E-commerce, own brands boost Albertsons earnings

In its fourth quarter and full year of fiscal 2018, Albertsons Companies reported same-store sales increases of 1.1% and 1.0%, respectively, while noting that the continued strong performance of its own brands had reached sales penetration of more than 25% in the fourth quarter.

"We are very pleased with the trends in our business as demonstrated by our strong results in the fourth quarter and full year," said Jim Donald, president and CEO of the Boise, Idaho-based operator of more than 2,200 supermarkets. "This performance in our core four-wall business is helping fund necessary investments into the business in both the four-wall and no-wall environments. We continue to delever the balance sheet with a total net debt to adjusted EBITDA ratio of 3.5x at the end of fiscal 2018, and have a clear path for further reduction."

Donald, who has been in the role of president and CEO for less than seven months, is stepping down and will be replaced this Thursday by Vivek Sankaran, who formerly served as CEO of PepsiCo Foods North America. Donald will remain as co-chairman of the board along with Leonard Laufer.

Albertsons also experienced e-commerce sales growth of 52% and 83% during the fourth quarter and full year, respectively.

“We continue to make investments in and expand our capabilities in e-commerce, digital marketing and loyalty programs to provide value to our customers and to drive sales,” said Donald in this morning’s earnings conference call. “We also expanded our drive-up and go pickup service to over 250 stores by the end of the fiscal year. We also have expanded our fast delivery through Instacart, which allows our customers to have access to same-day delivery in as little as an hour. And we continue to make data-driven, personalized offers to our customers, which we have expanded to all markets.”

As for Albertsons’ own brands, Donald noted, “Our own brands sales penetration continues to grow with quarter three and quarter four coming in at 25.2%, achieving our highest sales penetration rate since the merger with Safeway. Own brands continues to deliver on innovation with over 1,100 new item introductions in fiscal 2018. Open Nature, our brand that encompasses natural and products free from ingredients like antibiotics and MSG and O Organics, our organic brand continued to deliver strong sales growth, posting a 13.9% sales increase for the two combined brands in the fourth quarter compared to last year and 13.6% for the full year.”

For the fiscal year 2018, sales and other revenue increased 1.0% to $60.5 billion during the 52 weeks ended Feb. 23, 2019, compared to $59.9 billion during the 52 weeks ended Feb. 24, 2018. The increase in sales was primarily driven by the company's 1.0% increase in identical sales and higher fuel sales, partially offset by a reduction in sales related to store closures during fiscal 2018.

Gross profit margin increased to 27.9% during fiscal 2018 compared to 27.3% during fiscal 2017. Excluding the impact of fuel, gross profit margin increased 70 basis points. The increase in gross profit margin excluding the impact of fuel was primarily driven by improved shrink expense, lower advertising costs and improved product mix including increased own brands penetration.

Selling and administrative expenses decreased to 26.6% of sales during fiscal 2018 compared to 27.1% of sales during fiscal 2017. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 50 basis points during fiscal 2018 compared to fiscal 2017. The decrease in selling and administrative expenses as a percentage of sales was primarily driven by lower depreciation and amortization expense, higher gains related to the sale of assets and the company’s cost-reduction initiatives, partially offset by an increase in employee-related costs (primarily incentive pay).

Adjusted EBITDA was $2.7 billion, or 4.5% of sales, during fiscal 2018 compared to $2.4 billion, or 4.0% of sales, during fiscal 2017. The increase in adjusted EBITDA primarily reflects the company's identical sales performance, improvements in shrink expense, higher fuel margins and the realization of the company's cost reduction initiatives, partially offset by higher employee-related costs (primarily incentive pay).

For the fourth quarter of fiscal 2018, sales and other revenue was $14.0 billion during both the 12 weeks ended Feb. 23, 2019, and the 12 weeks ended Feb. 24, 2018. The company's identical sales increase of 1.1% was offset by a reduction in sales related to store closures.

Gross profit margin increased to 29.0% during the fourth quarter of fiscal 2018 compared to 28.1% during the fourth quarter of fiscal 2017. The company's gross profit margin benefited from better than expected fuel gross profit margin during the fourth quarter of fiscal 2018. Excluding the impact of fuel, gross profit margin increased 50 basis points. The increase was primarily attributable to improved shrink expense as a percentage of sales, which improved 40 basis points compared to the fourth quarter of fiscal 2017, and improved product mix, including increased own brands penetration.