Good morning, and welcome to The Kroger Co. Fourth Quarter and Full Year 2024 Earnings Conference Call. Please press star followed by one on your telephone keypad. If you'd like to remove it, you may press star followed by two. Please note this event is being recorded. I'd now like to turn the conference over to Rob Quast, Vice President, Investor Relations. Go ahead.

Good morning. Thank you for joining us for The Kroger Co.'s fourth quarter and full year 2024 earnings call. I am joined today by The Kroger Co.'s chairman and chief executive officer, Rodney McMullen, and interim chief financial officer, Todd Foley. 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 Co. 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. I will now turn the call over to Rodney.

Rob. Good morning, everybody. Thank you for joining our call today. Before we begin, I'd like to just share a few comments. The Kroger Co. has always been committed to its enduring values. This has been true for The Kroger Co. since my first job in the summer of 1974 working in the Fort Mitchell, Kentucky store. In many ways, I grew up at The Kroger Co. Working summers in college, and then full time for ten years. Following business school, I've held various roles in stores and in manufacturing, human resources, marketing strategy, and sales. The Kroger Co. has really been a special place throughout my career in retail. And I'm just as proud to be a Kroger associate today as I was then. I will be serving as the interim CEO as we search for a leader for our next phase of growth. The board has formed a search committee and has engaged a nationally recognized search firm. We look forward to updating you as we have more information. As a board member, I know The Kroger Co.'s strong leadership team well. And they support the unique culture that powers the company's long-term success. We care for people, and we love food. Most important elements of successful grocery retail. Today, The Kroger Co. operates from a position of strength. We delivered strong financial results in 2024 and have positive momentum in our business. We're confident in our plans for 2025, and our commitment to deliver total shareholder return of 8% to 11% over time. I will be especially focused on executing with speed, and confidence, keeping our teams working toward the priorities that create long-term growth. We're delivering on our go-to-market strategy, providing families across America with fresh and affordable food. In my retail career, I understood that an outstanding customer experience comes from best-in-class store conditions, friendly associates, and great products at low prices. That's who The Kroger Co. is today. And that's who we will be tomorrow. I'll turn the call over to Todd to recap our 2024 performance, and how our value creation model allows us to deliver on our goals. He will then recap our financial results for the fourth quarter, and full year 2024, and then cover 2025 financial guidance. Todd?

Thank you, Rodney, and good morning, everyone. The Kroger Co. achieved solid results in 2024, demonstrating our value creation model strength and diversity. Our performance improved as the year progressed, and our momentum positions us well for growth as we head into 2025. Offering fresh, high-quality products with personalized offers through a unique seamless shopping experience led to strong customer engagement trends, including growth in both households and loyalty. As a result, we are growing sales and generating traffic, which accelerates growth opportunities in other areas including alternative profit businesses. We are confident in our ability to build off this base from 2024 and deliver growth in 2025. Before we get to 2025, I'd like to start with a recap of last year. Beginning with our customers. We saw customers adjust their spending habits, responding to ongoing macroeconomic factors. The effects of multiyear inflation and higher interest rates pressured spending from budget-conscious households. Meanwhile, spending from less budget-conscious households was more resilient. And our most favorable household trends were driven by our core mainstream customers. Our go-to-market strategy positioned us well to meet our customers' needs, growing households and enhancing loyalty. We helped customers save in multiple ways, through fresh, affordable products and promotions, including loyalty discounts, personalized offers, and fuel rewards. And also through our brands' products, which are priced well below national brands at equal or greater quality. Our focus on operational excellence through our full fresh and friendly strategy brings our strategic pillars to life, meaning our customers can have value, selection, and convenience. We will continue to improve our customer experience to drive traffic, and increase volumes because it powers our value creation model and is critical to our long-term success. Fresh is one of the primary determinants of where customers shop. And we continue to…

Thanks, Todd. As you heard from us today, The Kroger Co. operates from a position of strength. And I'm very optimistic about our future. We delivered solid results in 2024, and our performance improved throughout the year. Looking to 2025, we have aggressive plans to build more stores, and improve our share results. Attract new households, and increase loyalty which will accelerate growth and create shareholder value. We continue to have a strong balance sheet, which positions us well for the future. Allowing us to invest in our business for growth, while remaining disciplined on returning cash to shareholders. Given our ongoing search for a CEO, The Kroger Co. has postponed its planned Investor Day in April of 2025. We will update investors at a later date it has been rescheduled. In the interim, The Kroger Co. remains committed as always to being accessible and updating you on our strategic priorities. Before we open up for any questions, I want to take a moment to welcome David Kennerly. He'll be joining us next week he will succeed Todd as chief financial officer on April third. David is joining us from PepsiCo Europe. And brings broad and extensive financial experience. We're confident that David's expertise and leadership will help us to continue to deliver on our strategic and financial priorities. Now open it up for questions. And as you might imagine, Todd will handle questions related to strategy and results.

