Loyalty Up at Albertsons, But Profits Down
Despite posting a lower-than-expected first-quarter profit, Albertsons Cos. saw some positive results, thanks to its Our Customers for Life strategy.
Launched in 2022, Customers for Life is a five-pronged strategy designed to place the customer at the center of everything that Albertsons does, with the ultimate goal of supporting customers every day, every week and for a lifetime.
The multifaceted strategy includes digitally connecting and engaging customers; differentiating the store experience; elevating the retailer’s distinctiveness in fresh by expanding private-brand products and services, and enhancing product offerings in center store; modernizing capabilities through an improved supply chain, enhanced data and data analytics, and ongoing productivity; and further embedding environmental, social and governance (ESG) throughout operations.
CEO Vivek Sankaran credited the strategy for a couple of highlights in the retailer’s first quarter, which ended June 15. During this time, the grocery conglomerate grew loyalty members by 15% to 41.4 million. Additionally, digital sales increased 23%.
"In the first quarter of fiscal 2024, we continued to invest in our Customers for Life strategy and the digital and omnichannel capabilities necessary to support it," said Sankaran. "Our Customers for Life strategy is placing the customer at the center of everything we do, and we continued to drive strong year-over-year growth in loyalty members as we launched our new simplified 'for U' loyalty program.”
Foot traffic analytics firm Placer.ai’s "Albertsons Companies: H1 2024 Recap" report agrees that the conglomerate’s banners have maintained strong yearly growth, both in terms of visits and loyalty. Between January and June 2024, Safeway, the company’s largest banner, accounted for 44.5% of all visits, followed by Albertsons (17.9%) and Jewel-Osco (10.7%). As for visits, Safeway saw visits grow 7.7% year over year in June, with Jewel-Osco’s visits up 10.8% and Vons’ visits up 5.7%.
Sankaran also pointed out that amidst an evolving economic and industry backdrop in Q1, Albertsons continued to deliver outsized growth in its digital and pharmacy businesses.
Albertsons reported that its Q1 net sales and other revenue were $24.3 billion, compared with $24.1 billion during Q1 2023. The increase was driven by the company's 1.4% growth in identical sales, with strong growth in pharmacy sales driving the identical-sales increase. The increase in net sales and other revenue was partly offset by lower fuel sales.
The gross margin rate ticked up 27.8% versus last year’s 27.7%. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 22 basis points compared with Q1 2023. The strong growth in pharmacy sales, which carries an overall lower gross margin rate, increases in shrink, and increases in picking and delivery costs related to the continued growth in digital sales were the primary drivers of the decrease, partly offset by procurement and sourcing productivity initiatives.
Selling and administrative expenses rose by 25.9% of net sales and other revenue, primarily attributable to an increase in operating expenses related to the ongoing development of digital and omnichannel capabilities, Kroger merger-related costs, higher employee costs, increased store occupancy costs and additional third-party store security services, partly offset by the benefit of productivity initiatives.
Meanwhile, net income dropped to $240.7 million, or 41 cents per share. Last year's net income was $417.2 million, or 72 cents per share, which included the $49.7 million, or 9 cents per share, benefit related to the reduction in the reserve for an uncertain tax position.
Adjusted net income was $391.6 million, or 66 cents per share, compared with last year’s $545.7 million, or 93 cents per share.
Adjusted EBITDA was $1,183.9 million, or 4.9% of net sales and other revenue. Last year, it was $1,318.5 million, or 5.5% of net sales and other revenue.
During Q1, capital expenditures came to $543.0 million, which primarily included the completion of 17 remodels, the opening of one new store, and continued investment in digital and technology platforms.
[RELATED: How Albertsons Is Creating a Best-in-Class Omni Experience]
In light of the company’s potential merger with Kroger, Albertsons didn’t host a conference call or provide financial guidance in conjunction with its Q1 of fiscal year 2024 results.
However, Sankaran did provide the following statement: "As we look ahead to the balance of fiscal 2024, we expect to see continuing headwinds related to investments in associate wages and benefits, an increasing mix of our pharmacy and digital businesses which carry lower margins, and the cycling of prior-year food inflation. We expect these headwinds to be partially offset by ongoing productivity initiatives."
A hearing date of Aug. 26 has been set regarding the FTC’s request for a preliminary injunction against the merger. A few weeks ago, Kroger revealed which Kroger and Albertsons stores will be divested to C&S if the $24.6 billion Kroger-Albertsons merger succeeds.
As of June 15, Boise, Idaho-based Albertsons operated 2,269 retail stores with 1,725 pharmacies in 34 states, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The company has stores across 34 states and the District of Columbia under more than 20 banners. Albertsons is No. 9 on The PG 100, Progressive Grocer’s 2024 list of top food and consumables retailers in North America. PG also named the company one of its Retailers of the Century.
