Albertsons Companies: Reports Q3 Fiscal 2020 Results

Boise / ID. (abc) Albertsons Companies reported results for the third quarter of fiscal 2020, which ended December 05, 2020. Highlights:

  • Identical sales growth of 12.3 percent
  • Digital sales growth of 225 percent
  • Net income per share of USD 0.20; Adjusted net income per share of USD 0.66
  • Net income of USD 124 million; Adjusted net income of USD 387 million
  • Adjusted Ebitda of USD 968 million, an increase of 53 percent compared to the third quarter last year
  • Executed debt refinancing and announced paydown to drive an additional USD 25 million in annualized interest savings

«Our constant focus on our customers continued to drive strong growth and market share gains in the third quarter,» said Vivek Sankaran, President + CEO. «It is clear that our strategy is working, and as we continue to execute on our strategic priorities, we believe we are well positioned to deliver sustainable growth over the long term. At the same time, we remain focused on delivering value to all stakeholders, including taking care of our customers, associates and the communities we serve as we continue to navigate through the pandemic.»

Third Quarter of Fiscal 2020 Results

Sales and other revenue was USD 15.4 billion during the 12 weeks ended December 5, 2020 («third quarter of fiscal 2020») compared to USD 14.1 billion during the 12 weeks ended November 30, 2019 («third quarter of fiscal 2019»). The increase was driven by the Company’s 12.3 percent growth in identical sales, partially offset by lower fuel sales. Identical sales benefited from the Company’s 225 percent growth in digital sales.

Gross profit margin increased to 29.3 percent during the third quarter of fiscal 2020 compared to 28.3 percent during the third quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 25 basis points. The increase was primarily driven by continued improvements in shrink expense and sales leverage on advertising and supply chain costs, partially offset by expenses related to our growth in digital sales and select investments in price.

Selling and administrative expenses were 28.0 percent of sales during the third quarter of fiscal 2020 compared to 27.0 percent of sales for the third quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales increased 40 basis points. The increase in selling and administrative expenses was primarily attributable to the USD 285.7 million charge (pre-tax) related to the previously announced withdrawal from the United Food and Commercial Workers International Union (UFCW) Union-Industry Pension Fund («National Fund») and incremental Covid-19 expenses to safeguard associates and customers, partially offset by sales leverage driven by higher identical sales and continued focus on cost control.

Gain on property dispositions and impairment losses, net was USD 59.0 million during the third quarter of fiscal 2020 compared to USD 18.7 million during the third quarter of fiscal 2019.

Interest expense was USD 115.9 million during the third quarter of fiscal 2020 compared to USD 154.8 million during the third 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 third quarter of fiscal 2020 was 5.5 percent compared to 6.3 percent during the third quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.

Income tax expense was USD 29.5 million, representing a 19.3 percent effective tax rate, during the third quarter of fiscal 2020 compared to USD 12.9 million, representing a 19.1 percent effective tax rate, during the third quarter of fiscal 2019. The increase in income tax expense was primarily the result of the increase in income before taxes. The effective income tax rate for the third quarter of fiscal 2020 was favorably impacted by discrete benefits related to income tax credits and equity-based compensation deductions.

Net income was USD 123.7 million during the third quarter of fiscal 2020 compared to USD 54.8 million during the third quarter of fiscal 2019. Net income during the third quarter of fiscal 2020 included the USD 213.0 million charge, net of tax, related to the UFCW National Fund withdrawal.

Adjusted net income was USD 386.6 million, or USD 0.66 per share, during the third quarter of fiscal 2020 compared to USD 142.2 million, or USD 0.24 per share, during the third quarter of fiscal 2019.

Adjusted Ebitda was USD 967.7 million, or 6.3 percent of sales, during the third quarter of fiscal 2020 compared to USD 634.4 million, or 4.5 percent of sales, during the third quarter of fiscal 2019. The increase in Adjusted Ebitda was primarily attributable to the Company’s 12.3 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.

