Good morning, and welcome to The Kroger Co. Third Quarter 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Cindy Holmes, Director of Investor Relations. Please go ahead.

Thank you, Emily. Good morning, everyone, and thank you for joining us. Before we begin, I want to remind you that today's discussion 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, but Kroger assumes no obligation to update that information. Both our third quarter press release, which includes a reconciliation of certain non-GAAP measures discussed today, and our prepared remarks in this conference call will be available on our website at ir.kroger.com. After our prepared remarks, we look forward to taking your questions. [Operator Instructions] Thanks, again, to those who participated in our October investor conference in person or via webcast. We appreciate that many of you made the trip to Cincinnati, and as always, we enjoyed the dialogue and the opportunity to show you our stores. I will now turn the call over to Rodney McMullen, Kroger's Chief Executive Officer. W. McMullen: Thank you, Cindy, and good morning, everyone, and thank you for joining us today. With me to review Kroger's third quarter 2014 results are Mike Ellis, Kroger's President and Chief Operating Officer; and Mike Schlotman, Senior Vice President and Chief Financial Officer. Kroger continues to deliver consistently remarkable results. We are well on our way to achieving our 10th consecutive year of lowering costs and reinvesting those savings in our people, products, pricing and improved store experience, which together are driving our growth. Few can deliver this level of sustainable high performance. After a while, it can be easy to take this consistency and reliability for granted. So it's important to keep in mind that these results are possible only because 375,000 associates engage with our customers every single day. Our associates delivered yet another quality quarter of inspired Customer 1st performance. We continue to implement our growth strategy and consistently deliver on the key performance indicators we first outlined in October 2012. In the third quarter, we achieved our 44th consecutive quarter of positive identical supermarket sales growth, excluding fuel. We exceeded our goal to slightly expand FIFO operating margin without fuel on a rolling 4-quarter basis, and we continued to gain market share. Our third quarter financial results were driven by strong sales and core business performance, which was better than we expected. Higher fuel margins drove our results above our previous guidance range. Our guidance range for the full year assumes fuel margins will not be as strong in the fourth quarter as they were in the third quarter. Mike Schlotman will have more to say about our supermarket fuel operations in a few minutes. How our customers are doing today depends on the stability of their family finances. Overall, our customers continue to spend a little more as confidence in the economy improves over time. While inflation is apparent in certain commodities, fuel prices have been going down, which helps all customers, especially those on a budget. We try to help those customers stretch their food budget in a variety of ways. Our weekly promotions and fuel rewards help, along with price investments. We continue to make natural and organic foods affordable and accessible to all customers, especially with Simple Truth. Our expansive corporate brands offering is resonating with customers seeking high-quality food at very good prices. In fact, our Corporate Brands had their best performance in several years in the third quarter. Our ability to deliver this combination of value sets us apart. Now I will turn it over to Mike Ellis to discuss our operational performance in the third quarter. Mike?

