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

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So there would be factors to bear in mind when you think about our EPS guidance. The only other thing I might mention is that you’ve heard me talk about on this call in previous quarters that when you look at our rolling four quarter sort of gross margin investment, somewhere between 10 and 20 basis points and OG&A leverage of 10, 20 basis points similarly to keep the business in balance. I would say that because we’re cycling Q4 last year gross margin was relatively flat, and OG&A was relatively flat. So I would say you should probably expect our gross margin investment will be a little bit north of the 10 to 20 basis points in Q4, but our OG&A leverage should also be north of that 10 to 20 basis points as well.

Michael Montani: Thank you.

Rodney McMullen: Thanks, Michael.

Operator: Thank you. Our next question goes to Chuck Cerankosky of Northcoast Research. Chuck, please go ahead, your line is open.

Chuck Cerankosky: Good morning, everyone. Nice quarter. If you could talk a little bit about which categories did worse than inflation in terms of unit growth in which we’re stronger on managing a lot of that was in the general merchandise. And also, Gary, could you comment on why identical sales growth, ex fuel was better than total sales growth ex-fuel?

Rodney McMullen: Yes. In terms of the categories, the one you identified definitely would be the weaker category in terms of general merchandise. And that would be true at the Fred Meyer division, it would also be true across the rest of the organization as well. We continue to do well in those categories relative to the market. Our teams have done a great job of making sure they have been managing inventories relative to where the expectations themselves. The other categories that would be weaker than the total would be categories where we continue to have supply chain disruptions. Gary and I both mentioned, overall supply chain is getting better, but we still have categories like cat food, dog food, baby formula some of those types of cold remedies, some of those areas continue to have some supply chain issues as well. With the identicals, Gary, go on.

Gary Millerchip: Yes. Thanks, Rodney. Thanks for the question, Chuck. Yes, the biggest part of that, in fact, pretty much all of it, Chuck, would be €“ you may recall at the start of the year, we shared that we’ve made the decision to stop dispensing certain drugs in our specialty pharmacy business because it didn’t really tie to overall customer loyalty in our broader business, and it isn’t profitable business for us. So we made that decision at the start of the year, and we adjust that out of our ID. So it’s a like-for-like comparison, but it does create a disconnect between total sales and identical sales. One of those examples is actually helping gross margin as well as we’re making those decisions to make sure we’re optimizing the balance of the business.

Chuck Cerankosky: Thank you.

Rodney McMullen: Thanks, Chuck.

Operator: Thank you. And the next question goes to Ed Kelly of Wells Fargo. Ed, please go ahead, your line is open.

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