Albertsons tallies identical sales gains in Q3

Albertsons Cos. notched its eighth straight quarter of identical sales increases and reported improved operating results for its fiscal 2019 third quarter.

For the 12 weeks ended Nov. 30, net sales and other revenue totaled $14.10 billion, up 1.9% from $13.84 billion a year earlier, Albertsons said Tuesday. The Boise, Idaho-based grocer attributed the uptick to a 2.7% year-over-year gain in identical sales, partially offset by lower fuel sales and lost sales from store closings since the fiscal 2018 quarter.

Third-quarter identical sales growth eclipsed gains of 2.4% in the second quarter and 1.9% in the prior-year period. Albertsons noted that identical sales in the third quarter got a lift from 34% growth in online home delivery and Drive Up & Go pickup sales as well as increased Own Brands sales growth. The latter was driven in part by rising private-label sales penetration, which reach a new high of 25.6%, the retailer said. Identical sales include same-store and online sales but exclude fuel sales.

Also reflecting increased retail activity in the quarter were escalating registrations and digital coupon redemptions in the Just for U loyalty program, up 25% and 31%, respectively, according to Albertsons.

Gross profit margin increased to 28.3% during the third quarter of fiscal 2019 compared to 27.8% during the third quarter of fiscal 2018. Excluding the impact of fuel, gross profit margin increased 40 basis points compared to the third quarter of fiscal 2018, primarily due to improved product mix, including increased Own Brands penetration and lower shrink expense, partially offset by higher rent expense related to sale leaseback transactions.

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"Our identical sales momentum continued in the third quarter, as our core business continues to deliver strong growth," Albertsons Cos. President and CEO Vivek Sankaran said in a statement. "We are focused on providing our customers with an easy shopping experience, exciting merchandise and friendly customer service in our omnichannel shopping environment, and creating deep and lasting customer relationships."

At the bottom line, 2019 third-quarter net earnings came in at $54.8 million, compared with $45.6 million a year ago. Albertsons noted that income tax expense was $12.9 million in the 2019 quarter versus an income tax benefit of $65.4 million in the prior-year period.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $634.4 million, or 4.5% of sales, compared with from $649.7 million, or 4.7% of sales, a year earlier. Despite the decline, Albertsons called the result “slightly ahead of expectations.” The company said the decrease stems mainly from strategic investments in digital and technology initiatives and higher rent and occupancy costs from sale-leaseback transactions, offset by identical sales growth and improvements in shrink expense.

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"Our productivity and cost reduction initiatives are also beginning to take shape, which we intend to use to fund strategic growth investments, offset cost inflation and support earnings growth," Sankaran added.

For the 40 weeks through Nov. 30, Albertsons saw sales and other revenue edge up 1.1% year over year to $47.02 billion, with identical sales up 2.1%. Gross margin rose to 28% from 27.6%. The company posted net income of $398.6 million versus a net loss of $4.5 million in the year-ago period. Adjusted EBITDA for the 40 weeks was $2.08 billion, or 4.4% of sales, up from $2.01 billion, or 4.3% of sales, in the 2018 period.

Albertsons said that, since the start of fiscal 2019, the company has cut its outstanding debt by more than $1.8 billion. As of the end of the third quarter, the ratio of total net debt to adjusted EBITDA stood at 3.0x, down from 3.9x at the close of the 2018 quarter. Interest expense totaled $557.5 million during the first 40 weeks of fiscal 2019, down from $662.5 million in the prior-year period.

Capital expenditures came in at about $1.1 billion for the fiscal 2019 year to date and included investments in technology, 153 store remodels and 12 new-store openings, Albertsons said.

As of Nov. 30, Albertsons Cos. operated 2,260 food and drug stores, versus 2,277 a year earlier. The retailer also has 1,732 pharmacies, 402 associated fuel centers, 23 dedicated distribution centers and 20 manufacturing facilities. Store banners include Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw's, Star Market, United Supermarkets, Market Street, Amigos, Haggen and United Express.