Thanks, Rodney. Good morning, everyone. During the third quarter, we continued to grow the number of loyal households, and our loyal household count grew at a much faster rate than total household growth, which, incidentally, was also up for the quarter. Loyal household growth is an important measure of our business because it lets us know how well we are connecting with our best customers. Inflation increased in the third quarter, as Rodney mentioned, among commodities such as meat and pharmacy and increased to a lesser extent in all other supermarket departments. As Mike Schlotman will discuss shortly, we raised our LIFO charge estimate for the year again this quarter due to the higher-than-expected inflation. We estimate inflation was 3.5%, excluding fuel, for the third quarter. Even so, we saw strong tonnage growth in the third quarter compared to last year. And in fact, it was slightly ahead of the second quarter's unit growth. Corporate Brands had an outstanding third quarter, representing 27.3% of total units sold and 25.8% of sales dollars, excluding fuel and pharmacy. In fact, Corporate Brands experienced its highest sales growth and total retail dollar share of any quarter in the last 3 years. So clearly, our rebranding -- rebranded opening price point in Kroger banner brands are a hit with our customers. Simple Truth and Simple Truth Organics continued to earn double-digit unit and sales growth. A key driver of Kroger's sustainable growth is Customer 1st innovation. For the past few quarters, we have been highlighting innovations that are improving our connection with customers. This quarter, I will highlight some of the new and exciting work of our manufacturing team in the dairy department. We recently opened a state-of-the-art dairy processing plant in Denver. We built and engineered the plant to deliver exceptional quality and freshness for our customers and to provide an avenue for innovation in the dairy category. We incorporated new technologies for our customers that ensure our milk will stay fresher longer than ever before. We are the first dairy in the U.S. to deploy robotic technology that enables us to pack cases and pick and palletize orders entirely by automation. Another innovation that this dairy will bring is the ability for us to produce long shelf life products to meet growing demand for aseptic products and packaging. The dairy, our first ground-up manufacturing plant of any kind in 20 years, opened in May and began full production of fresh milk in August. We have been producing fresh milk, organic milk, juices and drinks, and customer response has been very, very positive. Now I'd like to give a brief update on labor relations. We recently completed several successful contract negotiations covering Smith's associates in New Mexico, Fry's and Smith's associates in Arizona, Food 4 Less associates in Southern California and Kroger associates in Toledo, West Virginia and the Ohio Valley. We are currently negotiating with the Teamsters covering several distribution and manufacturing facilities. Our objective in every negotiation is to find a fair and reasonable balance between competitive costs and compensation packages that provide solid wages; good quality, affordable health care; and retirement benefits for our associates. Kroger's financial results continue to be pressured by rising health care and pension cost, which some of our competitors do not face. Kroger and the local unions, which represent many of our associates, should have a shared objective: growing Kroger's business and profitably, which will help us create more jobs and career opportunities and enhance job security for all of our associates. Before I turn it over to Mike Schlotman, I'd like to thank our associates for the impressive quarter. Once again, you showed our customers how much we care about them, and each and every day, you continue to deliver. Because of your efforts, we are able to continue investing in our products, lowering prices and improving the shopping experience in ways that generate customer loyalty. Now Mike will offer more detail on our financial results and our guidance for the remainder of the year. Mike? J. Schlotman: Thanks, Mike, and good morning, everyone. As you know, when we outlined our growth strategy in 2012, we identified the key performance targets for our shareholders to measure our progress. I'd like to spend a few minutes discussing the results in each metric. Our first metric is identical supermarket sales without fuel. Identical sales performance is the best measure of our growing connection with customers over time. We're very pleased with our third quarter ID sales growth of 5.6% without fuel. This strong performance was supported by ID sales growth in every supermarket department and division, and our natural foods department continues to lead with double-digit growth. Rolling 4 quarters FIFO operating margin, excluding fuel and adjustment items, expanded by 9 basis points. This exceeded our goal of slightly -- to slightly expand FIFO operating margin without fuel on a rolling 4 quarters basis. We are not reporting our third metric, return on invested capital, this quarter because the calculation would actually overstate our result. We expect our year-end return on invested capital, which will fully reflect Harris Teeter in our calculation, to be similar to our return on invested capital at the end of fiscal 2013. Now I'll share the rest of our third quarter 2014 results in more detail. Please note that this quarter includes Harris Teeter in Kroger's consolidated results of operations. Year-over-year percentage comparisons are affected as a result. In the third quarter, our net earnings totaled $362 million or $0.73 per diluted share. This includes a $0.04 benefit in the third quarter due to certain tax items. Excluding these items, Kroger's adjusted net earnings were $345 million or $0.69 per diluted share for the third quarter. We view these tax benefits as nonrecurring. So as you begin to think about 2015, please note that we will not be growing off of that next year. Net earnings in the same period last year were $299 million or $0.57 per diluted share. Last year's third quarter net earnings per diluted share benefited from certain adjustments totaling $0.04 per diluted share. Excluding these adjustments, last year's third quarter net earnings were $0.53 per diluted share. We recorded an $85 million LIFO charge during the quarter compared to a $13 million LIFO charge in the same quarter last year, resulting in an incremental $0.09 per diluted share charge to net earnings in the third quarter compared to the same quarter of last year. We began fiscal 2014 estimating a LIFO charge for the year at $55 million. At the end of the first quarter, we increased our LIFO guidance to a charge of $90 million, and at the end of the second quarter, we increased our LIFO charge estimate for the year to $100 million. As reported this morning, we have again increased our LIFO charge estimate for the year to $180 million. FIFO [ph] gross margin decreased 2 basis points from the same period last year, excluding retail fuel operations. Operating, general and administrative costs plus rent depreciation, excluding retail fuel operations and the adjustment items, decreased 21 basis points as a percent of sales compared with the prior year as a result of good expense control and strong sales leverage. Now for retail fuel operations. In the third quarter, our cents-per-gallon fuel margin was approximately $0.232 compared to $0.171 in the same quarter last year. This does not include debit and credit card fees. Last year's third quarter margin was well above historical averages, which means this quarter's margin performance was remarkable. Our long-term financial strategy continues to be to maintain our current investment grade debt rating, repurchase shares, have an increasing dividend and fund increasing capital expenditures. Achieving a 2 to 2.2 net total debt to adjusted EBITDA ratio by mid to late 2015 remains a key objective. Kroger took on debt to finance the Harris Teeter merger and has yet not realized the full year Harris Teeter EBITDA. As a result, the company's net total debt to adjusted EBITDA ratio increased to 2.29 as of the close of the third quarter compared to 1.86 during the same period last year, as described in Table 5 of our press release. This is an improvement of -- from the 2.33 reported last quarter. Kroger's net total debt is $11.5 billion, an increase of $3.4 billion from a year ago, including the debt related to Harris Teeter transaction and Kroger's share repurchase program. Kroger's strong financial position allowed the company to return more than $1.8 billion to shareholders through share buybacks and dividends over the last 4 quarters. During the third quarter, Kroger repurchased 600,000 common shares for a total investment of $29 million. All $500 million of the buyback authorization granted in June remains available. Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $681 million for the third quarter compared to $641 million for the same period last year. We expect capital investments to be at the low end of the $2.8 billion to $3 billion range, including Harris Teeter, for fiscal 2014. Now I'd like to review our updated growth objectives for fiscal 2014. Based on our strong third quarter results, we raised and narrowed our adjusted net earnings per diluted share guidance to a range of $3.32 to $3.36 for fiscal 2014. The previous guidance was $3.22 to $3.28 per diluted share. For the fourth quarter of fiscal 2014, Kroger expects identical supermarket sales growth, excluding fuel, of approximately 4% to 5%. We acknowledge this is a wide range for one quarter, and we are seeing great strength and momentum at the start of the fourth quarter, but this year's fourth quarter is difficult to project narrowly because of the uncertainties relative to a year ago, including the positive effect that weather had on our identical supermarket sales during last year's fourth quarter. As you start to think about fiscal 2015 estimates, we encourage you to build your models based on fiscal 2014 adjusted results, which exclude certain tax benefits and charges related to the restructuring of certain pension plan agreements. If fuel margins return to historical levels, we expect 2015 results to be closer to the low end of our long-term net earnings per diluted share growth rate guidance of 8% to 11%, and shareholder return will be further enhanced by a dividend expected to increase over time. Now I'll return it back to Rodney. W. McMullen: Thanks, Mike. Our third quarter performance is further evidence that Kroger is improving our connection with customers and delivering growth for our shareholders. We continue to increase capital investments, which creates exciting opportunities for our business and for our associates. We enjoyed discussing several of those opportunities with you during our investor conference in October. Our positive momentum is expected to carry through to the fourth quarter and sets us up well as we look to 2015. More importantly, Kroger's to-do list remains longer than our done list. There is a lot more to come. Now we will look forward to your questions.

