Good morning, and welcome to The Kroger Co. Third Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Rob Quast, Vice President, Investor Relations. Please go ahead. Good morning.

Thank you for joining us for The Kroger Co.'s third quarter 2025 earnings call. I am joined today by The Kroger Co.'s Chairman and Chief Executive Officer, Ronald Sargent, and Chief Financial Officer, David John Kennerley. 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 and one follow-up question if necessary. I will now turn the call over to Ron. Thank you, Rob, and good morning, everybody.

Thank you for joining our call today. We are happy to deliver another quarter of strong results, reflecting meaningful progress on our strategic priorities. This quarter, we continued to focus on what matters most, serving our customers, running great stores, and strengthening our core business. These efforts are improving the customer experience and creating a strong foundation for long-term growth. Today, we are going to talk about the things we got done this quarter, the proof points of our progress, and the ways we are positioning The Kroger Co. for continued success. I would like to start by sharing the results of our e-commerce strategic review. It marks an important step in how we are evolving our business to meet customer needs and also to improve profitability. In today's world, having a strong e-commerce offering is key to delivering a differentiated customer experience and also represents an important growth driver for our business. We have made good progress, building a more than $14 billion business achieving six consecutive quarters of double-digit sales growth. Earlier this year, we formed our new e-commerce team headed by Yale Kassett, designed to align all of the teams who contribute to the online customer experience. By bringing these teams together, we created a more integrated structure to support our strategy. Building on that foundation, we conducted a comprehensive review of our entire e-commerce model. This review helped us to identify where we can be more efficient and better meet customer demand. Customers increasingly value speed, flexibility, and convenience, and better leveraging store-based fulfillment helps us meet those expectations. As a result, we are evolving our hybrid fulfillment model by using automated fulfillment in geographies where customer demand supports it and also leveraging store-based fulfillment through our pickup business and relationships with well-established third-party delivery partners.…

The Kroger Co. delivered another strong set of results this quarter, driven by solid execution in our core grocery business and continued growth in e-commerce and pharmacy. In a challenging environment marked with cautious consumer spending, the government shutdown, and a pause in SNAP distributions, we improved market share trends excluding the impact of store closures by delivering meaningful value for customers. We delivered these results while continuing to balance the right investments for the customer with disciplined margin management. I will now walk through our financial results for the third quarter. We achieved identical sales without fuel growth of 2.6%, moderating slightly from last quarter as we cycle the impact of last year's Hurricane Helane and Port Strike as well as the pause in SNAP distributions during our final week of the quarter. On a two-year stack basis, identical sales without fuel accelerated by 20 basis points to 4.9% reflecting continued strength in our business. Our identical sales without fuel growth was again led by strong pharmacy and e-commerce results. Food inflation increased moderately compared to the prior quarter with notable inflation in certain commodities, particularly beef. Our Pharmacy business delivered another strong quarter fueled by growth in both core Pharmacy Scripts and GLP-1s. While the strong growth in pharmacy sales impacts our margin rate, it contributes positive gross profit dollar growth and supports our overall operating profit. Our FIFO gross margin rate excluding rent, depreciation, and amortization and fuel, increased 49 basis points in the third quarter compared to the same period last year. The improvement in rate was primarily attributable to the sale of Kroger Specialty Pharmacy, our brands' performance, lower supply chain costs, and lower shrink, partially offset by the mix effect from growth in pharmacy sales which has lower margins and price investments. After excluding…

Thank you, David. In closing, we are encouraged by the progress we are making. Our priorities are clear, we are executing with greater speed and discipline. We are strengthening our core business, investing in areas that will contribute to long-term growth. We are taking decisive actions today that will make The Kroger Co. stronger now and in the future, delivering greater value for our shareholders over time. Before we move into Q&A, I want to provide a brief update on the CEO search. Our board remains actively engaged and is making good progress. While we do not have a specific timeline to announce today, we are engaged in a thorough process and expect to appoint a new CEO during 2026. We will now open it up for questions.