Thank you.

Please limit yourself to just one question at a time. Thank you.

Our first question for today comes from Simeon Gutman of Morgan Stanley. Line is now open. Please go ahead.

Thanks. Good morning, everyone. So my question is at the highest level. If you look at the 2025 guidance, it looks like EBIT is expected to grow in the low single digits, 2% to 3%. Within that, can you share how much is coming from the core business versus alternate? And then one follow-up. I don't know if we're able to ask Rodney questions, but good to hear from you, Rodney. I wanted to ask as you and the board approach the succession of CEO, you're obviously sitting on a treasure trove of great operators within the organization. How are you looking at an outside perspective? Because the traditional supermarket channel, not just The Kroger Co., has had mixed market share results over time and it's obviously becoming more complex and the stakes are growing. So thinking about looking at outside talent versus the treasure trove of folks that you're sitting on internally.

Yeah. Thanks, Simeon. Appreciate that question. So I'll let me let me talk about the guide first, and then I'll turn it over to Rodney, for your CEO succession question. Yeah. We have operating profit growth estimates. You look at the middle of the range, it's it's you're right. It's probably in the 3% range, and we see growth both from the core business and from our alternative profit business. Again, we talked in the comments where we didn't quite hit our expectations for alternative profit, but we do expect that to continue to contribute back in advance of what we saw in 2024 next year. But Rodney alluded to it. I alluded to it on the call. We do have momentum in our core business and do expect solid growth in our operating profit to come from the core part of the business. It's across the store, both center store, Pharmacy, we expect a little bit of growth and alternative profit to contribute to that as well. So, Rodney, I'll turn it over to you.

Hey, Simeon. Great to work with you again. I'll tackle the succession planning question. Just to give you a little of the background, the board updates our specs for CEO every year. It's just part of our annual succession planning process. The reason we do that is because, you know, our business changes every year. And the, you know, environment we operate in changes every year as well. So we are in the process of updating that again. And in terms of the process, the board has formed a search committee. We have begun the search process. We have hired a nationally recognized firm. We are going to be looking at both internal candidates as well as external candidates. But I think most importantly, you know, we're focused on identifying the right leader to drive The Kroger Co.'s growth and enhance shareholder value. You know, I am proud to serve in this role, for as long as needed. But I am absolutely confident that our board will select the right next CEO whether from inside the company or outside.

Thanks, everyone. Good luck.

Thank you. Our next question comes from Leah Jordan of Goldman Sachs. Line is now open. Please go ahead.

Good morning. Thank you for taking my question. I just wanted to dig into digital a little bit. It sounds like it continues to be a strong channel for you and profitability improved notably this quarter. You know, just looking a bit longer term over the next couple of years, seeing if you could provide more detail on the path of improvement from here. And I guess how much more can lower costs in the retail media growth that seems to be accelerating here can offset other ongoing investments you're making, like price investments in the channel.