[Operator Instructions] Our first question is from Karen Short of Deutsche Bank.

Just a couple of questions regarding your guidance and, I guess, also this quarter. So obviously, gas margins more than offset the higher LIFO charge this quarter, and this year has been an incredible year from an earnings growth perspective. But I guess, what my question is, looking to next year, Mike, you talked about the lower end of the range of earnings growth. And I understand you're coming off of a very strong year. So my question for this current year is, was the strength more in overachieving on the Harris Teeter accretion side? Or was it broad-based across the core and Harris Teeter? And I guess that would lead me to, if it was broad-based across -- or if it was more Harris Teeter related, that explains why you might be at the lower end of the 8% to 11% next year. But if it was broad-based across Harris Teeter and the core, are you just being conservative for next year, even though this year was incredibly strong? J. Schlotman: Wow. There was like 3 or 4 questions in there. Which way do I go with the answer? Well, fundamentally, this has been a very strong year across the board for us with the ID sales that we've had so far this year and ID -- positive ID sales in every department and positive ID sales in every geography. Our core business is performing extremely well. It's not just incremental accretion from Harris Teeter, it's strong results from all of our core operations. The primary reason for the conversation about being at the low end of 8% to 11% for next year is solely where fuel is at $0.23 for the quarter. And really, the last 2 quarters have been well above historical averages with the amount of fuel gallons we sell and that kind of outperformance on historical fuel margins. We just wanted people to be aware as they start thinking about 2015 of that potential headwind. If you were to kind of take the business apart and look at our core operations for 2015, they would perform extremely well inside the 8% to 11% range, and it's really just a headwind from a potential lower fuel margin per gallon for next year.

And is it fair to say that Harris Teeter has come in slightly better than expected for the year so far? J. Schlotman: Yes, I would characterize Harris Teeter as performing how we expected them to perform. We've -- as has been widely publicized, they've not been shy about advertising it. We've made the price investments in their business that we expected to make during the year. The customers are responding to those price investments, and I would characterize Harris Teeter as right on track with what our expectations would be relative to our overall guidance for the year. W. McMullen: The Harris Teeter team has done a nice job of running their own business, but the other thing is they've been incredibly helpful helping teach all of Kroger some ideas as well. So it's been great so far, and the synergy's moving along as we expected as well.

Okay. And then, just last question. On next year's earnings growth, what's embedded in terms of share buybacks? J. Schlotman: We'll give full guidance in March. We just know that at this time of the year, with 3 quarters behind us, clearer fourth quarter guidance, since we only have one quarter left, people start to refine their 2015 estimates. And we just wanted to give some insight of our view of a percentage growth rate and where we would expect to fall in that range as you all start to prepare your estimates for 2015 or refine those estimates. But we'll wait until we give full guidance in March. We feel we've gone far enough with the EPS because our board has its annual business plan review meeting in January, and it's probably better served to let them approve our business plan for next year before I give you too many lines.

Our next question is from John Heinbockel of Guggenheim Securities.

It's actually Steve Forbes on for John today. Regarding gas, so we've historically found it difficult to find any real correlation between gas prices and comps. What are you seeing during the most recent period since these declines? I know you've recently touched on it before. But is there any particular region to call out? You mentioned the low -- lower-income consumer. Or is there any demographic that you can expand on as well? W. McMullen: The -- if you look at our own numbers, we would have difficulty finding some of the same correlations. When gas prices go up, our fuel reward program has a little bit more strength. As gas prices go down, people have more money to spend. So as you know, when we look at fuel, we just look at one more service that we're offering the customer and one more reason to come to Kroger. The comments that we made -- that Mike and I both made, we continue to see improvement in the economy. It's slow, but it's going in the right direction, and it's really across all customers. But if you look at mainstream and up, those customers have fully recovered. The customers that are on a budget are improving, but it's much slower and more constrained.

Okay. And then just on the deployment of these windfalls, is there -- I'm sure there's thoughts around how to invest these benefits. But do they occur too quickly in order to appropriately plan for the deployment? Or is it just better to let it flow through to the bottom line? How do you guys think about these onetime or short-term benefits? W. McMullen: Well, if you look at like the tax settlements and stuff, we just let those, for the most part, be when they are. And we just disclose it to let you know what it is. And it flows to the bottom line, but it's onetime. If it's things that we think are things that are sustainable, those are the things that we would look at in terms of continuing to invest in the business from a service standpoint and a price standpoint. But it's -- as you mentioned, it's always a balance between those 2 pieces, and we are always focused on what's going on in the marketplace and what do we think is the best use of that opportunity when it happens. So it doesn't answer your question directly because the answer's actually different depending on what we see the opportunities to be.

