Albertsons Delivers Last Earnings Report Before Kroger Merger Decision
Albertsons Cos. has posted stronger-than-expected third-quarter earnings for the period ending Dec. 2, 2023.
"We delivered another solid quarter amidst a challenging economic backdrop," said Albertsons Cos. CEO Vivek Sankaran. "We want to thank all our teams for their commitment to serving our customers and communities. As we look ahead, our ambition is to create Customers for Life, in part through our focus on operational excellence in our stores, driving growth in our digital and pharmacy operations, and deepening our relationships with our customers."
Albertsons got off to a good start in deepening said relationship with customers in Q3, as loyalty members increased 17% to 38.5 million during the period.
The company also grew its net sales and other revenue to $18.6 billion in Q3, compared with $18.2 billion last year. The rise was driven by the company's 2.9% increase in identical sales, with strong growth in pharmacy sales driving the identical-sales increase. Additionally, the company continued to grow its digital business, logging an impressive 21% sales increase during Q3 of fiscal 2023.
[Read more: “Albertsons Makes It Easier for Customers to Explore Medicare Options”]
Albertsons’ gross margin rate experienced a slight drop to 28.0%, compared with last year’s 28.2%. Excluding the impact of fuel and LIFO expense, the gross margin rate declined 64 basis points year over year.
Selling and administrative expenses (SG&E) slightly decreased to 24.8% of net sales and other revenue during Q3, compared with 25.0% last year. Excluding the impact of fuel, SG&E as a percentage of net sales and other revenue declined 28 basis points. The decrease was primarily attributable to lower employee costs, which include the benefit of ongoing productivity initiatives, and lower depreciation and amortization, partly offset by an increase in operating expenses related to the expansion of digital and omnichannel capabilities, ongoing merger-related costs, increased store occupancy costs and additional third-party store security services.
Net loss on property dispositions and impairment losses was $23.9 million during Q3. Last year, it was $7.3 million.
Net interest expense was $116.3 million during Q3 – a big uptick compared with last year’s $84.3 million. The company said that the increase was due to lower interest income, as well as higher average outstanding borrowings and higher average interest rates.
Other net income was $6.7 million during the Q3 of fiscal 2023, compared to other net expense of $1.7 million during Q3 of fiscal 2022.
Net income was $361.4 million, or 62 cents per share, during the Albertsons’ latest quarter, while net income was $375.5 million, or 20 cents per share, during the Q3 of fiscal 2022. Net income per share during Q3 of fiscal 2022 includes a 45 cent-per-share reduction related to the special cash dividend of $6.85 per share attributable to holders of convertible preferred stock on an as-converted basis.
Albertsons reported that its adjusted net income dropped $462.3 million, or 79 cents per share, compared with last year’s $505.1 million, or 87 cents per share.
Adjusted EBITDA was $1,106.5 million, or 6.0% of net sales and other revenue, during the latest quarter. In the year-ago period, it was $1,158.0 million, or 6.4% of net sales and other revenue.
During the first 40 weeks of fiscal 2023, capital expenditures were $1,535.0 million, which primarily included the completion of 115 remodels, the opening of five new stores and continued investment in digital and technology platforms.
One of these investments was revealed on the same day of Q3 earnings. Albertsons is now working with commerce media company Criteo to power the grocer’s retail media ecosystem. Criteo will enhance Albertsons’ retail media network, which will include both on-site sponsored ad offerings, and eventually newer ad formats like commerce display and sponsored video.
Looking ahead to the fourth quarter of fiscal 2023, Albertsons expects continued outsized growth and margin impact in pharmacy and digital operations.
However, the grocer cautioned that consumer spending on food staples could slow into the coming year.
"While we are benefiting from our productivity initiatives, we expect to continue to see the impacts of investments in associate wages and benefits, cycling significant prior-year food inflation, customers receiving less government assistance, the resumption of student loan payments and other types of payment deferrals, inflationary cost increases, and the outsized growth of our pharmacy and digital businesses as we continue to lean into increased customer engagement in our Customers for Life strategy," noted Sankaran.
Albertsons is not hosting a conference call on its Q3 earnings or providing formal financial guidance, because of the pending Kroger deal.
Merger Details
On Oct. 13, 2022, Albertsons entered into a merger agreement with The Kroger Co. and Kettle Merger Sub Inc. Under the terms of the agreement, Kroger (through Kettle Merger Sub Inc.) will acquire all of the outstanding shares of the company's common stock for total consideration of $34.10 per share, reduced by the special cash dividend of $6.85 per share paid on Jan. 20, 2023.
In connection with the merger, Albertsons and Kroger entered into a definitive agreement with C&S Wholesale Grocers for the sale of select stores, banners, distribution centers, offices and private label brands to C&S.
According to Bloomberg, Kroger and Albertsons are bracing for a U.S. Federal Trade Commission (FTC) lawsuit over the proposed $24.6 billion agreement as opposition builds against the supermarket mega-deal. The agency has until Jan. 17 to decide to sue or settle or merger.
The International Brotherhood of Teamsters is calling FTC to reject the sale of any assets of Kroger or Albertsons to C&S.
"Kroger and Albertsons management has told everyone and anyone that no union members will lose their jobs, contracts or hours if this merger goes through. Those promises mean nothing if they sell parts of either company to C&S," noted Sean M. O'Brien, general president of the Washington, D.C.-based International Brotherhood of Teamsters. "We're not going to let any company put Teamster jobs at risk. Make no mistake — this deal is as anti-union as it gets if C&S ends up owning any part of Kroger or Albertsons."
As of Dec. 2, 2023, Boise, Idaho-based Albertsons operated 2,271 retail food and drug stores with 1,726 pharmacies, 401 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. It has stores across 34 states and the District of Columbia under 24 banners, among them Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market. Albertsons is No. 9 on The PG 100, Progressive Grocer’s 2023 list of top food and consumables retailers in North America. PG also named the company one of its Retailers of the Century.
