just to clarify maybe the comment we made, the total basket size is actually up. It's the number of units in the basket that are down. So 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 start to manage the inflationary environment. And that's obviously a focus area for us to use data personalization and different tools around rewards to really aim to continue to drive that up. And 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, then our guidance reflects the expectation that we continue to make progress on that front.

Okay. And then 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 the year-over-year decline? Or did you mean multiyear? Just kind of curious as to what you were talking about there.

Yes. I wouldn't want to 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. I'm really saying that when you think about Q1, I think there was some concern that the PPE write-down was somehow need to be reversed out and that would be the trend that we're seeing in terms of gross margin rate. So 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 as significant as we've seen in the past. And as I mentioned, the PPE is really one of a number of puts and takes. But because we called it out last year in the first quarter, we didn't want to not clearly mention it again in the current quarter, but I wouldn't see it as a major factor. And so it was related to Q1 was the -- that's the kind of directional shape of gross margin, which is, I think, consistent with what we shared when we gave our guidance for the year.

Our next question comes from Michael Montani from Evercore.

Just wanted to ask, first off, looking at food-at-home inflation, it looks like it was up just about double digits for your quarter calendarized. And if we adjusted that, given your gen merch mix a little bit, maybe it's a point or 2 below. But just wanted to see, is that kind of the right way to think about what you might have been able to pass through to the consumer given that PPI is so much ahead of those levels?

Yes. I always think it's important to look at CPI and PPI together. And 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. So if you think about, in some cases, a national brand item may cost $3 and Our Brand might be $1 or $2. So 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 on -- when you look at Our Brands overall, our gross margin's about 600 basis points better than the national brand. And if you look at profit per item, it's similar or, in many cases, actually higher. So 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. And if you look at like in pork, as an example, customers aggressively moved to pork during the quarter. And some of that movement was at the expense of people not buying as much beef because it's a great value for the money, as an example. So you have -- within all the data, you have a lot of customer behavior changes. But I think it's helpful directionally, but not exactly.

Okay. And then for a follow-up, if I could, was just around the $1 billion plus of gross cost savings. I was just wondering if that would be kind of metered 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.

Yes. The $1 billion of savings would certainly be sort of an ongoing flow of initiatives. So certainly think about it as being consistently sort of building from -- so we've got a certain number of benefits from last year that flow through, and then we're introducing new initiatives this year. So because we're on this 5-year journey, $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. So 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. So I wouldn't think of the OG&A rate improvement that we saw in Q1 as being typical for the year. But we do expect to continue to see OG&A rate in the year being an improvement and a tailwind for the year.

Our next question comes from Michael Lasser of UBS.

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 and improving leverage up high single, double digits. There's a perception out there, Rodney, that Kroger lost market share during the period. Why would that have been the case? And you 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 comparison. And I know some of the competitors don't break out specific by category. And 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 at during the quarter, our trends improved as we went along during the quarter. As Gary mentioned, 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. So those are the things that give 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.

Yes. The only other thing maybe I would add, Rodney, is that the comments we made, Michael, about digital growth and the expectation that 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 that 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.

And 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 going to increase. And 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 budget a little further. So in response to that, what is Kroger going to 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. Yes, 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 described them, actually views Kroger as a high-quality place to get more value compared to maybe shopping a larger number of stores, and 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. So we see that as an opportunity for us to really connect with that customer as they start to maybe determine the best place to shop for quality and value combined.

Our next question comes from Kate McShane of Goldman Sachs.

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? And 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 Brands so it's 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. And 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 going to always push back on any type of cost increase that's not justified. And we're going to 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 are we doing versus competition or competitors. I'm super proud of our procurement team. As Gary mentioned earlier, one of the big component on the cost saves is renegotiating both things not for resell and resell [ both ]. So 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.

And 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? And 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 3 test regions?

Yes. If you look at the test regions, it would positively affect our identicals. And the thing that's most important to us is it causes that customer to be stickier to our overall ecosystem, not just on delivery. So -- and our strategy is that if a customer thinks food, we want them to think Kroger. So we feel good about where we are and it's continued in the right direction.

Our final question for today comes from Chuck Cerankosky from Northcoast Research.

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. So where is the negative numbers coming from? And how are the -- how is the Ocado-based facilities performing?

Yes. Thanks, Chuck. If you look at -- pickup would be the area where we would have the biggest decline. And what -- as I mentioned, what we're finding is that customer, 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. And if you look toward the end of the quarter in the recent few weeks, our performance on year-on-year for online has actually turned to positive. So 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. So thanks, Chuck.

And then on the increase in working capital dollars spent during the quarter, does a lot of that simply reflect inflation? Or are you -- is Kroger, in fact, getting more aggressive on forward buying or just trying to grab stuff when it's available?

Chuck, yes, 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. And of course, inflation would have also impacted that number as well, but nothing out of the ordinary.

Thank you for -- to everyone for joining us today. I am incredibly proud of the way we are beginning in 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 weighed 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. And 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.

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