Yeah. Thanks, Leah. I'll start with the digital piece. Again, and you're right. We were really pleased to see the sequential improvement in our profitability in the digital channel. In the fourth quarter. And it was really in in in of the key elements. We saw it in in pickup. We continue to make progress in improving our cost to serve, within our stores, and we also saw it in in the delivery channel. We've talked a lot over time about some of the things that we're doing inside our sheds and in the last mile relative to our sheds. In conjunction with Ocado and working with them to improve that. And so again, we saw it in in both spots. We're not where we want to be. We've alluded to that. We're not where we need to be. But I think the green shoots that we had seen prior to the quarter and the progress we made on those during the quarter I think puts us on a trajectory that if we can maintain that consistently, and string a few quarters together, I think that'll help help get us where we want to be over the long term. So again, we're encouraged, and I think we're on the right path to string a few of those quarters together to be long term. Your other question, if I caught it correctly, was around how we generate value in the business to continue to be able to invest. So we've talked a lot about the levers that we have and the way we go about our strategy. We have as many levers or probably more levers today than we've ever had to try to drive that value in the business. We talk about margin enhancement, initiatives like alternative profit. And again, the consistent, meaningful growth that it provides. Our brands is a margin enhancer, and particularly in this environment, around all customer cohorts are looking for value. We've talked about how successful that has been for us over the last several quarters. And we continue to find opportunities in productivity in all elements of our business. There's productivity in store, but we're such a vast business with so many opportunities, whether it's in our supply chain business in the DCs or transportation. We continue to unlock opportunities to create that value, and that's essential to our model. To be able to invest in price, and to continue to invest in associates. And so every year and 2025 is no different than the years in the past. Our level of investment in both prices and associates is pretty consistent with what we've seen year to year, but that commitment remains because it's essential. To be able to deliver key prices to our customers and invest in our associates. Our associates are the ones that deliver that amazing shopping experience and connect with those customers in all realms.

Great. Thank you.

Thanks, Leah.

Thank you. Our next question comes from Michael Lasser of UBS. Good morning. Thank you so much for taking my question. Been too long. My question is that if we look at your ID sales guidance for this year, you're basically assuming that volumes are flat to probably even down given that your inflation expectation along with what will likely be outperformance from your health and wellness, business due in part to GLP one. So a why is that? And b, Rodney, is there anything that you can do now that you're in the CEO seat to address maybe some of the shortcomings of the business that you observed as a board member? And just a quick logistical question, Todd. Is driving EPS to be flat year over year in the first quarter. You very much.

Right. Yeah. Michael, let me touch on those. I think I can hit on each of the pieces that you have. The ID guide I think you have, fundamentally have the pieces right. When you look at our inflation expectations for next year and relative to volumes. When you look at the whole year and think about it flat to maybe slightly up, I think that's the right way to think about it. Obviously, coming into the year, we're still slightly negative, but we're driving off what's been continued sequential improvement quarter to quarter, and that trajectory is why. We expect that during the year, we'll flip that over to positive. So I think the combination of those two you think about the business without pharmacy, it gets us to nice growth in the core business. And then when you do layer pharmacy on that, I think that's what puts us right into the middle of the range. So I think you're thinking about those pieces consistently. And then I'll talk too about quickly the flat in q one, to that part of your question. Really, what we saw in q one, it was a couple of things. One, we had some OG and A items when you look at a year-over-year comp. That is really driving that. There were a few there, but the biggest I think, to call out is around some union pension relief that we had a year ago. Where we had almost, like, a pension holiday last year. We're now back to more normal cadence of union pension expenses, and so we're kinda back on our normal case. And I think that's a piece of it. Again, there were a few other puts and takes around that, but I think that's when you looked at that and if you go if you did apples and apples on that, I think the growth that we have in the first quarter would be similar and approximate seeing for the rest of the quarters.

And Michael, great to talk to you again. Great to work with you also. You know, at this point, you know, our 2025 plans are really nailed down. They've been approved by the board. We spent a lot of time in January as a board going through the strategy. And I can assure you at this point that The Kroger Co.'s go-to-market strategy remains unchanged. Will remain focused on creating long-term shareholder value, and on a more personal basis as CEO, I'm going to be focused on making sure our experience and our really talented management teams, and I've really seen that are able to continue to execute with clarity, with speed, and with consistency on those existing strategic objectives. But, Michael, you know me for a long time. I certainly don't plan to be a status quo CEO. But on the other hand, our plans are really solid for 2025, and I'm looking forward to being a part of that.

Thank you very much, and good luck.

Thank you. Our next question comes from John Heinbockel of Guggenheim. Your line is now open. Please go ahead.

Todd, a couple of things on digital. You when you think about growth going forward, particularly in 2025. Do you think it ends up being very similar to 2024 in total, and in delivery? And then when you think about improving the losses, what are the biggest bucket or two, right, is throughput through the sheds. How do you look at that versus delivery density? Right. I think those are two of the biggest buckets. And then lastly, right, when do you know, when do you guys think about you'll be at a place where you want to reaccelerate shed openings you know, from a profit standpoint, that you can now go ahead and do that.