The first question goes to John Heinbockel of Guggenheim. John, please go ahead.

Hey. Good morning, Ron. Can you talk to the accelerated storing program right, maybe talk about that cadence and then when you think about, you have got obviously a fairly far-flung network. How do you think about concentrating that and as part of this, I know the digital review is different. Do you think about the portfolio that you currently have, you know, are there opportunities? Are you looking to, you know, do you exit some places? Do you double down in others? As part of the storing effort?

Sure. Let me try to answer several of those questions. First of all, we are pretty excited about the new investments in storing because that drives a lot of goodness from the top line and the same-store sales line. And we think we have got a great long runway to grow stores. I think, you know, when you think about the things that go into making, you know, stores obviously, the right location, the right market, you have got to have, you know, great operational infrastructure as well as talent. And, obviously, you are not going to open a store unless you think it is going to deliver a terrific return. In the fourth quarter, we are going to complete about or in the fourth quarter, we plan to complete about four major store projects. We are going to break ground on another 14 stores. When you look at 2026, we expect to increase new store builds by 30%. In terms of and I guess the other thing I should just mention is how excited we are about our entry into Jacksonville with Harris Teeter. You know, Harris Teeter runs a great business. They already operate in Florida in Amelia Island, which is about 40 miles from Jacksonville. Florida itself is a large state. It is a growing state. We expect to do very well there. I think Jacksonville is the tenth largest city in the United States, and I think it is the largest city in Florida. And I think, you know, that is kind of an indication of we are going to continue to expand in adjacent markets. I think we also have opportunities to grow, you know, through acquisition, and we have not ruled that out despite our last few years with Albertsons. And, I think you look at, you know, our long-term aspiration, we expect and plan to be a national retailer. So I am not sure that answers all your questions. Concentration is important. You know, we will certainly fill up Jacksonville before we move to adjacent markets. But we think we have got great opportunities to grow stores, and I think, frankly, that has been one of our biggest challenges over the last few years is we have not allocated enough capital to growing stores because we have, you know, allocated a lot of capital in other areas like fulfillment centers.

Great. And maybe just a follow-up, totally unrelated. The CEO search has been, you know, one of the longest, right? I think we have seen in a while. I am curious, you and the board, what are you looking for? You may be, you know, characteristic-wise, capability-wise, and what does the business need from that person?

Sure. You know, I think as you know, we have been pretty deliberate in the process. We have also been very thorough in the process. You know, we are working with an executive search firm and we have identified and engaged with really several very highly qualified candidates. I think we have announced publicly that our next CEO will be external. And I think we expect them to bring in fresh perspectives to the organization, and also to complement the culture that we have today, which is pretty strong at The Kroger Co. as well. In terms of, you know, what we are looking for, we want a deep understanding of retail transformation. We want somebody who is very close to the customer. We want somebody who has demonstrated success operating at scale. Who knows how to operate and frankly, cultural fit and alignment with The Kroger Co. values is critical as well. And like I said, we are getting closer. We are making good progress. And we expect that decision will be announced in the first quarter.

Thank you.

Thanks, John.

The next question goes to Ed Kelly of Wells Fargo. Ed, please go ahead. Your line is open.

Good morning, Ed.

Yes. Hi. Good morning, everyone. I wanted to, you know, maybe first Ron, could you just kind of step back and, you know, maybe talk about how you are feeling about the current grocery ID trend. It seems like you want that to be better. The competitive environment seems like, you know, it may be ticking up a bit, and you did mention, you know, some investment in price towards the end of the quarter. How should we think about all of that in the context of maintaining underlying gross margins stability going forward? And I think what you are implying for next year based upon the way you are talking about e-commerce is EBIT, you know, at least maybe some EBIT margin expansion.

