Albertsons Companies: Reports Q2 Fiscal 2021 Results

Boise / ID. (abc) Albertsons Companies reported results for the second quarter of fiscal 2021, which ended in Idaho September 11, 2021.

Second Quarter of Fiscal 2021 Highlights

  • Identical sales increased 1.5 percent; on a two-year stacked basis identical sales growth was 15.3 percent
  • Digital sales increased 5 percent; on a two-year stacked basis digital sales growth was 248 percent
  • Net income per Class A common share of USD 0.52
  • Adjusted net income per Class A common share of USD 0.64
  • Net income of USD 295 million; Adjusted net income of USD 370 million
  • Adjusted Ebitda of USD 965 million
  • Increased quarterly common stock dividend by 20 percent to USD 0.12 per share

«We are pleased with our second quarter results as we continue to execute our transformation strategy. The favourable consumer backdrop together with our focus on in-store excellence, accelerating our digital and omni-channel capabilities, increasing productivity and strengthening our talent and culture, are driving increased identical sales and improved performance,» said Chief Executive Vivek Sankaran. «Based on this strong performance, we announced a 20 percent increase to our quarterly dividend, and have raised our fiscal year 2021 outlook.»

Q2 of Fiscal 2021 Results Compared to Q2 of Fiscal 2020

Sales and other revenue was USD 16.5 billion during the 12 weeks ended September 11, 2021 («second quarter of fiscal 2021») compared to USD 15.8 billion during the 12 weeks ended September 12, 2020 («second quarter of fiscal 2020»). The increase was primarily driven by the Company’s 1.5 percent increase in identical sales and higher fuel sales.

Gross profit margin decreased to 28.6 percent during the second quarter of fiscal 2021 compared to 29.0 percent during the second quarter of fiscal 2020. Excluding the impact of fuel, gross profit margin was flat compared to the second quarter of fiscal 2020 primarily due to higher product, supply chain and advertising costs, offset by benefits related to productivity initiatives, favourable product mix and improved pharmacy margins related to administering Covid-19 vaccines.

Selling and administrative expenses were 25.6 percent of sales during the second quarter of fiscal 2021 and the second quarter of fiscal 2020. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales increased 55 basis points. The increase in selling and administrative expenses was primarily attributable to employee costs, depreciation and other expenses related to the Company’s investments in its digital and omni-channel capabilities and strategic priorities. These increases were partially offset by lower Covid-19 related expenses and the execution of productivity initiatives. As it relates to the year over year increase in employee costs, labour related to the reopening of certain fresh departments, market-driven wage rate increases and higher equity-based compensation expense drove this increase.

Interest expense was USD 109.3 million during the second quarter of fiscal 2021 compared to USD 128.6 million during the second quarter of fiscal 2020. The decrease in interest expense was primarily attributable to lower average interest rates and lower average borrowings.

Other income, net was USD 18.9 million during the second quarter of fiscal 2021 compared to other income, net of USD 11.4 million during the second quarter of fiscal 2020.

Income tax expense was USD 100.3 million, representing a 25.4 percent effective tax rate, during the second quarter of fiscal 2021 compared to USD 111.2 million, representing a 28.1 percent effective tax rate, during the second quarter of fiscal 2020. The decrease in the effective income tax rate was primarily driven by non-deductible transaction-related costs incurred during the second quarter of fiscal 2020.

Net income was USD 295.2 million, or USD 0.52 per Class A common share, during the second quarter of fiscal 2021 compared to USD 284.5 million, or USD 0.49 per Class A common share, during the second quarter of fiscal 2020.

Adjusted net income was USD 369.5 million, or USD 0.64 per Class A common share, during the second quarter of fiscal 2021 compared to USD 356.4 million, or USD 0.60 per Class A common share, during the second quarter of fiscal 2020.

