Albertsons Companies: Reports Q3 Fiscal 2023 Results

Boise / ID. (abc) Albertsons Companies reported results for the third quarter of fiscal 2023, which ended December 02, 2023. Third quarter of fiscal 2023 financial highlights:

  • Identical sales increased 2.9 percent
  • Digital sales increased 21 percent
  • Loyalty members increased 17 percent to 38.5 million
  • Net income of USD 361 million, or USD 0.62 per share
  • Adjusted net income of USD 462 million, or USD 0.79 per share
  • Adjusted Ebitda of USD 1,107 million

«We delivered another solid quarter amidst a challenging economic backdrop,» said CEO Vivek Sankaran. «We want to thank all our teams for their commitment to serving our customers and communities. As we look ahead, our ambition is to create Customers for Life, in part through our focus on operational excellence in our stores, driving growth in our digital and pharmacy operations, and deepening our relationships with our customers.»

Sankaran: «While we are benefiting from our productivity initiatives, we expect to continue to see the impacts of investments in associate wages and benefits, cycling significant prior year food inflation, customers receiving less government assistance, the resumption of student loan payments and other types of payment deferrals, inflationary cost increases and the outsized growth of our pharmacy and digital businesses as we continue to lean into increased customer engagement in our Customers for Life strategy.»

Third Quarter of Fiscal 2023 Results

Net sales and other revenue was USD 18.6 billion during the 12 weeks ended December 02, 2023 (third quarter of fiscal 2023) compared to USD 18.2 billion during the 12 weeks ended December 03, 2022 (third quarter of fiscal 2022). The increase was driven by the Company’s 2.9 percent increase in identical sales, with strong growth in pharmacy sales driving the identical sales increase. We also continued to grow our digital business with a 21 percent sales increase during the third quarter of fiscal 2023.

Gross margin rate decreased to 28.0 percent during the third quarter of fiscal 2023 compared to 28.2 percent during the third quarter of fiscal 2022. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 64 basis points compared to the third quarter of fiscal 2022. The strong growth in pharmacy operations, which carries an overall lower gross margin rate, and increases in shrink were the primary drivers of the decrease, partially offset by our procurement and sourcing productivity initiatives. The rate decrease related to pharmacy operations was primarily due to growth in pharmacy sales and a lower margin rate on COVID-19 vaccines in the third quarter of fiscal 2023. In addition, the benefits from our productivity initiatives allowed us to continue to provide incremental targeted price investments to our customers during the third quarter of fiscal 2023.

Selling and administrative expenses decreased to 24.8 percent of Net sales and other revenue during the third quarter of fiscal 2023 compared to 25.0 percent during the third quarter of fiscal 2022. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 28 basis points. The decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to lower employee costs, which includes the benefit of ongoing productivity initiatives, and lower depreciation and amortization, partially offset by an increase in operating expenses related to the expansion of our digital and omnichannel capabilities, ongoing Merger-related costs, increased store occupancy costs and additional third-party store security services.

Net loss on property dispositions and impairment losses was USD 23.9 million during the third quarter of fiscal 2023 compared to USD 7.3 million during the third quarter of fiscal 2022.

Interest expense, net was USD 116.3 million during the third quarter of fiscal 2023 compared to USD 84.3 million during the third quarter of fiscal 2022. The increase in interest expense, net was primarily attributable to lower interest income, as well as higher average outstanding borrowings and higher average interest rates.

Other income, net was USD 6.7 million during the third quarter of fiscal 2023 compared to other expense, net of USD 1.7 million during the third quarter of fiscal 2022.

Income tax expense was USD 95.1 million, representing a 20.8 percent effective tax rate, during the third quarter of fiscal 2023 compared to USD 120.9 million, representing a 24.4 percent effective tax rate, during the third quarter of fiscal 2022. The favorability in the effective income tax rate in the third quarter of fiscal 2023 was primarily due to an increase in federal tax credits.

Net income was USD 361.4 million, or USD 0.62 per share, during the third quarter of fiscal 2023. Net income was USD 375.5 million, or USD 0.20 per share, during the third quarter of fiscal 2022. Net income per share during the third quarter of fiscal 2022 includes a USD 0.45 per share reduction related to the special cash dividend of USD 6.85 per share attributable to holders of convertible preferred stock on an as-converted basis.

Adjusted net income was USD 462.3 million, or USD 0.79 per share, during the third quarter of fiscal 2023 compared to USD 505.1 million, or USD 0.87 per share, during the third quarter of fiscal 2022.

Adjusted Ebitda was USD 1,106.5 million, or 6.0 percent of Net sales and other revenue, during the third quarter of fiscal 2023 compared to USD 1,158.0 million, or 6.4 percent of Net sales and other revenue, during the third quarter of fiscal 2022. As we look ahead to the fourth quarter of fiscal 2023, we expect continued outsized growth and margin impact in our pharmacy and digital operations.

Capital Expenditures

During the first 40 weeks of fiscal 2023, capital expenditures were USD 1,535.0 million, which primarily included the completion of 115 remodels, the opening of five 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 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, reduced by the 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.

In connection with the Merger, on September 08, 2023, the Company and Kroger announced that the parties had entered into a definitive agreement, dated September 08, 2023, with C+S Wholesale Grocers, LLC (C+S) for the sale of select stores, banners, distribution centers, offices and private label brands to C+S. Also on September 08, 2023, Kroger notified the Company that, in accordance with the Merger Agreement, Kroger intends to sell the SpinCo Business (as defined in the Merger Agreement) to C+S. As a result, the creation of SpinCo and spin-off previously contemplated by the Company and Kroger is no longer a requirement under the Merger Agreement and will no longer be pursued by the Company and Kroger. Details regarding the definitive agreement with C+S can be found in the Form 8-K filed on September 08, 2023 and the joint press release issued by the Company and Kroger on September 08, 2023.

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