Tuesday, 24. November 2020
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Albertsons Companies: Digital sales grew 243 percent in fiscal Q2-2020

Boise / ID. (abc) Albertsons Companies reported results for the second quarter of fiscal 2020, which ended September 12, 2020. Second quarter of fiscal 2020 highlights:

  • Identical sales growth of 13.8 percent
  • Digital sales growth of 243 percent
  • Diluted net income per share of USD 0.49; Adjusted net income per share of USD 0.60
  • Net income of USD 284.5 million
  • Adjusted Ebitda of USD 948.4 million, an increase of 67 percent compared to the second quarter last year
  • Debt refinancing and paydown transactions to deliver approximately USD 52 million in annualized interest savings

«We continue to successfully execute against our strategic priorities, which translated into outstanding second quarter results. We have a value proposition that is resonating with customers and driving market share gains across all of our markets,» said Vivek Sankaran, President and CEO. «We are in the early stages of a transformation to become a modern, growing food retailer providing a wide assortment of high quality fresh and essential goods to customers, and we remain well-positioned to generate differentiated performance and deliver an excellent shopping experience.»

Second Quarter of Fiscal 2020 Results

Sales and other revenue increased 11.2 percent to USD 15.8 billion during the 12 weeks ended September 12, 2020 («second quarter of fiscal 2020») compared to USD 14.2 billion during the 12 weeks ended September 7, 2019 («second quarter of fiscal 2019»). The increase was driven by the Company’s 13.8 percent increase in identical sales, partially offset by lower fuel sales. Identical sales benefited from the Company’s 243 percent growth in digital sales and an increase in store sales.

Gross profit margin increased to 29.0 percent during the second quarter of fiscal 2020 compared to 27.8 percent during the second quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 85 basis points compared to the second quarter of fiscal 2019. The increase in gross profit margin was primarily driven by continued improvements in shrink expense and sales leverage on advertising and supply chain costs. Gross profit margin also benefited from sales mix shifts.

Selling and administrative expenses decreased to 25.6 percent of sales during the second quarter of fiscal 2020 compared to 26.8 percent of sales for the second quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 175 basis points. The decrease in selling and administrative expenses was primarily attributable to sales leverage driven by higher identical sales, partially offset by incremental Covid-19 costs related to supporting and protecting our associates and customers.

Gain on property dispositions and impairment losses, net was USD 18.3 million during the second quarter of fiscal 2020 compared to USD 435.5 million during the second quarter of fiscal 2019. The gain during the second quarter of fiscal 2019 was related to sale leaseback transactions.

Interest expense was USD 128.6 million during the second quarter of fiscal 2020 compared to USD 177.5 million during the second quarter of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates. The weighted average interest rate during the second quarter of fiscal 2020 was 6.0 percent compared to 6.4 percent during the second quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.

Income tax expense was USD 111.2 million during the second quarter of fiscal 2020 compared to USD 81.9 million during the second quarter of fiscal 2019. The increase in income tax expense is primarily the result of incurring certain nondeductible transaction-related costs in the second quarter of fiscal 2020 and the increase in income before taxes.

Net income was USD 284.5 million during the second quarter of fiscal 2020 compared to USD 294.8 million during the second quarter of fiscal 2019. Net income for the second quarter of fiscal 2019 included the benefit of gains related to sale leaseback transactions.

Adjusted net income was USD 356.4 million, or USD 0.60 per share, during the second quarter of fiscal 2020 compared to USD 99.2 million, or USD 0.17 per share, during the second quarter of fiscal 2019.

Adjusted Ebitda was USD 948.4 million, or 6.0 percent of sales, during the second quarter of fiscal 2020 compared to USD 567.6 million, or 4.0 percent of sales, during the second quarter of fiscal 2019. The increase in Adjusted Ebitda was primarily attributable to the Company’s 13.8 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses.

Year-To-Date Results

Sales and other revenue increased 17.0 percent to USD 38.5 billion during the 28 weeks ended September 12, 2020 («first 28 weeks of fiscal 2020») compared to USD 32.9 billion during the 28 weeks ended September 7, 2019 («first 28 weeks of fiscal 2019»). The increase was driven by the Company’s 21.0 percent increase in identical sales, partially offset by lower fuel sales.

Gross profit margin increased to 29.5 percent during the first 28 weeks of fiscal 2020 compared to 27.9 percent during the first 28 weeks of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 80 basis points.

