Albertsons Remains Bullish Despite Q1 2021 Sales Decline

Albertsons Cos. reported “strong first quarter results” that exceeded expectations despite a year-over-year decrease in sales for the first quarter of fiscal 2021, which ended June 19, 2021. Sales and other revenue was $21.3 billion during the 16 weeks ending June 19 compared to $22.8 billion in first-quarter 2020. The company primarily attributes the decline to a 10% decrease in identical sales, as sky-high consumer demand seen at the onset of the pandemic came back to earth in first-quarter 2021.

The Boise, Idaho-based grocer has reason for optimism. When comparing first quarter 2021 results on a two-year stacked basis, identical sales growth was 16.5% and digital sales growth was a robust 276%.

“I am pleased to report that our results for the quarter exceeded our internal plans across all key metrics, increasing our confidence in the balance of this year,” said Vivek Sankaran, president and CEO, according to a Sentieo transcript of the July 29 earnings call. “We achieved adjusted EBITDA of $1.3 billion and adjusted EPS (earnings per share) of 89 cents a share ahead of our expectations.”

While Albertsons reports seeing a pickup in in-store transactions driven by fresh, as shoppers return to physical stores (albeit with smaller baskets), they also see strong and continued growth in e-commerce.

“Against the backdrop of growth exceeding 200% in every quarter in fiscal 2020, our digital initiatives continue to resonate with our customers,” said Sankaran. “And we have retained the sales levels we achieved last year, with digital sales virtually flat year over year in Q1 and a two-year stacked [identical] sales growth of 276%. With all the options we have in place, we have achieved 95% customer coverage with e-commerce and retention has been strong.”

Albertsons sees the biggest potential for growth with omnichannel shoppers, as they not only spend more in multiple channels but can also be sold to in a more personalized manner, which further drives recurring and incremental spend. By the end of first-quarter 2021, Albertsons had 3.6 times the number of omnichannel households than it had two years ago.

“We’ve seen that as customers move into omnichannel, they also increased their spend in our stores with a net growth of 17% per household spend in the quarter and a total spend rate of two times that of an exclusively in-store shopper,” noted Sankaran, who added that first-quarter 2021 in-store-only shopper sales were down, while the omnichannel customer sales were up year over year.

Customer loyalty is also key. Membership in Albertsons’ U loyalty program continued to accelerate and was up more than 18% year over year in first-quarter 2021 to 26.7 million members, reported Sankaran. The company also increased the number of actively engaged customers—a group that spends four times more with Albertsons than other shoppers—by almost 13%.

“Our strategy of building lasting relationships with customers through a combination of digital and in-store engagement is driving our top line,” said Sankaran.

A strong first-quarter 2021 has bolstered Albertsons’ fiscal outlook for the entire year. “We now expect identical sales on a two-year stack basis to be in the range of approximately 11% to 12% compared to prior guidance of 9.5% to 11%,” said Albertsons CFO Robert Dimond on the call. “We expect adjusted EBITDA in the range of $3.7 billion to $3.8 billion, up $200 million from our previous guidance range and representing two-year compound annual growth of approximately 16% at the midpoint of our range.”

Driving Digital

Albertsons continues to prioritize the acceleration of its digital and omnichannel capabilities—an “important growth driver,” said Sankaran, who noted the company would relaunch its media platform later this year.

Drive Up & Go, which Dimond calls Albertsons “biggest growth” area, is on the move and getting “more and more volume.” The company added a net 320 new Drive Up & Go locations in first-quarter 2021, bringing its total to 1,740. Drive Up and Go sales grew 75% year over year in the first quarter of this year. The company expects to offer the service in approximately 1,950 locations by the end of the second quarter.

“As far as delivery, I don’t know that we can see that’s ever going to be something that’s going to be as profitable as Drive Up & Go,” said Dimond. “That last mile—that piece of it is always going to be an incremental cost.”

The staying power and profitability of Drive Up & Go is just one of the digital trends Albertsons sees continuing post-pandemic.

“While it’s hard to predict the impacts of COVID-19 on demand over the long term, we believe there are a few trends that will stick with us. First, we believe digital engagement with consumers in our sector will continue to increase,” said Sankaran. “This provides us with an opportunity to gather more data and deliver a better, more personalized shopping experience for our customers. Second, even though we saw a step change in 2020, we believe consumers will increase their use of e-commerce solutions, especially pickup in-store and rapid delivery.”

As part of its growth and investment plans in both the software and hardware sides of digital, Albertsons points to its efforts in faster and more consistent on-time delivery and pickup rates; enhanced picking software at all Drive Up & Go locations; the rollout of an integrated loyalty and e-commerce app; a new partnership with DoorDash on one-hour delivery; and its expanding stable of microfulfillment centers (MFCs).

Albertsons recently launched a new MFC in San Jose, Calif., and plans for an additional six MFCs before the end of its fiscal year, bringing its total to nine MFCs.

“There is room for … MFC growth,” said Sankaran. “The nice thing about the MFCs is it is assets—it’s more assets, but it gives you optionality. You can go at a certain pace. You’re not making any single bet. You’re making many, many bets. And with every passing year, you’re getting more new technology on the bet you’re making.”

A ‘Maniacal’ Approach to Great Stores

While Albertsons is banking on continued digital expansion, it prioritizes the in-store experience over all else.

“Our greatest asset is the store. Full stop,” said Sankaran. “And so, we are like ducks paddling pretty hard every day. It’s smooth on the top, but we are paddling very hard to run great stores,” said Sankaran, who defines great stores as those that are full, clean, fresh, full of variety and run with better service and management than the competition. “And there’s a group of us who are maniacal about doing that.”

Continued Focus on Fresh

Albertsons reports in-store traffic is “up significantly” over last year, with fresh a key driver of growth in in-store transactions.

“In fresh, which has always been a strategic focus for us, we continue to see stickiness giving us confidence that our strategy is working,” said Sankaran. “The fresh department sales growth outpaced center store by approximately 200 basis points on a two-year basis … as customers continue to consume more meals at home.

“We are seeing continued strength in sales of items that were elevated throughout the pandemic such as meat, seafood, produce and high-end wines, providing evidence that some important food and beverage categories remain shifted to food at home,” continued Sankaran. “While we are seeing higher cost inflation in some categories, we saw modest inflation during Q1, and we were generally successful in passing it through as the competitive environment has remained rational. And we continue to see households upgrading to more quality and premium products indicating that the consumer is still strong.”

Sankaran, who declared Albertsons was going into the “meals business” last year, also sees continued demand for convenient and fresh meals as consumers shop for food beyond the purchase of ingredients. With this trend in mind, Albertsons has begun the rollout of its ready-to-eat, ready-to-heat and ready-to-cook meals program and expects to be in approximately 500 stores with the meals by its fiscal year-end.

Own Brands

Further boosting Albertsons’ bottom line is its ever-growing Own Brands portfolio, which the company said continues to appeal to its customers with strong sales driven by the introduction of new innovative products as well as a focus on Albertsons legacy divisions that were historically underpenetrated.

First-quarter 2021 sales penetration was 25.2%, up over 100 basis points from first quarter 2020, when supply issues impacted sales, Dimond reported.

Albertsons launched 18 new Own Brand items in the first quarter this year, many of which were Signature farms bulk items, including trail mixes, various nuts and dried fruits, Open Nature almond butter and Signature select premium beef patties. It expects to launch over 800 items this year.

As of June 19, 2021, Albertsons operated 2,278 retail food and drug stores with 1,725 pharmacies, 399 associated fuel centers, 22 dedicated distribution centers and 20 manufacturing facilities.