Yeah. Great questions, John. Appreciate that. Yeah. When you look at 2025, we do expect to see continue to improve in 2025. And, again, particularly, given with the results we saw in the fourth quarter, that's nice momentum going into the year. And when you really talk about whether it's throughput in the sheds, or delivery density, I think it's a little bit of everything. You know, we've talked a lot about there are a lot of pieces of that puzzle that we're working to get better. And every single piece of that is contributing. And again, what we saw in the fourth quarter. There wasn't one magical there wasn't just cost to serve. It wasn't just the last mile. Every single piece of the puzzle continues to incrementally improve, and that's what we're seeing deliver. So over time, it's that trajectory. You know, I think we have several quarters to string together that look like the one that we had. We've talked about sheds. Until we get profitability to where we need it and where we expect it to be, one, and two, what comes along with that is making sure that when we open, the next shed, we're able to do it at a volume level that enables us to hit the ground running. I don't think that was always the case when we opened sheds in the past. So the combination of starting in a volume that matters and at a scalable level of profitability based on what we've been able to execute in our existing sheds I think that'll be the point in time when we get there. Again, I don't think it's imminent, John, but I think it's something that we have momentum towards and that we continue to work towards. Those will be the key factors that we look at in determining when we open that next.

Thank you.

Thank you. Our next question comes from Michael Montani of Evercore ISI. Line is now open. Please go ahead.

Yes. Hi. Good morning. Just wanted to see if you could unpack a little bit more the ID sales in terms of traffic versus ticket. What kind of inflation did you have in the quarter? And then also on GLP one, how much of an impact was that on ID sales?

Great. Thanks, Michael. And I presume it sounds like you're referencing back to q four. I think when we look at q four, I think we had contribution from both ticket and traffic during the quarter. And it might have skewed a little bit towards the ticket side of it. We did have a little bit of a tick up on the inflation side, but I do think both contributed to that. And GLP one, I think, you know, we haven't quantified what that looks like relative to GLP one, but I think there's been some talk about what the industry impacts have been on that. And I think our experience has been very similar to what others have talked about.

Should we be thinking inflation at food at home levels of close to two, absent any more detail?

Yeah. I think we talked about in the script, Michael, about 1.5% to 2.5% inflation next year. And if you peel that down maybe one layer, there are certainly some key commodities or categories where you're seeing some outside inflation. I think eggs are getting a lot of the headlines, but there's a couple other fresh categories. Maybe beef and some of the other protein categories where you're seeing that. But really, you take those kind of extreme or outlier inflation commodities, and I think the vast majority of our overall portfolio was pretty steady on inflation. We would expect that kind of core of the portfolio to see a little bit of a tick in inflation for next year, you know, this year played out the way we kinda thought and ended the year, you know, little north of 1%, which is what we thought. And I think that moving up from there in 2025 is pretty much our expectation to get to that 1.5% to 2.5% and it'll just be those outsized categories, I think, that maybe push us more towards the middle of that range.

Thank you. Our next question comes from Rupesh Parikh of Oppenheimer. Your line is now open. Please go ahead.

Morning. Thanks for taking my question. Just on the tariff front, I know your guidance at least for inflation, does include the impacts of tariffs. But since it's starting up now, just want to get a sense of exposure there. I'm guessing produce you have some exposure to Mexico, but just any color there. Thank you.

Yeah. Great question. Certainly a hot topic of late, Rupesh. Appreciate you asking. And you're right. As a domestic retailer, we I think we have less exposure to some of the international tariffs that some of our peers will see. You think of China. We're a really, really small single-digit exposure, I think, from some of the things that we buy from China. One category that maybe has a little bit of exposure in the tariff space is our fresh business. Particularly, you think about produce. But even in that space, when you think about some of the produce we might get from Mexico or Canada, those are still pretty mid-single-digit effect. So it's not a massive especially in that fresh space and that produce space, really, we're closely monitoring that. And where we can with our merchandising and our sourcing teams, are trying to be proactive and looking in those commodities where we have the ability to diversify our supplier base. Maybe the suppliers that are in other geographies that won't be affected by tariffs will be less affected by tariffs. To do what we can in some of those commodities to keep it down. Because being able to do that gives us the opportunity to keep prices low in our store. So the teams are being proactive. Even though it's not a huge impact overall on our business, maybe certainly relative to our peers. It's a great opportunity for us to be proactive and stay out front of it.

Thank you. Our next question comes from Ed Kelly of Wells Fargo. Your line is now open.

