Albertsons upholds ‘top tier’ performance in strong fiscal 2021 finish

Albertsons Cos. topped Wall Street’s earnings forecast for its 2021 fourth quarter and fiscal year as the grocery retailer saw net sales climb in both periods atop prior-year gains.

Also on Tuesday, President and Chief Financial Officer Sharon McCollam commented on Albertsons’ planned strategic review, announced in late February, telling analysts that the company thinks it’s undervalued versus competitors.

For the 12 weeks ended Feb. 26, net sales and other revenue totaled $17.38 billion, up 10.2% from $15.77 billion a year earlier, when the top line rose 2.2%, Albertsons said. The Boise, Idaho-based grocer attributed the uptick to 7.5% growth excluding fuel in identical sales and higher fuel sales, with retail price inflation contributing to the ID sales gain.

Full-year 2021 net sales and other revenue edged up 3.2% to $71.89 billion from $69.69 billion in fiscal 2020, when Albertsons posted an 11.6% increase. Identical sales for 2022 came in virtually flat, dipping 0.1% year over year but up 16.8% excluding fuel on a two-year basis.

“In the fourth quarter, our teams continued to drive top-tier operating and financial performance,” CEO Vivek Sankaran (pictured left) told analysts in a conference call Tuesday morning.

“In Q4 2021, ID sales increased 7.5% and 19.3% [excluding fuel] on a two-year stack. We also gained unit and dollar market share in food and MULO [multi-outlet channels] on both a one- and two-year basis and maintained our No. 1 or No. 2 position at 68% of 121 MSAs [metropolitan statistical areas] in which we operate. In addition, we delivered adjusted EBITDA of approximately $1.1 billion and adjusted EPS of 75 cents per share, well ahead of our expectations.”

Related:Albertsons pharmacies roll out second COVID booster shots

E-commerce, digital expansion continue

Both fiscal 2021 fourth-quarter and full-year digital sales advanced 5%, with two-year growth of 287% for the quarter and 263% for the year.

“During the quarter, we continued to see a rebound in store traffic and the benefits from our digital and omnichannel investments, including the expansion of Drive Up & Go [curbside pickup] and additional micro-fulfillment centers, bringing our total MFCs to seven,” Sankaran said. “Omnichannel households spent three times more than in-store-only shoppers. And during Q4, omnichannel households grew by nearly five times versus the fourth quarter of 2019. In addition, as our investments drove increased customer engagement and retention.”

Albertsons has reached virtually full coverage of its market area with curbside pickup service. (Photo courtesy of Albertsons)

Related:Albertsons announces strategic review of company

In fiscal 2021, Albertsons reached its goal of offering Drive Up & Go at more than 2,000 stores, serving 99% of our households, according to Sankaran. He also noted that the company’s efforts to expand third-party partnerships for online grocery delivery have accelerated speed of service while providing customers more choices.

“And in both Drive Up & Go and online delivery, we reduced cost-per-order by adding five additional MFCs and three [ware] rooms, reconfiguring our software and staffing models, and improving our forecasting algorithms,” Sankaran said.

“In digital, we are beginning to capitalize on our rich and proprietary data, recently launching the Albertsons Media Collective, or AMC,” he added. “AMC offers existing business partners a robust digital marketing platform that reaches our extensive customer network and leverages our strong market share, especially in the 68% of markets where we hold the No. 1 or No. 2 share position. We expect the AMC to be a leading growth and profit driver over the next several years.”

Albertsons’ Just for U customer loyalty program recorded an 18% increase in members for fiscal 2021. “In loyalty, we launched and up-scaled our new unified mobile app, or UMA,” Sankaran said. “Eighty-seven percent of our digital orders were being placed in the UMA by the end of the fiscal year. We also introduced a meal planning tool that offers recipes, including those that address dietary preferences such as vegetarian or gluten-free. Customers can seamlessly add all recipe ingredients to their shopping list or immediately purchase them in the UMA.”

Fresh, own-brands fuel in-store results

Inside the store, fresh sales outpaced center-store sales by 280 basis points year over year during the fourth quarter and by more than 500 basis points over two years, Sankaran reported.

Sales penentration for Albertsons’ own brands reached 25.6% in the quarter, with the strongest performances in floral, deli and meat, he said. Helping to drive private-brand growth was the introduction of 837 new items during the year.

Growing fresh food sales at Albertsons have been fueled, in part, by departmental enhancements in store remodels.

“In addition, we continue to invest and modernize our store fleet, including adding and upgrading self-checkout, which is now available in over 1,800 stores, and optimizing the layout and design to improve the customer shopping experience,” Sankaran said in the call. “We completed 236 remodels and opened 10 new stores in fiscal 2021.”