Sure. Yeah. Let me just talk a little bit about sales. Yeah. I think this morning, we announced that sales came in a little lighter than we expected, and that was primarily later in the quarter. And that is due to a combination of factors. We saw increased caution and uncertainty among consumers, particularly in October and November due to the concerns about the government shutdown. Also, the pause in SNAP benefit distributions created some headwinds at the end of the quarter. I think consumers are becoming more selective. They are buying more on promotion. They are reducing discretionary purchases, things like general merchandise. General merchandise comped negative during the quarter. And, also, we had a tougher ID comparison in Q3 from the prior year. Despite all that, you know, our two-year stacked identical sales were up 20 basis points, and I think that might have been one of the higher orders of the year. But I think, you know, what we are doing going forward is, you know, our focus remains on value and serving customers during a pretty uncertain time. If you look at Q4, Q4 to date, we are feeling pretty good about our quarter-to-date sales. We are slightly ahead of our guidance that we provided this morning. But we do not anticipate any, you know, meaningful improvement in the consumer environment in Q4. Also, when you, you know, do the math, looking at the top line, we are also going to lap harder comparisons in Q4. Last year, we benefited from some weather, and maybe we will have weather again this year. Also, we benefited from egg inflation last year that we will not see this year. And then finally, and I think David mentioned this one, is we will see some headwinds relating to the…

Hey. Just a couple of things to build on Ron's comments. I think it is also important to note in the quarter, you know, our share trends improved. So, despite the impact on sales from the things that Ron talked about, we saw sequential improvement in our share trends, which was good. And then in terms of gross margin, I think, you know, Q3 shows that, you know, we manage gross margin in a very, very responsible way. And I think, you know, despite what we have guided to for Q4, you guys should think about us continuing to do that in a responsible way. You know, if you look at actually the breakdown of gross margin, selling gross itself actually declined as we invested in pricing. But we were able to offset that with, you know, mix on our brands, good sourcing improvements, shrink, and other supply chain costs. And I think I would expect a similar dynamic to what we saw in Q3 going forward.

The next question goes to Michael Montani of Evercore ISI. Please go ahead.

Good morning, Michael. Yes. Hi. Morning. Thanks for taking the question. I guess one thing that I was going to ask about was when you look at the pharmacy drug pricing headwind, should we anticipate that that annualizes closer to 100 bps for next year? That was part one. And then part two is just can you parse out some of the tailwinds you might have to offset when you think about Express Scripts' impact? Where is that now? How does that mature? You know, DoorDash and Uber Eats, just trying to see what there might be there as offsets.

Hey. Thanks for the questions. David here. So, obviously, we are not, you know, getting into 2026 guidance today. We will obviously get into more details on that in our next quarterly earnings. But let me just add a little bit more color on the Inflation Reduction Act impacts that we will see this quarter. And then how you might think about some of the tailwinds that we have got. So I think, to provide a little bit more detail, so starting January 1, Medicare will pay, you know, 60 to 70% less for the first 10 negotiated drugs. And I think it is important to stress that this is really only Medicare. Those lower reimbursements will translate into lower sales, i.e., the price at which we sell, and that creates the headwind that we have talked about. I think it is also important to know that manufacturers will offer rebates to us to offset that. So this will have no margin impact in the quarter. And no earnings impact, and we expect that dynamic to continue on an ongoing basis. As we think about the tailwinds that we have, you know, to maintain really good performance in our ID sales, you know, our long-term trends are, you know, we are seeing units improve in our core business. You know, we have got, you know, expecting to continue to invest in making sure our price gaps. We have got headroom on our brands. We have got a, I think, a whole range of different initiatives to keep core momentum in our business moving along strongly to offset some of the impacts from what we are going to see going forward on our pharmacy business.

The next question goes to Kelly Bania of BMO.

Good morning, Kelly.

Kelly, your line is open.

There we go. Thanks for taking our question. Can you just maybe help parse out more specifically the impact of pharmacy on the quarter? It sounds like you are estimating some slight market share improvements, but I think a lot of investors are really just trying to understand what is happening with the core grocery business, with inflation and units and market share? Any color you can give there? And then also, just going back to the reinvestment of the e-commerce losses, maybe can you talk about how much you are planning there? How much is planning to go towards price versus store standards? Maybe just your assessment of those two key factors on where your price positioning is and your store standards? Is this going to be a broad-based investment across many stores, more targeted in certain areas? Any color on how we should think about that and what that might do for next year?