Yeah. Hi. Good morning, everyone. Good morning. And, Rodney, it's good to hear from you. A couple questions for you. First is related to share repo on the balance sheet. You know, as we've heard from you guys for a while now that there really is no good business reason to run below your leverage target ratio. Rodney, I'm curious. Do you still agree with that? And then as we think about, you know, guidance this year, Todd, what specifically is in guidance this year for share repo? If you could just clarify that, please. Yeah. And then the last the second question after you is just around, you know, and the exposure you have to snap and what you've seen historically if there's been cuts there. Thank you.

Thanks, Ed. I appreciate the question, but given my short tenure with the company, I'm going to defer to my good friend, Todd.

Yeah. No. You bet. Thanks, Rodney. Relative to the guide on the share repo, we obviously have the finalization of the accelerated share repurchase in the plan, which we expect to wrap up in the third quarter. We do have that incremental $2.5 billion authorization on top of that, which we do continue to pick up and execute. On you know, our volumes and presuming that our volumes are consistent with what the repurchases under the ASR are gonna be, we expect to use the majority of that $2.5 billion at the back part of the year. So that's the case. Relative to our leverage ratio, obviously, with the borrowings we took on for the ASR. We bumped that up. We're around 1.8 and gives us a little bit of flexibility there. Versus the top end of our range there at the 2.3 to 2.5. You know, keep in mind, we do have that $2.5 billion share repurchase later in the year that some of that will be dedicated towards using some of the cash that we have on our balance sheet. And we also have a debt refinancing that we'll finance with that. So we do have some business uses for some of that cash. Relative to your last comment on Snap, you're right. It hasn't been that long since I think we had some snap pullbacks a few years ago. And typically, when we see the impacts from Snap on our business, especially coming out of the gate, we'll see that customers prioritize spending on essentials like food initially coming out of the gate, and you'll see more of the reduction in spend and more discretionary categories. So as we keep an eye on what's going on and monitoring what's happening in that space, you know, we'll keep that in mind, but as we experienced two or three years ago when we had the snap challenges, you know, we just we have the ability to flex and pull the levers in our model to make sure we absorb. But at this stage, there are, I think, a variety of proposals out there on exactly what an impact this map would be, if any. And so I think it's premature to us, you know, project what's gonna happen there, but I think we have our eyes on it and we'll lean on our recent experiences on what that might mean for our business when the time comes.

Thank you. Our next question comes from Ken Goldman of JPMorgan. Your line is now open. Please go ahead.

Hi. Thank you. I appreciate the guidance on inflation. And the details there. I wanted to broaden it out a little bit. You know, as we look just at food at home, and, you know, retail and wholesale pricing trends, CPI and PPI, it certainly seems to some observers that the industry, the food retail industry is holding back on maybe passing through some of the wholesale inflation. I realized that PPI is not a pure measure of wholesale prices, but I was just wondering what you guys are seeing out there in terms of the competitive environment, your peers' price investments versus your expectations, and how that kind of informs your decisions to pass along inflation this year.

Yeah. Good question, Ken. Couple of thoughts. Relative to most of our suppliers, we're not seeing a ton of price increases come through yet. I think maybe we have seen some select price increases particularly, again, as I alluded to earlier, some of the fresh categories that you would expect, like eggs and, again, a couple of the proteins, we have seen that. But by and large, across the broad portfolio, we're not seeing or hearing a lot of chatter about those price increases at this stage. So and that's reflected in some of the thoughts that we gave relative to our inflation guidance and whatnot. For later in the year. As far as, again, relative price investments and whatnot, it's a great question. I mean, the way the customers are thinking about value, we talked about that earlier. Competitive pricing is as important today as it's ever been. And, you know, you've heard us say before, we always assume the next quarter and the next year is gonna be more competitive than the last because that's typically the way that it plays out. But we do continue to monitor where our pricing is at. Relative to our competitors and where those gaps are at. Because we're always striving to keep our prices low. We had nice progress in the fourth quarter. We did improve our gaps with our competitors in the fourth quarter. And we continue to monitor that and our strategy is to continue to drive those investments in price to narrow those gaps. So I think we've had nice momentum in that space over the past couple of quarters.

Thank you. Our next question comes from Karen Short of Melius Research. Your line is now open. Please go ahead.