Selling and administrative expenses decreased to 25.5 percent of sales during the first 28 weeks of fiscal 2020 compared to 26.6 percent of sales for the first 28 weeks of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 185 basis points.

Interest expense was USD 309.2 million during the first 28 weeks of fiscal 2020 compared to USD 402.7 million during the first 28 weeks of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates.

Adjusted Ebitda was USD 2,639.4 million, or 6.9 percent of sales, during the first 28 weeks of fiscal 2020 compared to USD 1,444.4 million, or 4.4 percent of sales, during the first 28 weeks of fiscal 2019. The increase in Adjusted Ebitda was primarily attributable to the Company’s 21.0 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses.

Liquidity, Capital Expenditures and Refinancing Transactions

Net cash provided by operating activities was USD 2,720.8 million during the first 28 weeks of fiscal 2020 compared to USD 1,084.8 million during the first 28 weeks of fiscal 2019. The increase in cash flow from operations compared to the first 28 weeks of fiscal 2019 was primarily due to improvements in operating performance and changes in working capital primarily related to inventory and accounts payable driven by the increase in sales volume during the first 28 weeks of fiscal 2020.

During the first 28 weeks of fiscal 2020, the Company spent USD 702.9 million in capital expenditures, which included investments in strategic technology, accelerated investment in eCommerce and the completion of 132 remodel projects.

On August 31, 2020, the Company issued USD 750 million in aggregate principal amount of new 3.250 percent senior notes due 2026, issued at par (the «2026 Notes»), and USD 750 million in aggregate principal amount of new 3.500 percent senior notes due 2029, issued at par (the «2029 Notes» and together with the 2026 Notes, the «New Notes»). The Company used the net proceeds from the New Notes, together with approximately USD 60 million of cash on hand, to (i) fund the redemption of all of its outstanding 6.625 percent senior notes due 2024 (the «2024 Redemption»), (ii) fund a partial redemption of USD 250 million principal amount of its outstanding 5.750 percent senior notes due 2025 (the «2025 Partial Redemption» and together with the 2024 Redemption, the «Redemptions») and (iii) pay fees and expenses related to the Redemptions and the issuance of the New Notes. The Company completed the 2024 Redemption on September 11, 2020 and the 2025 Partial Redemption on September 16, 2020 (subsequent to the end of the second quarter of fiscal 2020). The Company also repaid the remaining USD 136.8 million in aggregate principal amount of Safeway Inc.’s 3.95 percent Notes due 2020 on their maturity date, August 15, 2020. In total, the refinancing and debt reduction is expected to save the Company approximately USD 52 million in annualized pre-tax interest expense.

Capital Allocation Strategy and Common Stock Repurchase Program

The Company’s capital allocation strategy is balanced, prioritizing increased levels of capital investment in the business to drive future growth, continued deleveraging of the balance sheet, the recently announced USD 0.10 per share quarterly dividend, and opportunistic share repurchases under the newly authorized share repurchase program, all anchored on the strong and consistent free cash flow generated by the business. The Company’s capital allocation program is expected to be funded with cash on hand and cash generated from future operations.

On October 14, 2020, the Company’s Board of Directors authorized a new share repurchase program that allows the Company to repurchase up to USD 300 million of the Company’s common stock. This program reflects the Company’s continued confidence in its long-term outlook and approach to driving overall stockholder value. Purchases under the common stock repurchase program are anticipated to be made opportunistically at management’s discretion.

Updated Fiscal 2020 Outlook

Since the beginning of fiscal 2020, the Company has experienced significant increases in product demand and overall basket size in our stores and in our eCommerce business due in part to Covid-19 related demand. As a result, the Company is providing an updated fiscal 2020 outlook, as follows:

  • Identical sales in fiscal 2020 of at least 15.5 percent
  • Adjusted EPS in the range of USD 2.75 per share to USD 2.85 per share
  • Adjusted Ebitda in the range of USD 4.15 billion to USD 4.25 billion
  • Effective tax rate to be approximately 25 percent excluding discrete items
  • Capital expenditures to be approximately USD 1.9 billion

The Company is unable to provide a full reconciliation of the GAAP and Non-GAAP Measures (as defined below) used in the updated fiscal 2020 outlook without unreasonable effort because it is not possible to predict certain of the adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of the Company’s control and could have a significant impact on its GAAP financial results for fiscal 2020.