Our next question is from Judah Frommer of Credit Suisse.

Judah on for Ed. You mentioned in the release and also on the call the kind of rolling 4-quarter x fuel operating margin being a little bit stronger than you expected it to be. I mean, is that a way of saying you would have liked to maybe invest more in price? Or how should we kind of translate that? J. Schlotman: I don't think it's a reflection of having -- wanting to invest more in price. It's really a reflection of having Harris Teeter in for a portion of the year and not all year compared to results last year that didn't have Harris Teeter in the numbers. And I would say that's the same thing for the -- just a couple of basis points decline in the gross margin number I talked about. If you were to strip Harris Teeter out of the prior year, you would have seen a much bigger amount that we have invested in, in price to continue to give value to our customers, but it's really that -- the fact that their historical numbers have been higher than ours, and it's the mention of those together that's driving some unusual comparisons. We've continued right on track with what our expectations were for investment in all 4 keys of our Customer 1st Strategy, not just price, but the people, the products and the shopping experience as well, and continue to be very pleased with the reaction our customers have with those investments.

Okay. And if I could just sneak one more in there, maybe shifting gears. On natural organic, it sounds like it's still comping really well. You've mentioned, in the past, maybe eventually seeing some margin compression in the category. And now that you have one of the bigger players in this space with a national ad campaign out there highlighting value, have you seen anything in kind of the near term on margins there?

I haven't really seen margin pressure overall. We continue to invest in price where we feel appropriate, and the customer really drives our pricing strategy for the most part. But again, we had strong sales growth and double-digit growth in national organics. And to go back to our Simple Truth brand, which will hit $1 billion this year, we're really proud of where that's going and what it's contributing.

Our next question is from Vincent Sinisi of Morgan Stanley.

I also wanted to ask a bit more on the natural organic. Obviously, Simple Truth continues to perform very well. But can you also give us a little color on how some of the other categories and products within natural organic are doing? And maybe touch upon, also, some of the Vitacost products?

Well, in natural foods, the expansion of item selection is continuing to grow. And you're finding more and more products in the dairy category. We just introduced a new line, the Simple Truth lunchmeats. So there's a lot of activity. And we're still finding so many of our customers that didn't shop natural foods are beginning to migrate over to that business, which has been really, really good for us. On the Vitacost piece, we're still in a honeymoon. It's only been a couple of month since we merged with Vitacost, and there's a lot of work going on, but we have big plans for Vitacost, and we're excited about the merger. I've been to the facilities, down to their offices, to their warehouses, and it's a great business that we have. And we're excited about where we're going to go into next year.

Okay. Great. And just a follow-up, if I may. Regarding your relationship, the dunnhumby relationship, as you continue to have nice growth in your loyal households and loyal customers, I know that part of what you're looking at is also not only continuing to have your current loyal customers purchase more, but also convert others into being loyal customers. Can you talk about any -- if there are any either new strategies or learnings that you're finding as you're going through? W. McMullen: If you look at all of our data insights, and dunnhumby that you referenced is obviously one piece of that, but there's a lot of other insights, you're continually getting insights and testing things. And the things that work, you do more of, and the ones that don't work, you stop doing. And that never stops. So it's an ongoing basis in terms of trying to understand customer needs. So if you think about your earlier question on natural and organics, well, that's some insights from our customers. But one of the things our customers are very clear is they don't want to have to pay a premium for natural and organics, and we're trying to make sure that we have where they can get a good-quality product at a price that's comparable to the nonorganic brands and, in some cases, actually the same price. So it's, really, that would just be one example, but there's a whole host of things where you're continually trying to get insights, insights on actually where to locate stores. It's broad parts of our business, and it's actually getting that insight and using it is the key.

Our next question is from Rupesh Parikh of Oppenheimer.

So I just wanted to just touch on inflation. Clearly, you had a nice benefit in inflation this quarter. I just want to see if you guys can share, maybe, your early thoughts for inflation for the upcoming year. J. Schlotman: As we sit here today, we would actually expect -- I'm always hesitant to go here because I've proven my inability to predict this with the fluctuations we have on our LIFO charge, which is tied to inflation, but we would expect inflation next year to be a little bit more moderate than it is this year. Clearly, the protein categories don't really show any signs of letting up on inflation. Chicken may happen if corn prices stay down at some point, but beef and pork, we would expect to see probably close to double-digit inflation again next year. Milk, at this point, again, as you know, the milk prices are driven by federal market order. As we sit here today, it looks like they may come in some, which would help a lot of categories next year. But overall, just given where some of the core input categories are, it looks like we should be a little bit lower than the 3.5% that's out there. That said, embedded in that 3.5% is pharmaceuticals, which continue to have -- particularly in the generic category, which has not always been the case, which continue to have quite high inflation in them. W. McMullen: One of the things that we think is important, when you look at inflation over the last 10 years, Kroger's been able to really manage in all inflationary environments, whether there's been deflation or inflation. There's always a transition if it suddenly changes quickly, very high or very low, to manage that transition. But over time, we've found that we really -- our associates have the ability to manage in all environments.