Year-To-Date Results

Sales and other revenue was USD 53.9 billion during the 40 weeks ended December 5, 2020 («first 40 weeks of fiscal 2020») compared to USD 47.0 billion during the 40 weeks ended November 30, 2019 («first 40 weeks of fiscal 2019»). The increase was driven by the Company’s 18.4 percent increase in identical sales, partially offset by lower fuel sales.

Gross profit margin increased to 29.4 percent during the first 40 weeks of fiscal 2020 compared to 28.0 percent during the first 40 weeks of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 65 basis points.

Selling and administrative expenses decreased to 26.2 percent of sales during the first 40 weeks of fiscal 2020 compared to 26.7 percent of sales for the first 40 weeks of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 120 basis points.

Interest expense was USD 425.1 million during the first 40 weeks of fiscal 2020 compared to USD 557.5 million during the first 40 weeks of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates.

Adjusted net income was USD 1,544.2 million, or USD 2.62 per share, during the first 40 weeks of fiscal 2020 compared to USD 417.9 million, or USD 0.71 per share, during the first 40 weeks of fiscal 2019.

Adjusted Ebitda was USD 3,607.1 million, or 6.7 percent of sales, during the first 40 weeks of fiscal 2020 compared to USD 2,078.8 million, or 4.4 percent of sales, during the first 40 weeks of fiscal 2019. The increase in Adjusted Ebitda was primarily attributable to the Company’s 18.4 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.

Liquidity

Net cash provided by operating activities was USD 2,996.0 million during the first 40 weeks of fiscal 2020 compared to USD 1,387.0 million during the first 40 weeks of fiscal 2019. The increase in cash flow from operations compared to the first 40 weeks of fiscal 2019 was primarily due to improvements in operating performance and changes in working capital.

Capital Allocation

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 USD 0.10 per share quarterly dividend, and opportunistic share repurchases, all anchored on the strong and consistent free cash flow generated by the business. The Company’s capital allocation program continues to be funded with cash on hand and cash generated from operations.

During the first 40 weeks of fiscal 2020, the Company spent approximately USD 1.1 billion in capital expenditures, which included accelerated investment in digital and technology initiatives, and the completion of 225 store remodels.

During the third quarter of fiscal 2020, the Company repurchased an aggregate of 6.8 million shares of common stock for an aggregate of USD 102.7 million pursuant to the Company’s existing USD 300 million share repurchase authorization. The Company also paid its first quarterly dividend of USD 0.10 per share on November 10, 2020 to stockholders of record as of October 26, 2020 and, on January 12, 2021, announced the next quarterly dividend of USD 0.10 per share payable on February 10, 2021 to stockholders of record as of January 26, 2021.

On December 22, 2020, the Company issued USD 600 million in aggregate principal amount of additional 3.500 percent senior notes due 2029, issued at 99 percent of the principal amount (the «2029 Notes»). The Company used the net proceeds from the 2029 Notes, together with approximately USD 230 million of cash on hand, to (i) fund a partial redemption of USD 800 million aggregate principal amount of its outstanding 5.750 percent senior notes due 2025 (the «Redemption») and (ii) pay fees and expenses related to the Redemption and issuance of the 2029 Notes. This refinancing and debt reduction is expected to save the Company approximately USD 25 million in annualized pre-tax interest expense. In total, the Company’s refinancing and debt reduction during the first 40 weeks of fiscal 2020 is expected to save the Company approximately USD 77 million in annualized pre-tax interest expense.

Updated Fiscal 2020 Outlook

The Company is providing an updated fiscal 2020 outlook and now expects:

  • Identical sales in fiscal 2020 of approximately 16.5 percent (previously at least 15.5 percent)
  • Adjusted EPS in the range of USD 3.05 per share to USD 3.15 per share (previously USD 2.75 per share to USD 2.85 per share)
  • Adjusted Ebitda in the range of USD 4.4 billion to USD 4.5 billion (previously USD 4.15 billion to USD 4.25 billion)
  • Effective tax rate to be approximately 25 percent excluding discrete items (unchanged)
  • Capital expenditures in the range of USD 1.65 billion to USD 1.75 billion (previously USD 1.9 billion, due to a timing shift between fiscal 2020 and fiscal 2021)

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.