Kelly, let me take that initially, and then I will turn it over to Ron. So I think pharmacy in the quarter, you know, I would think of the impact of pharmacy, you know, business, you know, similar to what we have been seeing over recent quarters. So I do not think there is a material change, you know, in what we are seeing from a pharmacy performance this quarter. I think your second question was around units and what we are seeing on the core business. We did see a slight deceleration in our unit trends in Q3. If you sort of dissect where that is coming from, actually, discretionary categories were probably the most impacted. We also saw some impacts in our meat business due to the higher inflation that we have been seeing. But I think it is also important to say that, actually, unit trends improved or held up in a number of areas. We saw good improvement in the deli. And, actually, natural and organic foods held up really, really well. You know? And I think these trends changed given some of the broader dynamics that Ron talked about at the beginning. You know, SNAP, and the sort of broader macro consumer environment. In terms of the tailwind that we have next year from our e-commerce business, we have not yet declared how we are going to, you know, split that money up. Obviously, we will provide more details when we get into 2026 guidance. But as we said, we expect to use some of the money to reinvest back into pricing, to make ourselves even more competitive. We have got a whole range of different opportunities to invest to improve the customer and in-store experience, which we believe will also help improve composite scores. But we are also committed on an ongoing basis, as we have said, to improve the operating margins of the business. And we expect to do that next year as well.

And, David, the only area I would add would be kind of technology. I think we have got some technology spend that is in the pipeline that we want to make sure that we, you know, can continue to grow not only our retail business but also our e-commerce business, which is rapidly evolving.

The next question goes to Michael Lasser of UBS. Michael, please go ahead.

Good morning, Michael. Good morning. Thank you so much for taking my question. Good morning, Ron. My two-part unrelated question. The first is as you went through your e-commerce review, how did you think about the risk of leaning so heavily on third-party providers to fulfill a core competency, which is to interact with the customer at the point of delivery versus having that key function more in-house? And, also, as part of the e-commerce review, you mentioned that it is going to be profitable next year. Is that simply a function of the $400 million of losses going away, or are there other factors that we should consider to drive that profitability? And just one last unrelated point. As you think about 2026, do you expect the rate of growth for the grocery industry just to be more sluggish overall given this 100 basis point headwind from the pharmacy change along with what could be a headwind term snacks next year? Thank you very much.

Sure. I will start, and then I will turn it over to David. In terms of you asked the question about the providers that, you know, are going to be doing some more of our delivery. One, we are really excited about the connection. I think each of those partners really brings distinct customer, you know, serves distinct customer needs as well as occasions. You know, some are full basket stock up, delivery companies and some are really more about immediate, convenience. I think we are looking at these partners as incremental sales opportunities and customer opportunities. The vast majority of our e-commerce sales come from The Kroger Co. website. And, we feel like, they give us operational flexibility as well as strategic flexibility. You think about Instacart, which is our largest partner, you know, they deliver broad geographic reach. They have got great scale. They can handle very large basket sizes. They also we also can offer agentic shopping capability on The Kroger Co.'s iOS. Uber Eats, you know, that leverages Uber's existing customer base and the Uber app. And I think the benefits here are add-on economics. You know, customers can order grocery items and do with the restaurant orders. That certainly appeals to younger customers who want more speed, more convenience, and I think those represent the new and younger customers for the company. And then DoorDash, David talked about how successful that launch has been. And there again, we are focusing on speed. We are focusing on convenience. It is, you know, ideal for, you know, quick small basket needs. And, it appeals to younger customers. In terms of the $400 million, I will ask David to weigh in on that one.