Hi. Thanks for taking my question, and good to speak to you. So just on that last comment, I wanted to clarify. Where you think your price gaps are now versus where they were, say, ten years ago. Because the The Kroger Co. Heyday is you were within 5% to 8% of your largest big box competitor, unlike for, like, items. And then my second question is just when you look at your operating profit, and obviously, we can see the contribution from alternative streams. How do you think about the four-wall operating profit? And I know it's getting increasingly hard to separate the two, but four-wall operating profit versus the alternative because four-wall obviously needs to grow as that is the option of them.

Yeah. Thanks, Karen. Great questions. On the first relative to price gaps, you know, we measure it at two or three different levels. There's obviously I can price gaps that are observable by looking at shelf tags. Let me even take a step back from that. My comments around being able to narrow those price gaps that I just made applies to each of the scenarios that I'll describe. But we look at it at that level at the shelf tag level, for what the customer sees looking at the shelf, but the other one that we look at, because of our promotional offerings, our loyalty offerings, our fuel rewards, we'll look at kinda that all-in price that our customers get total value from The Kroger Co. and what we see when you look at that all-in level, it's favorable to the 5% to 8% range that you use earlier. So we continue to look at that and look at it on an all-in level, and measure how we're able to continue to reduce that gap. One of the things that we're paying attention to there is that's based on our measurements and what we see. We continue to work and make sure that our customers and what our customers perceive our values are and our price spreads are more closely matches to what that actual value is. And I think, we've got some feedback. I think we have some opportunity there from our customers. So really trying to focus on being a little more simpler in the promotions that we put out there. So it's very clear to them, and they give us the credit for value that we deliver to them. So make sure that they understand that. So that's an important part of what we're doing today. And then relative to operating profit, great question on four-wall and versus operating profit and a very astute observation that they do they are very intertwined. Especially the way that we operate our model. But I think that we see both growth in both of those, and I think it's a pretty even balance when you think about when we look at our operating profit growth, both are contributing, I think, in a reasonably similar range to our overall operating profit growth. Particularly as we look at 2025.

Thank you. Our next question comes from Chuck Cerankosky of Northcoast Research.

Good morning, everyone. Can you talk a little bit about accelerating your new store opening? So the conventional retail food industry has lost market share over the last few years, but The Kroger Co. is definitely something more aggressive than the rest of the industry. And can you talk about a lot of the strategic thoughts behind that, please.

Yeah. Great call out, Chuck. One of the reasons as we think about there's a couple pieces of that. One, three or four years ago, as we were ramping up our digital capabilities, some of our incremental capital went into building out those capabilities to get them where we are today. I mean, we're pretty happy with how that's played out. So we're not done with that. We're in continual enhancement mode and maintenance mode to ensure we're delivering where the customers are at. But now that we've got to that mode, we're able to take that incremental capital and put it back into our scoring. Because I think that's an area where when you look at some of our share and our opportunity for growth, I think building out that footprint is an important piece of what we're trying to do. So talked about where we're at this year, where we expect to be next year, and accelerating off of that. The two of those comments go hand in hand because more and more our most loyal customers and our most profitable customers are the ones that engage with us in both modalities, those that engage with us digitally and those that and they also engage with us in-store. And so having the right balance between the two of those I think, gives us an opportunity to build loyalty with our customers, but I also think having those additional that additional physical footprint, is a great lever for us to drive our share. So the two go hand in hand, digital and physical footprint, but because we took a couple of years off there from some of that growth. I think it's an opportunity to get back in and build that out.

Thank you. Our next question comes from Krisztina Katai of Deutsche Bank. Your line is now open. Please go ahead.

Hi. Good morning. Thanks and congrats on a good quarter. So I had a question regarding own brands. You launched more than 900 new items in 2024. Can you talk about your plan for the own brand business in 2025? How much newness should we anticipate for the year? What does that distribution look like across maybe opening price points versus your more premium items? And then just lastly, how do you anticipate that they will continue to contribute to gross margin in 2025? Thank you.

