Operator: The next question comes from Ed Kelly from Wells Fargo.
Edward Kelly: I wanted to ask you about the outlook for unit volumes within grocery. And I was hoping you could dig in here. I mean, obviously, the industry has had negative volumes. It looks like you’ve had negative volumes there. But I think the issues have been all this elasticity on price, I mean low income pressure, probably a little bit of share loss in that cohort. And then the lack of trade spend, which I think is probably particularly important to driving traffic for grocery. Can you maybe just talk about how those points are evolving in ’24? And then your expectation for unit volumes because back in ’19, right, your volumes were positive. Why can’t Kroger get back to positive unit volumes in the back half of the year? I mean I know you’re projecting that. But maybe just some support for it.
Rodney McMullen: We would expect unit volumes to be positive. And we expect ourselves holding ourselves accountable for positive unit volume. Todd and I mentioned in our prepared remarks, we’ve seen sequential positive trends in units. If you look at trade dollars, as I mentioned earlier on one of the questions, we actually saw an increase in trade dollars to support. Now, our success has been much better with the mainstream and upscale customer, and we’ve continued to gain share with that customer. And one of the things that’s always important to remember on units and economists always say all short answers are wrong. But that customer buys a bigger pack of items. So on that perspective, units are down because somebody buys a 30-pack or 36-pack of something.
If you look at the customers that are under a lot of budget pressure, they’re actually buying smaller units pack of goods and stuff. So overall, it’s a great question. We would hold ourselves accountable for continuing to improve trends in units and getting to positive as well.
Edward Kelly: And then just a quick follow-up for you on current debt leverage. Is there any reason to believe that this 2.3 to 2.5 target would not be the target if let’s just say that you failed to close the Albertsons deal. Is there any reason why you would go back to that pretty quickly? I don’t know if it’s CapEx related, if it’s environment, if it’s rating agencies are sort of looking at things. But just thoughts about that.
Todd Foley: Yes. Thanks, Ed. First and foremost, we’re laser-focused on closing on the merger. But appreciating your comment. And our model is always built to drive TSR and accelerate TSR in that space. But when you think about the business, the business does continue to generate strong free cash flow, and we have a very strong balance sheet right now. And I think as you think about our targets in the future, I would look to how we thought about it in the past. I think that would be a good way to think about it and a good benchmark. Our priorities have always been and will continue to be maintaining an investment-grade rating, investing and growing the business. We’ve talked a lot about storing and digital investments that we’ve made. We’ve continued to do that. And then third, always returning money to shareholders through a growing dividend and a buyback program. So I would expect that in any scenario, those will be our priorities from financial strategy standpoint.
Rodney McMullen: Yes. And we’ll use that free cash flow to continue to support growth. Thanks, Ed.
Operator: The next question comes from Rupesh Parikh from Oppenheimer.
Rupesh Parikh : I just wanted to touch on the promotional competitive backdrop. I was just curious how you guys are thinking about the promotional backdrop this year?
Rodney McMullen: We would expect it to stay pretty similar. And probably for us, more and more of our promotions would be done directly to a customer, so it’s not necessarily what shows up in an ad. But we would expect overall to be pretty similar to what it was last year. And I mentioned it a couple of times, but customers that are on a budget or strained financially, continue to aggressively try to look at ways to stretch their budgets. And one of the ways they’re doing that is downloading digital coupons. And to me, in our prepared remarks, we shared that we had people download 4 billion coupons, and that was an increase of $1 billion over the prior year. And the customer on a budget would be a bigger driver of that increase in downloading coupons. So overall, we think about the same. But if you look at within segments, we would expect that customer on a budget to still be under strain.
Rupesh Parikh: Great. And then maybe just one follow-up question. Rodney, you made the comment that you expect an improving consumer sentiment in 2024. Are you seeing any positive changes in consumer behavior lately?
Rodney McMullen: I wouldn’t say a ton of stuff. The people that aren’t under pressure, they continue to buy nicer wine and engage in Starbucks and Murray’s cheese and things like that. But the work they tell us they’re feeling better more so than their behavior is changing so far.
Operator: The next question comes from Robert Ohmes from Bank of America.
Robert Ohmes: Rodney, I was wondering if you could talk more about the pharmacy opportunity. Do you see an opportunity to sort of reengage with some of the PBMs and become a more significant player over time in a more profitable way than you guys had been and which ended you up in the situation with Express Scripts? Could you maybe kind of give us some thoughts on maybe the multiyear outlook for pharmacy and what could happen there for you guys?
Rodney McMullen: For somebody else’s profit margin. But we’re always open to those conversations. And would be delighted to fill those scripts, assuming that they had the appropriate margins in it to cover our costs. And hopefully, over time, their customers or patients will keep — start reaching out because they want to have the great service that we’re providing to everyone else and their customers not getting the opportunity to engage and get that great customer experience.
