The Kroger Co. (NYSE:KR) Q3 2022 Earnings Call Transcript

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So, we see food service as an important component of our growth, not so much relative to 2023. But as you start looking out at, say, 2025 and beyond, and being €“ having an amazing quality meal that’s easy and leveraging our delivery network or pickup network is an important part of the growth as you look longer term. Thanks Kelly for the questions.

Operator: Thank you. Our next question is from Rupesh Parikh of Oppenheimer. Rupesh, please go ahead. Your line is open.

Rupesh Parikh: Good morning. Thanks for taking our questions. I just had one question just on OG&A leverage. So, this quarter there was minimal leverage on a very strong comp, and that appears to be driven by wage pressures. So, as you look forward to next year, just any insight in terms of how you guys are thinking about wage crushers at this juncture and whether you think the OG&A leverage point could be lower?

Gary Millerchip: Yes. Hi Rupesh. Thanks for the question. Maybe just a little bit more color on Q3 and Q4 as well because I think there is a little bit more to the story there as well that’s worth understanding. I would say that certainly, you are right, the €“ we saw a lot of benefit from sales leverage and productivity improvements during the quarter. The team did a great job in really managing costs, considering the inflation that we are facing in some of those cost areas. We would have also had higher incentive plan costs year-over-year in quarter higher technology costs. We are investing in a number of areas that we are seeing growth in year-over-year. And some of that is maybe flipping from capital to operating expense because as you move more to cloud-based activity.

It just €“ it does change the mix there as well. And we also invested, as we did in Q2 in some consultants and some advisory work to help build future momentum in the growth. So, I would say the underlying improvement in productivity was stronger than the quarter would have suggested, and we feel good about the ability to leverage OG&A and fund the average hourly rate increases that we are seeing. In fact, as I mentioned earlier, the Q4 number as we are cycling a fairly flat OG&A rate in Q4, we would expect to be north of 20 basis points of leverage in the fourth quarter this year as we head into next year.

Rodney McMullen: Thanks Rupesh.

Rupesh Parikh: Great. Thank you.

Operator: Thank you. And the next question is our final question to Robert S. Ohmes of Bank of America/Merrill Lynch. Robert, please go ahead. Your line is open.

Kendall Toscano: Hi. This is Kendall Toscano on for Robbie. Thanks for taking my question. I just wanted to see if you could give any more color on how traffic looked during the quarter. What kind of trends you are seeing with items in the basket and number of trips to the store? And then, I guess as you are expecting inflation to moderate a little bit in the fourth quarter, what you would expect on those items going forward?

Rodney McMullen: Yes. If you look at the overall trends in traffic, it continues to be improving. Obviously, the overall basket itself is heavily driven by inflation. But as I mentioned earlier, our trends on market share are moving in the right direction and continue to go in the right direction. In terms of the last part, I don’t know, Gary, on inflation?

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