Yeah. Great question. We've talked a lot about our brands this year. Again, it's been a staple in what we go to market with because it hits so many sweet spots. It delivers great quality at a value to our customers, and especially in this environment, that's huge. It's a margin enhancement mechanism for us because of spread with national brands on all of those, and it gives us a point of differentiation and distinction with the innovation. Being able to give our customers something they can't get anywhere else. So it's kinda the ultimate triple play. Relative to our brands. And so because of that, we talk about the 900 items this year. I don't recall what 2023 was, but I believe it was a similar number. This year was not an unusual year for innovation and new items in our brand, so I would expect to see us continue to innovate in that space. And again, when you talk about how much of that newness comes from opening price point or private selection or those kinds of things, our team does and is and continues to do deep dives in each category because each category is a little bit different. To make sure we understand where we stack up against national brands, and where there's substitutability or replaceability relative to national brands. Where our brands might be able to be featured. So it's hard to answer that specifically other than to say, we've been doing these deep dives in on a category by category basis really trying to understand where we need an opening price point, or where we can introduce innovation in private selection. And we're probably maybe a third or forty percent of the way through those category deep dives. I expect those to extend through 2025 and beyond to be able to drive that growth. But I think it'll be an important pillar of what we do for years to come. And I even think we see opportunity in the right categories to really push to expand our penetration in those categories over time. So it's a story you'll continue to hear us talk.

Thank you. Our next question comes from Joe Feldman of Telsey Advisory Group. Your line is now open. Please go ahead.

Thanks, guys, for taking some questions. Wanted to ask about is there anything you mentioned the pension issue being in the first quarter. Can you share a little more color on that for the rest of the year? And are there any other big pensions this year that you do have to negotiate? I feel like every year there's always one or two that come up, and wanted a little more color on that. Thanks.

Yeah. Sure, Joe. Yeah. I wouldn't even call it a pension issue. Actually, it was an opportunity from last year where based on contributions that we had made up to that point in time, we didn't have the need to make required contributions for an early part of last year. So last year, we didn't have contributions, and now we're kinda back on our normal. And so that just created that q one comp that a little bit different than what we expect to see for the remaining quarters for the year. So it was just it was a it's actually an opportunity from last year as opposed to a concern or an issue.

Thank you. Our next question comes from Kelly Bania of BMO. Your line is now open. Please go ahead.

Hi. Thanks for taking our question. Had a couple. Wanted to ask just about your core kind of underlying gross margin at TEG pretty solid expansion really for the last few years. I think this quarter and this year, even came in ahead of plan, but it sounded like this year is planned flat. So just curious if you could talk about what maybe different about this year versus the last couple of years. And I guess, if you can incorporate kind of your plans for your alt profit growth. Sorry if I missed that, but what you're planning on that for this year?

Yeah. Good question. I think when you look net of Specialty pharma for this quarter, I think it was about it was about thirteen basis points ahead. So it was a little bit ahead. In the quarter, and I think that was that too was reflective of the year. I think what we saw this year, which is good, we've been doing a lot of work in the space. This year, and because we've talked for years the pressure with organized crime and some of the other issues that we've had from a macro space and the strength space. This year was a year where a lot of our efforts in that space have really paid off, not only in strategies around organized retail crime, but you heard us talk the prepared script about the way we're using technology to drive sell-through and help us reduce strength. And so I really think the answer to your question on why was this year such a benefit to budget, I think shrink was one of those. We've talked a lot about our brands and whatnot. I still think we have a little bit of run rate in the shrink space, but I think we'll probably start to cycle that as we get the middle of the year. And whatnot. And we continue to invest in price and whatnot, and we use those margin expansion opportunities to continue to invest in price there. And then the second part of the question that I might have missed I might didn't catch the second part. But oh, sorry.

And the all profit growth. Yeah.

We won't we don't specifically guide to all profit, but we do expect 2025 to see dollar growth, better than what we had come through in 2024.

Thank you. At this time, we'll take no further questions. So I'll hand back to Rodney for any further remarks.

Okay. Thank you, Alex. Thanks for all your questions this morning. They're really much appreciated, and it's also great for me personally to reconnect with some old friends this morning. As you know, before we conclude our earnings call, we'd like to take the time to share just a few comments with our associates who are listening in. I'd first like to send a message of encouragement. To all of our associates. As CEO, I will keep our company focused on retail fundamentals. Running great stores and online delivery, while taking great care of our customers. The Kroger Co. is steady. Because of you, the work you do every day matters. And it is what keeps customers coming back makes The Kroger Co. the place they trust. The Kroger Co. is strong. And we have great momentum going into 2025. Thanks, everybody, for joining us today. It's great to be back home, and I look forward to our future together.

Thank you all for joining today's call. You may now disconnect your lines.