Okay. That's helpful. And then maybe just shifting gear to your ID sales. Do you feel -- as you look at your IDs this quarter, do you feel that you're maybe winning new customers maybe at an accelerated pace from earlier this year? W. McMullen: The thing that's exciting, and Mike mentioned it in his prepared comments, we're seeing good growth with our existing customers, but we're also seeing new loyal shoppers. And so it's really balanced across both, and that's one of the things exciting. And it's been -- it's a little bit higher now than earlier in the year, but it was strong earlier in the year, as well. I don't know, Mike, if you want to add anything.

No. I think you hit it. It's just -- it's been solid, yes. Thanks, Rodney.

Our next question is from Scott Mushkin of Wolfe Research.

Mine's actually much more of a kind of strategic, long-term question and just trying to understand kind of the growth trajectory of the company. You guys were nice enough to take us to a Marketplace store, I think, that was converted from a regular grocery store. And it seems like that conversion has gone quite well. So I guess I'm just trying to understand. It seems, as we think about Kroger, that in a lot of ways, you have a better mousetrap at this stage, and that Marketplace store is certainly one of the key elements. You guys went through -- and this goes way back in the, I think, late '60s, early '70s, into a big kind of store upgrade cycle, and you became a good to great stock in Jim Collins' work. I mean, how close are we to really getting into a big upgrade cycle on your store fleet where you really deploy Marketplace in a much more aggressive way? So that's my first question about long-term growth. W. McMullen: Well, as you know, when you were out in October, we're obviously very excited about the Marketplace stores and the use of all our formats together. It's one of the reasons why, a couple of years ago, we committed and -- to increase our capital investment by $200 million a year, and we continue to do that. We think that's a good amount to accelerate capital by in terms of the ability to operate the store at the level that you saw and balance in terms of the use of the cash flow. As long as -- as we continue to get the performance from those stores as we expect, you'll see it to continue accelerating that capital investment. But that was the reason why, in October of '12, we outlined the need to increase capital by $200 million a year. I don't know, Mike, if you want to... J. Schlotman: No, I would agree with that, and it's -- we -- as you know, Scott, we continue to expect increased capital over the next several years by incremental amounts. I -- if there's one disappointment I have so far this year, it's that -- actually, that we're at the low end of our CapEx guidance. I know some people out there think we spend too much on CapEx, but that just means some stores aren't coming out of the ground as quickly as we had hoped. It doesn't mean that we're less bullish on the new stores we're opening. It's just a matter of timing of those projects, and they will get caught up. So we're very bullish on our ability to continue to open new stores and have them perform very well.

One other comment. We have Marketplace stores now in just about every division of our company across the country, and the success we're having with the Marketplace store has been really pleasing. But you asked about remerchandising, and I know you saw apparel in some of our stores now. We're having some success in -- with some of these new brands, some of the new products we're putting in. So we continue to work on the model to make it relevant to the customer, but we're really pleased with what we have today.

And as a follow-up -- I mean, any thought process as to how many stores in the store fleet could eventually be Marketplace? J. Schlotman: We probably do, but probably not for public consumption at this point, Scott. The other thing to keep in mind is, as we go down this path, and you'll probably see it a little clearer as we get into next year, we continue to invest in our business. And a fundamental piece of being able to invest in our business is continuing to generate a really good return on our new investments. And some of those dollars, we make conscious decisions of how many fall to the bottom line and how many we invest back into the business and the people, product, shopping experience and price. And while I know a lot of you would think that we should be at the end of investing in price, we still see plenty of categories and particular sections of the store where we have an opportunity to be more price competitive than we are today. So we're, in some respects, counting on that continued good results from that deployment of capital to both increase to have the 8% to 11% earnings per share growth and have the dollars generated to invest back in our business.

And then I just had one more, and then I'll yield. And it goes to the long-term growth again. M&A, we talked about it at the Analyst Day. It seems, again, Kroger, better mousetrap, fuel program, dunnhumby, customer insights, Marketplace store. It seems, as you guys evaluate -- at least from my perspective, evaluate M&A activity, there's almost a checklist of what you might want out of a company that you were going to acquire. But it does seem like it's a little bit different now, given the success you have with your business. Any thoughts, any additional thoughts? Again, I know asked this at the Analyst Day, but I wanted to revisit it. W. McMullen: Yes, I wouldn't say that there's anything much different than what we answered. As we talked about then, one of the keys on any merger, how's the -- how are the people that run the business? And do we think, culturally, they have the same values we have? And that's one of the reasons why we always talk about mergers rather than acquisition. You get a more limited number of opportunities when you have that standard, but what we find is, when people have that standard, they like it going the other direction, as well. And we always like to point out the fact that 2 of our last 3 CEOs came out of one of our merged companies and several of our senior officers. J. Schlotman: And our current President... W. McMullen: Yes, came out of one of the merged companies. So I think you're right when you say it's almost a checklist because it is, but it's something that's really worked well for us. J. Schlotman: And Scott, something I would add to that. And I certainly understand your question and the seeming benefits we could bring to some M&A activity that may be not as strong as we may hope or not have everything on our checklist. When you sit back and you have opportunity x and you look around the organization as a company in our geographies where we are today, and you can clearly see where you can double market share in specific geographies by deploying new capital in those geographies. And you have a base of people and a recognition in that market and already strong customer acceptance. We typically default to that fill-in strategy that we talked about because it's a much surer thing, takes a lot less time and energy of the organization, has significantly less management distraction. And we're perfectly willing to sit and almost wait, not necessarily troll around the country for those opportunities to come long like the Harris Teeter did. W. McMullen: The other thing that would be needed for us to change our approach is if we find that we're able to develop talent faster than we can use it within our existing growth where -- because if we bought something that was something that needed to be fixed up, we would obviously need to figure out a way to put talent into it in a way that was effective. And that would require a different level of talent than we're producing today because we're really focused on developing the talent to support the growth we have.