Yeah. So Michael, the way I think about e-commerce profitability is, I mean, as we have been saying, we are already making good improvements in on the business as it exists today. In fact, in quarter three, we actually cut the losses that we have been making in half. So we are making really, really good quarter-over-quarter improvements in profitability. And I expect that to continue into next year. You then take the $400 million that we have talked about, you know, which is from, you know, from closing the automated fulfillment centers. You then add in the business that we believe is highly incremental from the new third parties that we are working with so DoorDash and Uber Eats. As well as continued growth from our Instacart business. You have got the media business that we expect to continue to grow. And importantly, the media sharing opportunities that we have with our new partners. And when you put all that together, that allows us to expect that we will make money in e-commerce next year.

And, Michael, your third question, you know, I am not qualified to speak for the rate of the grocery industry growth rate for 2026, and I certainly do not want to get into any, you know, guidance at this point. We will do that next quarter. But I do not know that there is any reason why there should be this dramatic slowdown in the grocery industry. And, certainly, you know, not for us. We have got new store growth coming. We are closing, you know, kind of unproductive and low-performing stores. E-commerce has been, you know, has had a great year and continues to accelerate seems like every month more and more. So the mix might change a bit there because e-commerce will grow faster than physical stores. But, you know, we have got a lot going on in fresh categories. Our brands continue to grow faster than the house. And then, you know, finally, you know, we want to continue to execute very well in our stores, and customer service matters. And, I am not sure that I see a slowdown for 2026.

The next question goes to Jacob Aiken-Phillips of Melius Research. Jacob, please go ahead.

Good morning, Jacob. Hey. Good morning. So on the last call, you talked about how you are kind of working on how you discuss the retail media business with vendors or across the organization. And today, you highlighted some new opportunities within the three partnerships. I am just curious. Like, as more missions originate on the partner platforms, how are you structuring the relationships so that you have the right level of first-party data and we think of the economics as comparable first-party versus third-party for retail media?

Jacob, let me take that one. It was a little hard to hear your question. Your line is breaking up. But, I got the gist of it. So we are seeing good performance from our retail media business today. So in Q3, we saw another quarter of double-digit growth. And we think we have got good plans for Q4. And obviously, we will share more specific guidance as we get into next year. And our plans lead us to believe actually that that business will accelerate into Q4. I think the foundation of this is, you know, great tools with best-in-class capabilities for the brands that choose to operate on the platforms. Now as we think about the new partnerships that we have got going forward, the really important thing that was important for us when we structured those relationships is to make sure that, you know, we got to participate in the media opportunities that exist and that may originate on their platform rather than our platform. Obviously, I do not want to get into the details of the specifics of how we have structured those agreements, but we have structured them in a way that we benefit what I would call appropriately from that. In a way that is very favorable to our economics.

The next question goes to Seth Sigman of Barclays. Please go ahead. Your line is open.

Good morning, I think there was a comment that you feel good about quarter-to-date. I am not sure if that implies there is anything more you can share about that and what may be driving that if it is improving? And you mentioned price investments. I am just curious, is that playing a role? And then a bigger picture question on price investments. You know, you were doing a lot of testing this year. Is there anything else you can share about what is working versus what is not working? Thank you.

I think it is a little early to opine about the fourth quarter. We are just three or four weeks into the quarter. Just to be clear, I said that, you know, quarter-to-date, we are trending ahead of our guidance that we shared with you this morning. In terms of price investments, it is a little hard to know those in real-time. We continue to make price investments. We will continue to do that throughout the quarter. I think what we are seeing with our promotional environment out there is that customers are responding to promotion. And we will continue to do that. I do not know what David Yeah. Just sorry. One slight clarification just to make sure the point on Q4 is crystal clear. We are trending quarter-to-date slightly above the midpoint of our Q4 guidance.

Yeah. And Ron, do you want color price message? Sorry. Let me take that one. I think there was a second question on there, Seth, about price investments. Listen. We continue to make sure that we provide great value for the consumer. You know, as Ron talked about, a great example was towards the end of the quarter when we knew consumers were struggling. Given, you know, SNAP benefits being withheld. You know, we invested in what we believe was an appropriate way and also a very responsible way with our margins. To bring the cost of a Thanksgiving dinner down, as well as lower prices through promotions on a number of critical items for households. And I think we will continue to do that. Value is at the foundation of what we do. And we will continue to do that in a responsible way.