Adjusted Ebitda was USD 965.4 million, or 5.8 percent of sales, during the second quarter of fiscal 2021 compared to USD 948.4 million, or 6.0 percent of sales, during the second quarter of fiscal 2020. The increase in Adjusted Ebitda was primarily attributable to the Company’s higher sales, partially offset by higher selling and administrative expenses.

Supplemental Two-Year Results: Q2-2021 versus Q2-2019

The following table provides a comparison of the second quarter of fiscal 2021 to the 12 weeks ended September 7, 2019 («second quarter of fiscal 2019») for certain financial measures, including a compounded annual growth rate (CAGR), to demonstrate the two-year growth in the Company’s business. The Company believes these supplemental comparisons provide meaningful and useful information to investors about the trends in its business relative to pre-Covid-19 pandemic periods.

Sales and other revenue was USD 16.5 billion during the second quarter of fiscal 2021 compared to USD 14.2 billion during the second quarter of fiscal 2019. The increase in sales compared to the second quarter of fiscal 2019 was primarily due to the 15.3 percent increase in two-year stacked identical sales. Identical sales were driven in part by the 248 percent two-year stacked increase in digital sales.

Gross profit margin was 28.6 percent during the second quarter of fiscal 2021 compared to 27.8 percent during the second quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased by approximately 85 basis points compared to the second quarter of fiscal 2019, primarily driven by sales leverage, improvements in shrink expense, productivity initiatives, and improved pharmacy margins related to administering Covid-19 vaccines, partially offset by growth in digital sales.

Selling and administrative expenses were 25.6 percent of sales during the second quarter of fiscal 2021 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 approximately 120 basis points primarily due to sales leverage and the execution of productivity initiatives, partially offset by increases in employee costs and other expenses related to the Company’s investments in its digital and omni-channel capabilities and strategic priorities, higher equity-based compensation expense as well as incremental Covid-19 expenses.

Capital Allocation

The Company’s capital allocation strategy is balanced, prioritizing capital investment to drive future growth, continued deleveraging of the balance sheet, and the return of capital to stockholders via quarterly dividends and opportunistic share repurchases, all anchored on strong and consistent free cash flow.

During the first 28 weeks of fiscal 2021, the Company spent USD 822.5 million in capital expenditures, which included investments in digital and technology, the opening of six new stores and the completion of 76 store remodels. During the second quarter of fiscal 2021, the Company also paid its quarterly dividend of USD 0.10 per share of Class A common stock on August 10, 2021 to stockholders of record as of July 26, 2021.

Today the Company also announced a 20 percent increase to its quarterly dividend, which is now USD 0.12 per share (up from USD 0.10 per share) of Class A common stock, payable on November 12, 2021 to stockholders of record as of October 29, 2021. This increase is the result of the Company’s continued strong performance and balanced overall approach to capital allocation.

Fiscal 2021 Outlook

The Company is providing an updated fiscal 2021 outlook and now expects:

  • Identical sales in fiscal 2021 in the range of (2.5 percent) to (3.5 percent) (previously (5 percent) to (6 percent)), representing two-year stacked growth of 13.4 percent to 14.4 percent (previously 10.9 percent to 11.9 percent)
  • Adjusted net income per Class A common share in the range of USD 2.50 to USD 2.60 per share (previously USD 2.20 to USD 2.30 per share)
  • Adjusted Ebitda in the range of USD 3.950 billion to USD 4.050 billion (previously USD 3.7 billion to USD 3.8 billion)
  • Effective tax rate in the range of 23 percent to 24 percent (previously 25 percent)
  • Capital expenditures in the range of USD 1.9 billion to USD 2.0 billion (unchanged)

The Company is unable to provide a full reconciliation of the GAAP and Non-GAAP Measures (as defined below) used in the updated fiscal 2021 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 2021. The expected effective tax rate does not reflect potential rate adjustments for the resolution of tax audits or potential changes in tax laws, which cannot be predicted with reasonable certainty.