Kelly Bania: Okay. That’s very helpful. And would — should we assume that the additional 200 potential stores would be under a similar or the same valuation? Just a quick question there. And then also, can you help us understand the financing structure and the commitment from C&S partner here with SoftBank to this transaction and the potential for the incremental 200 stores?
Gary Millerchip: Yes. Thanks, Kelly. Well, first of all, in terms of the incremental stores, we certainly share more details on that if that was required. But as we shared earlier, we feel really good about the plan that we have. We believe it’s a very strong package and it really does address all of the questions and feedback that we’ve sort of received and evaluated as we thought about the plan. So our focus is really on moving forward with that plan. But we did think it was important to build flexibility into the agreement so that if we have to flex, we’re able to do that. I wouldn’t be able to comment on C&S’ financing strategy. That’s obviously specific to them, and that will be something for them to comment on if they wanted to.
I would just say that from our perspective, we got very comfortable with their financing strategy and feel they both have the financial strength to be able to complete the transaction but also the financial strength to be able to keep investing in the business going forward as well.
Rodney McMullen: Thanks, Kelly.
Operator: Thank you, Kelly. Our next question is from Rupesh Parikh from Oppenheimer. Rupesh, your line is now open. Please go ahead.
Rupesh Parikh: Good morning and thanks for taking my question. So I just wanted to touch on the promotional competitive backdrop. Just curious what you guys are seeing right now in the promotional environment. Any changes on the competitive front lately? And then just curious, as there is waning inflation out there and there is a clear desire for the industry to drive volumes. So just curious if you guys expect it to become more promotional in the coming months or quarters.
Rodney McMullen: Yes. If you look at overall, the promotional activity is getting close to where it was pre-COVID. So it’s pretty consistent with where we expected it to be. And obviously during COVID, the supply chains were such a mess and it’s really those are recovering. If you look at the conversations with CPGs, it’s getting — for the most part it’s getting much more back to normal in terms of how do you grow units. And the CPGs, in some cases, raise their own margins and now they’re starting to focus on tonnage again. So for us, we feel like it’s a good healthy dialogue and it’s one of the reasons, as you know, that we believe Our Brands is such an important part of our overall go-to-market equation for customers. Because if the CPGs are doing things that aren’t justifiable, Our Brands always gain share because we have an amazing set of products. And when people try them, the repeat rate is incredibly strong as well.
Rupesh Parikh: Great. And then maybe just one follow-up question. So as you look at the consumer backdrop for the balance of the year, is your team assuming it stays pretty similar to what you’ve seen recently? Or do you expect to get worse? And just I also wanted to just get a sense of how you think about student loan impacts on grocery.
Rodney McMullen: Yes, That’s I was going to say if you hadn’t added the last part, that’s the one part where we do expect it will get, from an environment standpoint, from a consumer standpoint, that it will be a little tougher is the student loan repayments. And you don’t know for sure until it happens. We do believe that the impact on grocery would be less than other categories. So we’ve assumed that to be a headwind, but the specifics until it happens, you just don’t know.
Gary Millerchip: And on that, Rupesh, we talked to customers about it. We know it’s going to be a meaningful financial impact on their overall budget, which obviously creates some risk that we’ve factored into our thinking. What customers also say, though, is that one of the first places they go to adjust their budgets to pay for the incremental cost is to eat more food at home versus eating out. So it would be interesting to see if that turns out to be a trend that’s helpful over time as well.
Rupesh Parikh: Great. Thank you for all the color. Best of luck.
Rodney McMullen: Thank you, Rupesh.
Gary Millerchip: Thank you.
Operator: Thank you, Rupesh. Our next question is from Ed Kelly from Wells Fargo. Ed, your line is now open. Please go ahead.
Edward Kelly: Hi, guys. Can you hear me now?
Rodney McMullen: Yes, we can. It sounds like a commercial.
Edward Kelly: All right. Good. I thought you were going to say you can’t, so I’m happy to hear that you can. I wanted to ask about the sustainability of margin opportunity going forward. If we look at the back half of this year with, I guess, minimal comp, and it seems like maybe that’s the environment for next year as well, you are getting benefit out of LIFO, gross margin, cost control is really good. But how do we think about the potential for continued improvement in those type of areas in ’24 to offset what traditionally would be an environment where it’s really difficult for grocers to actually get any earnings growth or even keep earnings flat?
Gary Millerchip: Yes, Ed, it’s a great question. What I would say is, as you know, we typically don’t get into like forward guidance beyond the current year until later in the year. But what I would maybe comment on is if you look at the areas that we’ve called out as being tailwinds during the quarter that helped us on the gross margin rate, we think of those as more long-term drivers of our model versus sort of short-term, one-time benefit cycling prior activity in our business. And what I mean by that is if we look at Our Brands, Rodney mentioned it on the call earlier, but we’ve been doing a tremendous amount of work with our merchandising team in Our Brands really focusing on how do we continue to improve the portfolio both in terms of how we architect the products to get the maximum reach and value from each different product category across private selection Simple Truth Kroger brand and the Smart Way product range, how do we continue to innovate, how do we drive sourcing best practices.
