Albertsons gets a lift from digital sales in Q1

Strong digital sales proved to be a catalyst for Albertsons Cos. in its fiscal 2023 first quarter as the supermarket giant built on prior-year net and identical sales gains.

For the 16 weeks ended June 17, net sales and other revenue totaled $24.05 billion, up 3.2% from $23.31 billion a year earlier, when the top line climbed 9.6% year over year, Albertsons said Tuesday. The Boise, Idaho-based grocer attributed the sales uptick to  elevated identical (ID) sales—lifted by retail price inflation—plus growth in pharmacy and increasing digital penetration that boosted ID sales, partially offset by lower fuel sales.

ID sales rose 4.9% in the 2023 first quarter and came atop a 6.8% uptick a year ago. Similarly, digital sales jumped by 22%, building on a 28% surge in the 2022 quarter for a 50% increase on a two-year stack.

“Our first-quarter results demonstrate the resilience of our business and the effectiveness of our ‘Customers for Life’ transformation strategy, even as the economic environment has become more challenging. We want to thank all our teams for their commitment to our customers and communities,” Albertsons Cos. CEO Vivek Sankaran said in a statement.

The company reported that membership in its Just for U loyalty program grew by 16% to 35.9 million in the first quarter.

“As we look ahead to the balance of the year, we remain focused on driving operational excellence in our stores and continued growth in our digital and pharmacy operations,” Sankaran added. “We will also continue to drive the initiatives supporting our ‘Customers for Life’ strategy, including delivering on our customer promises, deepening our relationships with them and serving them where, when and how they want to be served.”

Albertsons won’t be holding a conference call on quarterly results with Wall Street analysts because of its pending merger with The Kroger Co. The 2022 first quarter had marked Albertsons’ last quarterly report before the mid-October announcement of the $24.6 billion deal with Kroger.

At the bottom line for the 2023 first quarter, Albertsons posted net income of $417.2 million, or 72 cents per diluted Class A common share, compared with $484.2 million, or 84 cents per diluted Class A common share, a year ago. The retailer noted that the 2023 quarter included a $49.7 million benefit, or 9 cents per share, related to the reduction in the reserve for an uncertain tax position.

On an adjusted basis, net earnings totaled $545.7 million, or 93 cents per diluted Class A common share, versus $582 million, or $1.00 per diluted Class A common share, in the 2022 quarter. Analysts, on average, had projected Albertsons’ adjusted first-quarter 2023 earnings per share at 85 cents, with estimates ranging from 71 cents to $1.06, according to Refinitiv.

Though Albertsons topped analysts' adjusted earnings per share forecast, CFRA Research analyst Arun Sundaram called it a “low-quality earnings beat.”

“It was largely driven by a lower-than-expected effective tax rate (16% versus our 24% estimate). Gross margin, excluding the impact of fuel and LIFO, decreased 90 basis points year over year, driven by fewer COVID-19 vaccines, increases in shrink, picking and delivery costs, and the continued growth in digital sales and warehouse costs,” Sundaram wrote in a research note on Tuesday. “Kroger, on the other hand, saw gross margin strengthen year over year during the latest quarter. For Albertsons, the economic backdrop looks more challenging, noting comp sales growth has now decelerated for two consecutive quarters. Slowing comp sales growth, along with continued cost pressures (e.g. higher wages), will likely put pressure on overall margins.”

Albertsons said that, in the 2023 first quarter, capital spending totaled $622.5 million, mainly from the completion of 43 remodels, two new store openings and ongoing investment in digital and technology platforms.

As of the quarter’s end, Albertsons Cos. operated 2,272 retail food and drug 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. The retailer’s operations also include 1,726 pharmacies, 401 fuel centers, 22 distribution centers and 19 manufacturing facilities.

*Editor's Note: Article updated with analyst comment.