Our next question is from Mark Wiltamuth of Jefferies.

Could you give us a little perspective on just how much the gas gain was in EPS terms? And what quarter should we really think about the headwinds starting to arrive as you lap the stronger margins from last year? J. Schlotman: Yes. We -- Mark, we won't go into the benefit of the EPS benefit. But if you think about a $0.23 fuel margin and $0.17 last year, you get a feel -- we talked about, in a lot of places, the number of gallons that we pump. So you should be able to back into a number that gets you relatively close. We just don't want to -- we think about that department as any other department inside the company, and it happens to be performing very well right now. I would say, clearly, the second and third quarter of next year, if margins revert to a more historical kind of level, would start to experience some headwind from lower fuel margins. Again, we didn't say "when" in the comments purposefully. We said "if" because nobody can really predict where it is. And we typically turn fuel a lot faster than our competitors. So in down cycles, that's good. In up cycles, that's bad. So if fuel were to turn the other way and -- or oil was to turn the other way and start going up, that actually creates an incremental headwind, not just a normal headwind, because we're turning the fuel so quickly. But clearly, second and third quarter. W. McMullen: And one of the things, as Mike mentioned earlier, we have a January meeting with our board for them to actually approve our '15 plan. Normally, we would not share '15 details until the fourth quarter earnings release, but we just thought it would be helpful to give a little bit of color on what we're thinking and what we're seeing before then for next year.

That's fair. And then, on the inflation in those meat categories where you're still seeing that double-digit inflation, are you passing all that through? Because we are hearing some other retailers are having some difficulty passing it through. J. Schlotman: Well, inflation for us -- inflation and deflation come and go all the time, and we're constantly dealing with pricing and how do we continue to give value to the customer through inflation and deflation, whether it's meat, produce or any other part of our business. So we try to manage it in a way that still gives great value to the customer, and the customer decides what they're going to pay. But I can tell you our tonnage is good, and inflation is extremely high right now. And we're just trying to really manage our way through it.

Our next question is from Stephen Grambling of Goldman Sachs.

As you think about just the broader industry, I was hoping you could just talk maybe about where you think some of the gains that you're getting are coming from, how you see that evolving. I think it was at an Analyst Day a few years back where you discussed some of the regional players ceding share pretty consistently. Are you seeing that accelerate? Or is there anything else that you can just talk to broadly? W. McMullen: It's -- as you know, we don't ever talk about specific competitors. In terms of where the market share is coming from, it's always easier to ask the question than it is to see. It looks pretty broad-based in terms of where it's coming from, but we see, at some other national players, they are gaining share as well. So we're not the only one. But there's still about half of the market that's out there that's not people with our economies of scale, and it's not necessarily just small regional people. Some of them could be a little bit bigger. And then the other piece is we continue to add categories that we didn't even have before, which is helping some of our growth.

That's helpful. And then, are you seeing any difference in terms of the comp performance by the format of your stores? And do you feel like, after so many years of positive ID growth or productivity growth, that you're hitting a ceiling in any of these? W. McMullen: It's a good question. It's -- if you look at the comps, you always have pockets that are better than others, but it's very broad-based. And when you look at age and other things, obviously, newer stores will have a higher comp than older stores. But outside of that, there's nothing that would cause us to say one thing or the other. And probably -- I'm sure we have some stores that are getting close to capacity, but as a general rule, we have plenty of capacity within our existing stores to continue to increase the business.

Our next question is from Kelly Bania of BMO Capital Markets.

Just wanted to ask about the guidance for the fourth quarter for IDs. You mentioned the difficulty in forecasting when you cycle that benefit from the winter weather last year. I'm just curious if you are able to or have been able to at all look at your data and use dunnhumby and see how much of that boost that you may have had last year was from existing or loyal customers versus new customers and if there's any strategies in place to help kind of cycle that benefit that you may have had last winter. J. Schlotman: Well, clearly, we can understand where that business is coming from, and in those -- in regions where the snow or the weather is going to be -- get volatile in a big way, you get a lot of people from all spectrums of the loyalty umbrella, if you will, from people who rarely shop with you, but they come to you because you might be the one that is on stock on product, to your most loyal customers who come in and stock up. Obviously, we aren't -- for the fourth quarter, Mike Donnelly and Robert Clark and their merchandising group isn't sitting back just hoping for weather for us to be able to cycle the great sales we had last year's fourth quarter. They know what days and what weeks there was weather, and they would have strategies in place to try to cover some of the uplift we had in the -- from that snow. But the amount of incremental volume you get in a 36-hour period from snow is phenomenal, and it would be a Herculean effort on their part to be able to come up with strategies to overcome all of it. Clearly, we're going to go do our best to overcome it the best we can. We'll have weather. We don't know when. We don't know where. We don't know what day. We don't know... W. McMullen: Or how much. J. Schlotman: We don't know if it'll be by the end of January. We don't know if it'll be in February, March at the beginning of the next year. But it happens every year. You just don't know when. W. McMullen: Yes, the other thing is, when you look at the weather, I have a couple of friends that own quite a few fast food restaurants. And they will -- they always tell me that they hate snow because it actually has the opposite effect on them. So it's actually some of our increase is getting business that customers would sometimes be going to other channels. And obviously, when kids stay home, they're eating at home versus eating at school. So some of it is just switching where somebody eats. J. Schlotman: Right.

