Cost-Cutting, Regained Share, New Merchandising Behind Albertsons' Strong Q1

BOISE, Idaho -- The acquisition of Shaw's, recovery of market share in Southern California, continued cost-cutting, and new national merchandising programs launched across the company's banners were behind Albertsons Inc.'s successful first quarter, reported yesterday.

Earnings from the chain's continuing operations rose 93 percent to $107 million, or 29 cents per share, almost doubling last year's $56 million and 15 cents per diluted share figures. Net earnings, which reflected losses from discontinued operations, were $100 million for the quarter, versus $36 million for the year ago period.

Total sales grew 16 percent to $10 billion, compared to $8.6 billion last year. Total comparable store sales for the quarter increased 1.8 percent and identical store sales increased 1.6 percent.

Selling general and administrative (SG&A) expenses as a percentage of sales -- which decreased for four consecutive quarters -- were 25.18 percent, compared to 25.96 percent last year. This decrease, was primarily the result of reductions in wages and benefits, gain on sale of assets offset by impairment charges, lower legal expenses and workers' compensation costs, as well as costs associated with the labor dispute in Southern California that negatively impacted the prior year period.

"We are very pleased with our cost-savings efforts to date," said Albertsons' c.e.o. Larry Johnston during yesterday's conference call. "However, we know we must continue to reduce costs."

The company remained ahead of plan in its major cost control program initiated in mid-2001, which is targeting cost savings of $1.25 billion by the end of fiscal 2006. During the quarter $51 million in cost savings were achieved, bringing the company's cumulative cost savings total since mid-2001 to $1.054 billion.

During the first quarter, Albertsons also continued its capital expenditure program, opening a total of 25 stores, completing 25 remodels, and completing 30 technology projects. "We clearly could have invested more heavily to drive sales this quarter," said Johnston. "However, we remain disciplined in our approach to investing for sustained top line growth versus renting short-term sales gains that are not sustainable and are a poor investment for shareholders."

Continuing a strategy of improving its asset base, Albertsons last month said it was exiting the Jacksonville, Florida market, agreeing to sell all seven Albertsons stores in the market to Rowe Markets. The transaction is expected to close in mid-July. This pending transaction resulted in a charge that negatively impacted earnings from discontinued operations for the first quarter by 2 cents per share. The majority of the charge is for non-cash impairment write-downs associated with the sale of property and equipment.

Some additional first quarter achievements noted by Johnston:

-- Extreme Inc. more than doubled its number of price-impact stores to 24, opening 13 new stores in Florida and Utah under the Super Saver banner. "Price impact stores are a very important part of our multi-format strategy," noted Johnston.

-- Expansion of the Renaissance drugstore format continued in both standalone drug and combo stores. Currently, a total of 129 drug stores and drug sections of combo stores now feature elements of the Renaissance format.

-- Dual branding continued during the quarter as an additional 383 pharmacies were converted to either the Osco or Sav-on banner. This brings the total number of dual-branded combination stores to 1,060. By the end of fiscal 2005, the company expects to have all food stores with pharmacies dual branded with either the Osco or Sav-on banner. "We have the unique ability to leverage and marry the power of our food brand with the power of our drugstore brands Sav-on and Osco," said Johnston. "Together the brands create powerful chemistry inside the store, as evidenced by Jewel-Osco."

-- RFID testing continued during the quarter as the company worked closely with top suppliers to gauge the benefits of RFID for supply chain optimization.

-- The number of Six Sigma black belts rose to nearly 100 during the quarter. Currently, 178 projects are underway, providing the potential for significant process improvement and cost savings going forward.
This ad will auto-close in 10 seconds