Albertsons Companies: Reports Q1 Fiscal 2023 Results

Boise / ID. (abc) Albertsons Companies reported results for the first quarter of fiscal 2023, which ended in Idaho’s City of Trees on June 17, 2023. First quarter of fiscal 2023 financial highlights:

  • Identical sales increased 4.9 percent
  • Digital sales increased 22 percent
  • Loyalty members increased 16 percent to 35.9 million
  • Net income of USD 417 million, or USD 0.72 per share
  • Adjusted net income of USD 546 million, or USD 0.93 per share
  • Adjusted Ebitda of USD 1,319 million

Vivek Sankaran, CEO commented, «Our first quarter results demonstrate the resilience of our business, and the effectiveness of our transformation strategy, even as the economic environment has become more challenging. We want to thank all our teams for their commitment to our customers and communities.

«As we look ahead to the balance of the year, we remain focused on driving operational excellence in our stores and continued growth in our digital and pharmacy operations. We will also continue to drive the initiatives supporting our Customers for Life strategy, including delivering on our customer promises, deepening our relationships with them, and serving them where, when and how they want to be served.»

Sankaran concluded, «We are also mindful of the evolving economic backdrop, including slowing food inflation, declining government assistance and higher interest rates, and their potential effects on consumer spending and our business. We also expect to see ongoing labor investment, broad inflationary cost increases and significant declines in Covid-19 vaccination and test kit revenue. These headwinds, however, are expected to be partially offset by the benefits of our productivity initiatives.»

First Quarter of Fiscal 2023 Results

Net sales and other revenue was USD 24.1 billion during the 16 weeks ended June 17, 2023 (Q1-2023) compared to USD 23.3 billion during the 16 weeks ended June 18, 2022 (Q1-2022). The increase was driven by the Company’s 4.9 percent increase in identical sales, with retail price inflation across most categories, growth in pharmacy and increasing digital penetration contributing to the identical sales increase. The increase in Net sales and other revenue was partially offset by lower fuel sales.

Gross margin rate decreased to 27.7 percent during the first quarter of fiscal 2023 compared to 28.1 percent during the first quarter of fiscal 2022. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 91 basis points compared to the first quarter of fiscal 2022. Pharmacy operations drove almost half of the rate decrease with the remaining decrease being the result of increases in shrink, picking and delivery costs related to the continued growth in digital sales, and warehouse costs. The rate decrease related to pharmacy operations was primarily due to growth in pharmacy sales and fewer COVID-19 vaccines in the first quarter of fiscal 2023. In addition, benefits from our productivity initiatives allowed us to provide incremental price investments to our customers during the first quarter of fiscal 2023.

Selling and administrative expenses decreased to 25.0 percent of Net sales and other revenue during the first quarter of fiscal 2023 compared to 25.2 percent during the first quarter of fiscal 2022. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 53 basis points. The decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to sales leverage on employee costs, which includes the benefit of ongoing productivity initiatives, lower depreciation and amortization and lower legal and regulatory accruals and settlements, partially offset by Merger-related costs.

Net loss on property dispositions and impairment losses was USD 27.6 million during the first quarter of fiscal 2023 compared to a net gain of USD 79.4 million during the first quarter of fiscal 2022.

Interest expense, net was USD 154.9 million during the first quarter of fiscal 2023 compared to USD 138.9 million during the first quarter of fiscal 2022.

Other income, net was USD 16.0 million during the first quarter of fiscal 2023 compared to other income, net of USD 6.3 million during the first quarter of fiscal 2022.

Income tax expense was USD 66.1 million, representing a 13.7 percent effective tax rate, during the first quarter of fiscal 2023 compared to USD 143.3 million, representing a 22.8 percent effective tax rate, during the first quarter of fiscal 2022. The favorability in the effective income tax rate in the first quarter of fiscal 2023 was driven by the reduction of a reserve for an uncertain tax position due to the expiration of a statute during the first quarter of fiscal 2023.

Net income was USD 417.2 million, or USD 0.72 per share, during the first quarter of fiscal 2023, which included the USD 49.7 million or USD 0.09 per share benefit related to the reduction in the reserve for an uncertain tax position. Net income was USD 484.2 million, or USD 0.84 per share, during the first quarter of fiscal 2022.

Adjusted net income was USD 545.7 million, or USD 0.93 per share (which includes the tax benefit discussed above), during the first quarter of fiscal 2023 compared to USD 582.0 million, or USD 1.00 per share, during the first quarter of fiscal 2022.

Adjusted Ebitda was USD 1,318.5 million, or 5.5 percent of Net sales and other revenue, during the first quarter of fiscal 2023 compared to USD 1,420.3 million, or 6.1 percent of Net sales and other revenue, during the first quarter of fiscal 2022. The decrease in Adjusted Ebitda in the first quarter of fiscal 2023 was primarily due to fewer COVID-19 vaccinations and a decrease in gross margin rate compared to the first quarter of fiscal 2022. We expect a continued decline in providing COVID-19 vaccinations and at-home test kits, resulting in an approximate USD 130 million headwind to Adjusted Ebitda for the remaining three quarters of fiscal 2023.

Capital Expenditures

During the first quarter of fiscal 2023, capital expenditures were USD 622.5 million, which primarily included the completion of 43 remodels, the opening of two new stores and continued investment in our digital and technology platforms.

Merger Agreement

On October 13, 2022, the Company entered into an Agreement and Plan of Merger with The Kroger Company (“Kroger”) and Kettle Merger Sub, Inc. Under the terms of the Merger Agreement, Kroger (through Kettle Merger Sub, Inc.) will acquire all of the outstanding shares of the Company’s common stock for total consideration of USD 34.10 per share, subject to certain reductions including a special cash dividend of USD 6.85 per share paid on January 20, 2023. Details regarding the Merger Agreement and the transactions contemplated by the Merger Agreement can be found in the Form 8-K filed on October 14, 2022 and the joint press release issued by the Company and Kroger on October 14, 2022.

Convertible Preferred Stock

During the first quarter of fiscal 2023, certain holders of the Company’s convertible preferred stock converted approximately 50,000 shares of convertible preferred stock into 2,903,200 shares of the Company’s Class A common stock. As a result, the Company has issued in the aggregate, 101,611,902 shares of Class A common stock to holders of convertible preferred stock, representing 100 percent of the originally issued convertible preferred stock. No shares of convertible preferred stock are outstanding.