Got it. That's helpful. And then just another question on gross margin. Your FIFO gross margin x fuel only down 2 basis points in spite of some of the high inflation you mentioned in some categories, just any comments on the ability to pass that through and how that maybe compares to historical standards? I mean, are you finding it easier or the same in terms of passing along inflation at these high levels in some of the protein categories? J. Schlotman: As always, it's almost a category-by-category decision on where the inflation is and what the price points are doing to the customers. And if you pass it all on, what do you think the effect on units is going to be? And if you don't quite pass it all on, are you better off at the end of the day not passing all of it on? So it's a category-by-category decision. And I know Mike Donnelly and his team spent a lot of time trying to decide exactly what price points and how much of inflation to pass on and when to pass it on. I do want to reiterate that a couple of basis point decline in gross margin would have been a more normal decline in gross margin -- when I say normal, kind of the historical kind of numbers you would have seen in 2013 versus '14 if not having Harris Teeter in this year and not in the base. We continued to invest in the price -- actually, all 4 keys of the strategy this quarter. It's just that, with Harris Teeter being in there at a higher gross than we typically have run, it makes that decline look smaller. W. McMullen: The other piece in terms looking at it on a -- from a historical standpoint, part of it is trying to decide how long is the inflation going to be in place. In some items, we would anticipate inflation is only going to be 4 to 8 to 12 weeks, depending on if it's weather-driven or if it's industry and other driven. That will also affect our ability and influence on how we try to pass that through as well.

Our next question is from Chuck Cerankosky of North Coast Research.

If -- you're mentioning sales were off to a strong start thus far in the quarter. Can you give us a little detail on that, including general merchandise sales and how you did thus far in the holiday selling area period? W. McMullen: Yes. So far, if you look, it would be kind of -- fortunately, it's a similar comment that we made earlier or, I guess, really at last quarter. So far, we would be at the top end of the range. It's broad-based in all departments, so it's across the whole store. So we feel really good. The thing that makes it a little more complicated is we haven't cycled -- we're just now starting to cycle some of the weather from a year ago. So that's one of the reasons why we would get the wide range in kind of Mike's comments earlier.

Yes, I understand, Rodney, on the weather comparisons. That's just going to be tough to predict and deal with. But just wanted to see what the actuals look like so far. And can you... W. McMullen: And then -- and jewelry, also, is good so far. And obviously, that's one of the most discretionary areas that we have.

I didn't know it was discretionary. J. Schlotman: I have so many comments.

I -- also, could you repeat the private label percentages? I missed those earlier in the call. W. McMullen: Yes, Mike?

Well, overall we were really pleased with the total private label sales. And our Kroger brand, which is our workhorse, showed really strong sales growth again. And in fact, all of the different banners -- brands, excuse me, really performed well, whether it's Simple Truth and Private Selection, all of those. But Corporate Brands in the third quarter represented 27.3% of total units and 25.8% of sales dollars. That's without fuel and pharmacy.

Our next question is from Ajay Jain of Cantor Fitzgerald.

My question is guidance related. I can understand why you might be slightly cautious in your outlook for next year if fuel margins revert to more normal levels. But your outlook for the fourth quarter, I think, is around 10% EPS growth if I use the midpoint of the range. So first, as a comment, I would have thought that the benefit from fuel could be potentially even higher in the fourth quarter based on the difference between the retail pump prices and wholesale prices and then looking at the year-over-year comparisons. So I was curious if you had any comment on that. And then, apart from fuel, are there any reasons why you're guiding to earnings growth lower in Q4 on a sequential basis? J. Schlotman: It would be primarily where fuel has been. Also, keep in mind our LIFO charge continues to go up throughout the year, and that's a bit of a headwind to earnings per share as well. And the single reason for the conversation about 2015 -- and again, I remind you we used the word if because it's difficult to project, it's really just the headwind that fuel potentially represents, 23 point -- a little over $0.23 margin on fuel. We've been in the fuel business a long time, and I personally don't remember a time where we've had anywhere near that kind of a number, and it's really difficult to predict where that may go. And again we're just -- we're trying to be transparent and let everybody know what we're thinking. W. McMullen: And what the key assumption is. J. Schlotman: Yes, what the key assumption is. Right.

And as a follow-up, I think in November, you cycled the SNAP reductions from last year. Is that a material benefit at all in terms of how you're looking at it? And then are you factoring in any recent changes in the competitive environment or shift in behavior by the consumer around the holidays into your fourth quarter outlook? W. McMullen: When you look at SNAP and then you look at that customer overall, their spending may have been down on SNAP specifically, but customers are using and have been using more of their own cash. So when you look at that like customer base, it actually increased. Hopefully, that customer's increased spending in cash is driven because their economic situation's better. That, we don't know. But that's been up all year. And we continue to see the household spending for a SNAP household increase. It's not increasing at the same rate as the overall company, but it is going up.

