BOISE, Idaho -- Albertsons here last week predicted that the weak economy and continuing intense competition would prevent the company from growing its profits in 2003.
In a conference call with analysts discussing its fourth-quarter and fiscal-2002 results, the company said it would continue to invest in pricing and promotion to drive sales and would also continue to bias its capital expenditures toward remodels. Also, the company said it has seen strong results from the addition of certain branded departments and will continue to roll those out as part of its "neighborhood marketing" focus.
As a result of these initiatives, the company forecast that identical-store sales would be positive for the year, after a decline of 0.9% in 2002, including a decline of 1.2% in the fourth quarter. Comparable-store sales, which include sales from remodeled outlets, declined 0.4% for the year and 0.8% for the fourth quarter.
"The environment is tough out there, and competition is intense," said Larry Johnston, president and chief executive officer, Albertsons. "But we're not going to just sit and wait this out."
Among the initiatives the company has in place to drive increased profitability is a new premium, private-label brand, Essensia, which was introduced for frozen entrees and desserts earlier this month and will be expanded to snacks and cookies by the end of this month.
"Essensia is just the first step in the improvements we have planned for our private-label program," said Peter Lynch, president and chief operating officer. "We recognize that we have the opportunity to gain private-label share to be like the best in class in this area, and we feel we have some momentum going forward."
He said Albertsons currently counts about 17% of its sales in private label, compared with 24% for retailers he identified only as "best in class." Both Kroger, Cincinnati, and Safeway, Pleasanton, Calif., the No. 1 and No. 3 traditional supermarket operators, respectively, are known to have more extensive private-label programs.
Lynch also said the company's branded departments -- which include "Toy Box" sections from Toys R Us in six Chicago-area Jewel stores, 296 Starbucks cafes and 850 Krispy Kreme bakeries -- have been highly effective at driving top-line sales. Toy-category sales have more than doubled in the Toy Box outlets since they were added last October, Lynch said.
Several technology tests that the company has under way are also being expanded in 2003. An in-store kiosk used for hiring store personnel that has been in test in about 200 stores will be rolled out companywide in 2003, Lynch said. The company also is expanding its test of a handheld scanner called a "personal shopper" that allows customers to scan their orders before they get to the cash register. The devices also are being integrated with Albertsons' self-checkout cash registers.
The company also is continuing to look for savings in its supply chain processes, and is driving those savings into pricing and promotional activity.
Albertsons said it expected to maintain capital expenditures at the 2002 level of about $1.5 billion in the coming year, and will continue to invest a large portion of that into store remodels. The company plans to open 43 new supermarkets, 22 new drug stores, and complete 191 remodels in 2003. That represents a remodel rate nearly double what it was two years ago, the company said.
Albertsons also adjusted its timing of the recording of vendor allowances so that the company now recognizes them only when the goods for which the allowances are paid are actually sold to customers. The change, which reflects guidance given in January by the Financial Accounting Standards Board, resulted in a non-cash, after-tax charge of $93.7 million to the first quarter of last year.
Excluding the effect of the one-time adjustment, the change in accounting increased net earnings for the year by $3.4 million and reduced fourth-quarter net earnings by $6.1 million.
Net earnings for the 13-week fourth quarter ending Jan. 30 totaled $205 million, a 29.3% decrease from year-ago levels. Sales were down 2.6%, to $9.11 billion, after the company closed 226 stores during the year as part of a restructuring.
Net earnings for the year were $485 million, a 3.3% decrease from year-ago levels, on a 2.7% drop in sales, to $35.63 billion.
Johnston predicted that full-year net income in the current fiscal year would be about $2.08 to $2.13 per share, slightly less than the $2.17 per diluted share on continuing operations the company reported for 2002.