The next question goes to Simeon Gutman of Morgan Stanley. Please go ahead.

Good morning, Simeon.

Hey, Ron. Hi, David. Morning. Two questions. The first e-commerce. Now that you will be in the green next year, you talk about the scalability or maybe incremental margins. Does it move quicker or is it still a long evolution? And part two, since you have been in your role, Ron, there has been some significant change, strategic change, tactical change. Today's call sounded a little more urgent with some pricing, folks coming back to work, etcetera. I do not know if that is a fair read or not, can you say if it is? And then I guess new CEO should be very little interruption as far as execution goes. Because it sounds like the plans are all being built today. Thanks.

Let me ask David to cover the first, and I will cover the second. Yeah. Let me take the first one. So, obviously, the economics are very almost business with the outcome of the strategic review, have changed. So we now move from a business that was in the red to a business that is now in the green. We have had a really good growing business now for many quarters. And I think, you know, with the new partnerships that we have signed, with the stores that we are building, with the strong growth that we are really seeing across all elements of our e-commerce business, I think what that allows us to do is continue to scale the business in a way that we now make money. You know? So I think as you think about that going forward, I am not sure we see a dramatic change in the growth rate. But I would expect us to see continued strong double-digit growth from the e-commerce business going forward. With the change being that that business is now profitable.

And, Simeon, just to get into the second point, you know, I have been here. I think this is my tenth month, and my only objective is to set up a company for future success. We have got to do the right things, and we are going to do the right things even if some of the decisions are hard and you ask about urgency, I am not sure there is any more urgency. I am always urgent about everything. And I think going fast needs to be a key element of our culture. I think, you know, being willing to make the tough decisions needs to be a key part of our culture. You know, and to the support, you know, I have gotten great support. You know, the board has been very supportive of those things that we need to do to set the company up for future success. And, frankly, you know, our management team has really embraced, you know, the speed, the decisions, the focus on the customer, the focus on, you know, kind of moving some of the influence from our corporate office to our divisions where customers are. And then five days a week, it is frankly just a function of the fact that that is just retail. I mean, we need to be here. We need to collaborate. We need to be able to respond quickly. And we need to be able to support our stores that operate seven days a week as long as our as well as our manufacturing facilities and our distribution facilities. So I would not say there is more urgency, but I would say that there is plenty of urgency.

Thank you. The next question goes to Thomas Palmer of JPMorgan. Please go ahead.

Morning, Good morning. Thanks for the question. In the release discussing the fulfillment center closures, there was the mention, right, of the $400 million in savings. Could you maybe get a little bit of a breakdown of where these savings will be seen? I think some of it might be depreciation, some of it other operating costs. And then when we are thinking about the reinvestment, how much of this is investment that you probably would have undertaken anyway, and this just gives you kind of better ammo to fund it? Versus things that might not have occurred if the closures had not occurred.

Yeah. Let me take that one. So as you think about the $400 million, you are right. That splits across what I would call kind of operating profit, kind of EBITDA, kind of more cash-related items. And then, of course, there is a component of it that relates to depreciation. So it is split across both. In terms of investments, the way I would think about that, obviously, and we will get more into that in terms of, you know, when we get into guidance for next year. It is a combination. Clearly, it gives us fuel to be able to make investments that we were likely already going to make. But it also gives us incremental flexibility to invest in things that perhaps we were not going to be able to make. So we will get into more details on that as we get into 2026 guidance. But hopefully, that gives you sufficient color. And just to add, I mean, you know, the key of e-commerce, it is our, you know, one of our fastest-growing businesses, and that will continue. In fact, you know, it continues to accelerate. It is 11% of our sales. The focus is we have got to make money on a business that is growing that fast. And it was all about we have got to get profitable. We have got to get profitable fast because e-commerce is a key part of our future here.