Okay. And finally, you may have mentioned this previously, but did you disclose the quarter-to-date comps, the actual figure? W. McMullen: No, we did not. J. Schlotman: Just said is... W. McMullen: At the high end. J. Schlotman: High end of our range for the quarter.

Our next question is from Stacie Rabinowitz of Consumer Edge Research.

You had mentioned that you were actually thinking about specific categories for further price investment. And I was wondering if you could elaborate on those and then the extent to which either the increase in protein prices or the decrease in gas prices are changing how you're thinking about where you're investing in price? J. Schlotman: Yes, we're very guarded about our plans of where we would invest in price because we don't want to announce to our competitors where we plan to become more competitive. So we hold that very close to our vest.

Are you seeing anything so far as the gas prices are dropping in terms of shifts in where consumers are being more or less price-sensitive? J. Schlotman: Not in any big way.

Our next question is from -- the last question will come from Andrew Wolf of BB&T Capital Markets.

I'll ask another natural foods question. I think you mentioned earlier on that you're seeing more conversions, people who weren't shopping, customers who weren't shopping the category coming into it. So I want you to -- if you would, if you could, on some of your segmentation work, kind of elaborate on -- is that segment sort of driving the current growth you're seeing? And then contrast that to maybe folks who are already shopping the department and the penetration rates. And the third category, if you would address it, is there's been a prevailing theory for a long time, that consumer markets like Kroger would kind of see the natural food shopper and then, at some point, if they really converted to that lifestyle, would lose them to Whole Foods or an independent or somebody who could fulfill their whole basket. So I don't know if you're willing to talk about it, but are you trying to address that? I mean, are you seeing as they get to some point like hey, half their basket is this, and all of a sudden, they drop out? So if you would address that question, that'd be terrific to hear your response. J. Schlotman: Well, there's about 4 questions in the question. But the last piece, the folks that we have converted, I think if we can continue to offer the products selection at the prices they're willing to pay, I think we can maintain them. I don't have data that really supports if they leave and go to competitors, but some of the things we're doing around the country with vitamin shops in our stores and really well-done, expanded natural food selection offering -- and we've worked really hard on price in the whole natural and organic area too. So we are the #2 retailer for natural and organic sales today. And we just kind of continue to push hard. We love that customer, and they're really a great customer for us. W. McMullen: Andy, you shouldn't expect us to willingly give up any customer. And when you look at the products that a lot of the natural food competitors offer, you can find the exact same item at Kroger and, as a general rule, at very good value. Do you want to add? J. Schlotman: Just the last piece is, it's a large and growing segment of people who are trying to eat healthier, but they want to do so at a reasonable price. And I think, historically, it hasn't been that way. And today, you can shop for natural and organic and do it at a fairly reasonable price, and we're really trying to continue to make that offering, both selection and price.

Okay. Just to follow up because I know it was a long question, what about this trend you cited for -- is there an acceleration in new users, folks who are dabbling for the first time in... J. Schlotman: Definitely. There are people moving into the category, new customers entering natural, organic and healthy foods all the time. And again, a lot of it's because selection is better, I think, for us, and pricing is much stronger. W. McMullen: But it's kind of interesting. Some of the -- a large part of our customers that switch over is because some items, they think, taste better. So it actually is driven by the taste. And in some situations, it's driven by the innovation of the product. So it's not just exclusively people wanting to live and just buy and eat natural products and organics. It's much broader than that. It's one of things that we get excited about having a store that has a lot of flexibility in it is that we can change what's inside the store based on what the customer's needs are and how those change. So we're excited about the category, and we're excited about the potential even more.

Okay. And just on the guidance very quick. It's probably been asked, but I'll ask it again if it has. If you take out the gas this year and Harris Teeter's accretion, or at least you gave a range, it looks like you're coming in around the high end of the 8% to 11% secular growth or maybe at the high end or a little better for the core business x those 2. And if you look at guiding to next year towards the lower end, is it more normalization of sales trends and maybe inflation? Or more, hey gas is -- you can't budget gas at the same level as this year as you're just sort of putting out this broad look to the lower end as sort of early guidance? J. Schlotman: Yes, as I said earlier, if you were to look at -- if you were to strip out the core grocery business, it would be higher in the range. But when you add the fuel in, that's -- if fuel margins revert to the mean, it would be the fuel that's driving it down.

This concludes our question-and-answer session. I'd like to turn the conference back over to Rodney McMullen for any closing remarks. W. McMullen: Thank you. Before we end today's call, I would like to say a few words about Dave Dillon, who is listening in this morning. All of you know Dave well, and this is his last official meeting as Kroger's Chairman. Dave has been a friend and a leader to all of us and a mentor to many of us. Thousands of associates can relate to that comment. For me, personally, Dave has been a partner like no other. On behalf of the entire Kroger family, we wish Dave and his family all the best as they begin the next chapter together. Dave, thank you from all of us. Finally, I'd like to share some thoughts about our associates listening in. During the next few weeks, there will be a lot of activity in our stores as we help customers prepare for their holiday celebrations. Thank you for helping make the holidays brighter for our customers and the communities we serve and live in. During Kroger's season of giving, with your help and the help from our customers, we will donate 30 million meals to local food banks. Customers will have the opportunity to add their support by dropping change into coin boxes at check stands and donating nonperishable food in collection barrels in stores. Thank you for all that you do for our customers and each other. Merry Christmas. Happy holidays to you and your family. That completes our call today. Thanks for joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.