Albertsons Cuts Q2 Losses but Comp Outlook Dims

Albertsons Cos. kept positive sales momentum alive in its fiscal second quarter, but said comparable-store sales for the full-year would likely come in below previous expectations.

After posting 1% comps in the quarter, Albertsons said it was now expecting full-year comps to be in the range of 1% to 1.3%. It previously expected comps to be in the range of 1.5% to 2% for the year.

Sales, margins and EBITDA improved in the quarter, while losses were sharply reduced. E-commerce sales jumped by 113% and private brand penetration also saw an increase. Behind the scenes, the Boise, Idaho-based retailer completed converting all of its stores to Safeway’s back-end system, a major objective of the chain's 2015 merger integration, and called off a planned acquisition of Rite Aid Corp.

“We are pleased with our second-quarter results as identical sales grew for the third consecutive quarter and adjusted EBITDA grew over 13% in the quarter compared to last year,” CEO Jim Donald said. “We are energized and enthusiastic about our company and our ability to generate free cash flow and de-lever our balance sheet. The team continues to innovate through our digital engagement with customers in both the four-wall and no-wall environment, through our continued expansion of natural and organic own brands offerings and through the automation of our distribution centers, which we believe will deliver strong returns going forward.”

Related:Safeway and Albertsons Announce Definitive Merger Agreement

For the period, which ended Sept. 8, Albertsons sales increased by 1.4% to $13.8 billion. Albertsons said the sales increase was affected by increasing fuel sales and the comp boost, offset in part by the closure of 30 stores in the first half of the fiscal year. Albertsons reaffirmed full-year EBITDA guidance of $2.7 billion. A quarterly net loss of $32.4 million was down from a $355.2 million loss in last year’s second quarter, affected by $142.3 million impairment charge and higher expenses.

The quarterly sales increase was driven by an increase in fuel sales and higher comps, partially offset by a reduction in sales related to the closure of 30 stores in the first half of the year.

Gross profit margin increased by 20 basis points to 27.2% of sales and was up by 40 basis points, excluding fuel. The increase was primarily attributable to lower advertising costs and lower shrink expense.

Selling and administrative expenses decreased to 26.3% of sales during the second quarter compared to 27.5%. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 110 basis points, primarily attributable to property dispositions and the realization of cost reduction initiatives, partially offset by higher acquisition and integration costs and third-party costs related to the proposed merger with Rite Aid that was mutually terminated.

Adjusted EBITDA was $548.6 million, or 3.9% of sales, in the period, compared to $485.2 million, or 3.5% of sales, for the second quarter of fiscal 2017. The increase primarily reflects the identical sales increase, improved gross profit and cost reductions.