Albertsons Companies, Inc. Reports Strong Second Quarter Results

Albertsons Companies, Inc. (Albertsons), one of the largest food retailers in the United States, has reported its financial results for the second quarter of fiscal 2024. The company’s performance highlights its continued growth and resilience in a challenging economic environment.

Overview of Financial Performance

For the second quarter of fiscal 2024, Albertsons reported net sales and other revenue of $18,551.5 million, a 1.4% increase from the same period in the previous year. This growth was driven by a 2.5% increase in identical sales, excluding fuel, as well as continued strong performance in the company’s digital sales, which increased by 24%.

Gross margin remained steady at 27.6% during the second quarter, though it decreased by 44 basis points when excluding the impact of fuel and LIFO expense. This decline was primarily due to the strong growth in pharmacy sales, which carry a lower gross margin, as well as increases in picking and delivery costs related to the company’s growing digital sales.

Selling and administrative expenses increased to 25.8% of net sales and other revenue, up from 25.1% in the same period last year. Excluding the impact of fuel, selling and administrative expenses as a percentage of net sales and other revenue increased by 41 basis points. This was mainly attributable to higher operating expenses related to the development of Albertsons’ digital and omnichannel capabilities, merger-related costs, increased employee costs, and additional third-party store security services, partially offset by the benefits of the company’s productivity initiatives.

Net income for the second quarter was $145.5 million, or $0.25 per Class A common share, compared to $266.9 million, or $0.46 per Class A common share, in the same period last year. Adjusted net income, which excludes the impact of certain items, was $301.0 million, or $0.51 per Class A common share, compared to $367.7 million, or $0.63 per Class A common share, in the second quarter of fiscal 2023.

Adjusted EBITDA, a non-GAAP measure that provides a supplemental view of the company’s operating performance, was $900.6 million, or 4.9% of net sales and other revenue, compared to $976.9 million, or 5.3% of net sales and other revenue, in the same period last year.

Revenue and Profit Trends

Albertsons’ strong performance in the second quarter was driven by continued growth in identical sales, excluding fuel, which increased by 2.5%. This was primarily due to strong growth in pharmacy sales, which offset lower fuel sales. The company’s digital sales also continued to grow, increasing by 24% compared to the same period last year.

While gross margin remained steady at 27.6%, the company experienced a 44-basis-point decline in gross margin, excluding the impact of fuel and LIFO expense. This was mainly due to the higher mix of pharmacy sales, which carry a lower gross margin, as well as increases in picking and delivery costs related to the growth in digital sales. The company’s productivity initiatives, however, helped to partially offset these pressures.

Selling and administrative expenses increased as a percentage of net sales and other revenue, rising from 25.1% in the second quarter of fiscal 2023 to 25.8% in the current quarter. This was primarily driven by higher operating expenses related to the company’s digital and omnichannel initiatives, merger-related costs, increased employee costs, and additional third-party store security services. The company’s productivity initiatives helped to mitigate some of these cost increases.

Net income and adjusted net income both declined compared to the same period last year, primarily due to the increase in selling and administrative expenses and higher asset impairment charges. Adjusted EBITDA also decreased, reflecting the higher operating expenses and the impact of the lower gross margin.

Strengths and Weaknesses

One of Albertsons’ key strengths is its diversified portfolio of well-known grocery banners, which allows the company to serve a wide range of customer preferences and geographic markets. The company’s continued investment in its digital and omnichannel capabilities has also been a strength, as evidenced by the strong growth in digital sales during the quarter.

However, the company’s reliance on pharmacy sales, which carry a lower gross margin, and the increasing costs associated with its digital operations have put pressure on its profitability. The company’s selling and administrative expenses have also risen, driven by higher operating costs and merger-related expenses, which have weighed on its bottom line.

Another potential weakness is the company’s exposure to macroeconomic factors, such as inflation and changes in consumer spending patterns, which could impact its financial performance going forward.

Outlook and Future Prospects

Despite the challenges faced in the second quarter, Albertsons remains optimistic about its future prospects. The company’s strong liquidity position, with $3.9 billion in available borrowing capacity under its ABL Facility as of September 7, 2024, provides it with the financial flexibility to invest in its growth initiatives and navigate any potential economic headwinds.

The company’s ongoing focus on productivity initiatives and cost management is expected to help mitigate the pressure on its profitability. Additionally, the proposed merger with The Kroger Co., announced in October 2022, could provide Albertsons with opportunities to achieve greater scale and operational efficiencies, which could benefit the company’s long-term performance.

Overall, Albertsons’ second-quarter results demonstrate the company’s ability to navigate a challenging environment and continue to grow its business. While the company faces some near-term headwinds, its strong market position, digital capabilities, and strategic initiatives position it well for the future.