Albertsons closed out fiscal 2021 with 2,276 retail stores, including 1,722 pharmacies, compared with 2,277 stores and 1,727 pharmacies a year ago. The company operates stores in 34 states and the District of Columbia under such banners as Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market, as well as 402 fuel centers, 22 distribution centers and 20 manufacturing plants.

More light on ‘strategic review’

On Feb. 28, the Albertsons Cos. board of directors said it has begun a “review of potential strategic alternatives.” The company didn’t provide details but reported that the move is “aimed at enhancing Albertsons’ growth and maximizing shareholder value.”

Albertsons said at the time that it retained Goldman Sachs and Credit Suisse as financial advisers for the review, which will evaluate balance sheet optimization and capital return strategies, potential strategic or financial transactions, and development of other strategic initiatives to complement Albertsons’ existing businesses. The retailer, too, said the review will involve “responding to inquiries.”

“It was really sparked by the fact that valuation compared to peers was not reflecting the strength of our performance, and there were reasons in our mind for some of that,” McCollam  (pictured left) said in the analyst Q&A portion of Tuesday’s earnings call. “We outperformed Kroger in Q4, we outperformed them for the year, etc. So that was really, originally, the catalyst for us,” she explained. “And of course, there was the overhang of the preferred shares that had hit the market, and then the IPO lock-up that was coming.”

As of afternoon trading on Tuesday, Albertsons shares stood at $32.58, with a 52-week range of $17.73 to $37.99. That compared with $59.15 and a range of $35.60 to $62.78 for The Kroger Co., the nation’s largest supermarket operator, followed by Albertsons.

“Sharon McCollam, the CFO, essentially said the catalyst for [Albertsons’] strategic review was its valuation gap relative to Kroger, which they don’t agree with, since Albertsons has been posting stronger top and bottom-line results compared to Kroger over the past several quarters. There is also the overhang from its convertible preferred shares, which could cause significant disruption to existing shareholders,” CFRA Research analyst Arun Sundaram said in an email.

“So this strategic review will be a comprehensive assessment of the business to tackle all of these issues. It’s still unclear what will ultimately unfold from this review, but our guess is that we’ll see multiple actions to maximize shareholder value,” he explained. “For example, we could see Albertsons divest some underperforming banners and use that cash to buy back stock and accelerate investments in areas like supply chain, technology and e-commerce. But again, I’ll emphasize that there are still a lot of unknowns right now.”

Improvement at the bottom line

On the earnings side, Albertsons posted fiscal 2021 fourth-quarter net income of $455.1 million, or 79 cents per diluted share, compared with a a net loss of $144.2 million, or 37 cents per diluted share, in fiscal 2020. The prior-year loss reflected a $607.2 million charge related to the company’s withdrawal from the Food Employers Labor Relations Association and United Food and Commercial Workers (UFCW) Pension Fund and the Mid-Atlantic UFCW and Participating Pension Fund.

Adjusted net earnings in the 2021 quarter were $436.8 million, or 75 cents per diluted share, versus $347.2 million, or 60 cents per diluted share, in the 2020 quarter. Analysts, on average, had forecast adjusted earnings per share (EPS) of 64 cents, with estimates ranging from 59 cents to 69 cents, according to Refinitiv.

Albertsons noted that it has increased dollar and unit share in food and multi-outlet retail channels.

Albertsons’ full-year 2021 net income totaled $1.62 billion, or $2.70 per diluted share, compared with $850.2 million, or $1.47 per diluted share, in 2020. On an adjusted basis, fiscal 2021 net earnings came in at $1.78 billion, or $3.07 per diluted share, versus $1.89 billion, or $3.24 per diluted share, for 2020. Analysts’ consensus estimate was for adjusted EPS of $2.95, with projections running from $2.79 to $3.01.

Looking ahead, Albertsons projects fiscal 2022 identical-sales growth of 2% to 3% and adjusted EPS of $2.70 to $2.85. Analysts forecast full-year adjusted EPS at $2.30 to $3.07, with a consensus estimate of $2.78.

“We are pleased with our 2021 results and the continuing momentum we are seeing as we enter 2022,” Sankaran said. “Our relative performance, evidenced by our profitable ID sales growth and market share gains, continues to be strong. Our strategy is working, and we’re executing well against industrywide pressures. And the transformation we began before the pandemic significantly strengthened our company.”

Following Albertsons’ outlook, CFRA issued a hold on the retailer’s shares. “Guidance for fiscal 2023 was in line with consensus, although Albertsons did call out several headwinds this upcoming year, including substantially reduced COVID-19 vaccine benefits, labor/wage pressures, and continued investments in e-commerce, supply chain and its nascent advertising business,” Sundaram said in a research note on Tuesday. “While we have a negative 12-month fundamental outlook on the broader food retail industry, we keep a hold on Albertsons shares, as we believe its valuation looks more attractive relative to its largest competitor, Kroger.”