Albertsons ‘more reactive than proactive’ in future buyer search

Albertsons Companies posted strong earnings in its third-quarter financial report Wednesday, beating analyst earnings expectations and announcing plans to cut spending by $1.5 billion over the next three years. 

It was the first earnings call Albertsons has held since the grocery chain announced its plans to merge with Cincinnati, Ohio-based Kroger in 2022. Both Kroger and Albertsons pulled out of the $24.6 billion deal in December, after judges in Oregon and Washington rejected the proposal on Dec. 10. 

One day after the court decisions were handed down, Albertsons filed a lawsuit against Kroger, arguing that the grocery chain failed to offer an adequate divestiture package and ignored federal regulators’ concerns with the proposed deal. 

The Boise, Idaho-based grocery chain seeks a $600 million termination fee from Kroger as part of the merger agreement and has stated that it also seeks billions in damages.

It was revealed in court that more than 60 bidders showed interest in buying Albertsons stores as part of its divestiture proposal to appease federal regulators in the deal, but on Wednesday, Albertsons CEO Vivek Sankaran said the grocery chain is not currently discussing selling any of its locations. 

Albertsons President and CFO Sharon McCollam said the failure of the deal has not soured the grocery chain on potential merger opportunities in the future. 

“Our job is to create long-term value for our shareholders, and if that means that a strategic transaction comes to the doorstep, we of course, will consider and look at those things,” McCollam said in the earnings call. “Vivek described it as, ‘We’re more reactive than proactive at this point in time.”

Albertsons reported identica-store sales growth of 2% for the quarter and a whopping 23% increase in digital sales.That’s due in part to a 15% increase in loyalty members, which grew to 44.3 million for the quarter ended Nov. 30. 

The nation’s second-largest pure-play grocery chain reported net income of $401 million at $0.69 per share, adjusted net income of $420 million at $0.71 per share, and an adjusted EBITDA of $1.065 billion. 

"We delivered solid operating and financial performance in the third quarter of fiscal 2024 in an environment where the consumer remains cautious," Sankaran said in the earnings report. "Investments in our Customers for Life strategy drove increased digital engagement across our platforms, evidenced by strong growth in our digital sales, pharmacy operations, and membership in our loyalty program.”

Albertsons’ earnings of $0.68 per share on revenue of $18.77 billion beat consensus earnings estimates of $0.64 per share on revenue of $18.80 billion, according to Earnings Whispers, which estimated $0.65 per share.

The company also updated its financial outlook for fiscal 2024, increasing its adjusted EBITDA to a range of $3.95 billion to $3.99 billion, up from the previous outlook of $3.9 billion to $3.98 billion. 

Sankaran said on Wednesday that over the last two years, the company has invested in its digital platforms that are “designed to drive increased sales, more deeply engage our most loyal customers, increase customer lifetime value, and generate digital space and robust data for the Albertsons Media Collective.”

He said Albertsons’ investments in ecommerce “have driven sales penetration to over 7% of grocery revenue,” and updated its loyalty program in April, which has increased engagement and customer spend. 

Investments in the grocery chain’s pharmacy business have resulted in sales penetration of over 11% of total annual revenue. “This penetration has been driven by industry-leading core script growth, including GLP-1s, excellence in immunization and best-in-class service,” he said. 

He touted the company’s integration of its pharmacy business into its mobile app through the launch of Sincerely Health in early 2023, a wellness and rewards platform with more than one million users. 

“Going forward, we see Sincerely Health growing as a top loyalty driver and a catalyst for introducing immunization and pharmacist administered treatments. We also expect to capitalize on continued script and immunization growth from traditional pharmacy store closures,” he said

Sankaran added that technological innovation is Albertsons’ “North Star” in its effort to modernize stores, including its migration to cloud computing, the launch of its new ecommerce capabilities, the digitization of its pharmacy offerings, and the implementation of productivity tools to manage replenishment, shrink, and labor, among others. 

“They also position us well to take advantage of the evolution of AI and machine learning to elevate our core business,” he said. 

Albertsons did not give details on its plan to cut spending by $1.5 billion over the next three years, but Sankaran said the grocery chain is leveraging investments in technology. McCollam said Albertsons would provide an outlook for those cuts in its Q4 conference call in April.