Thank you. The next question goes to Rupesh Parikh of Oppenheimer. Good morning, Rupesh.

Good morning, and thanks for taking my question. So just going back, I guess, just to CapEx. So going forward, more aggressive store openings, obviously, a change in your e-commerce strategy. Does anything change in terms of how to think about the baseline CapEx spending for the business?

CapEx? I do not think anything changes in the immediate term about the CapEx. I think what we are doing is prioritizing the mix differently. So we are reallocating more into our storing program. And less into other areas of the business. We think this is good for the ROIC of the company and the returns on our capital. As we get good returns from major storing programs. Think of it more as a mixed shift.

The final question goes to Chuck Cerankosky of Northcoast Research. Please go ahead.

Hey. Good morning, Chuck.

Good morning, Chuck. Good morning, everyone. In looking at your store development well, let me back up a bit. It sounds like you talked about the mid-tier customer pulling back some more in line with the lower-income customers. Is that a change that you saw during the quarter? And looking at store development, anything going on at Fred Meyer that you might want to talk about? And could you perhaps talk about how it is a larger exposure to general merchandise as you are thinking about that banner? Thank you.

Sure. Yeah. I can give you some big-picture comments about what we are seeing on the consumer side. You know, as you have been reading, consumer sentiment has declined a lot over the last four months. And, you know, there are a lot of reasons behind that, whether it is a slowing job market or the government shutdown, the SNAP benefits, concern about inflation, categories like beef and coffee and chocolate. I just think customers are managing their budgets carefully. And they are making more trips. They are making smaller trips. You know, the idea of stocking up is declining a bit. And, you know, we are seeing this economy where, you know, high-income premium shoppers, they continue to spend. While lower-income customers are pulling back more aggressively. In terms of that middle bucket, I would guess, again, they are also looking for value. And, you know, the best indicator of that is, you know, our Q3 was softer in the later parts of the quarter because of the pause in SNAP benefits. So that would be kind of, you know, I think, you know, going forward, you know, I think the consumer is going to remain cautious. I think there is going to be more focus on food items and less on discretionary categories. Does that impact Fred Meyer? I think it probably does from their mix of, you know, higher mix of discretionary and GM merchandise. But it is also, we are seeing it in adult beverages, snacks, I think the good news is that, we are seeing this continued shift from restaurant purchases to food at home purchases, which should be good for our business. And then I think the other big trend we are seeing is e-commerce continues to grow a lot faster than physical stores. You know, Fred Meyer, I do not want to point out a specific division, but Fred Meyer continues to perform well. We got Todd out there, our president, Todd Kanmai. Running it and was out there a few months ago, and feeling pretty good about Fred Meyer.

I think maybe just one thing just to add on stores and store formats. As to how we think about that. You know, we will continue to build, you know, kind of large stores around the 123,000 square foot. We have also got a 99,000 square foot format that we are going to continue to build. I think as we think about the future, we are going to continue to experiment to make sure that we have the right array of store formats to cater to consumers wherever they may be located.

Thank you. That concludes today's question and answer. I will now hand back to Ronald Sargent, Chairman and Chief Executive Officer for any closing comments.

Okay. Well, thanks, everybody. Thanks. We had a lot of great questions today. Before we conclude our earnings call, we would like to share a few comments with our associates who are listening in. The progress we have made and the strong results we shared today reflect your hard work and your commitment. This year, we focused on running great stores, delivering a strong customer experience, and strengthening our core business, really priorities that are essential to our success going forward. Your efforts are creating a strong foundation for The Kroger Co.'s long-term growth. We are very proud of what we have accomplished so far, and we are excited for the work ahead. So thanks for everything you do and for your hard work during a really busy holiday season. Thanks, everybody, for joining us on the call this morning. We look forward to speaking with all of you again soon. I hope to see you in our stores. And happy holidays, everybody.

Thank you. This now concludes today's call. Thank you all for joining and you may now disconnect your lines.