Albertsons keeps sales on the upside in Q2

Just over a year after announcing a planned acquisition by The Kroger Co., Albertsons Cos. posted smaller year-over-year and sequential sales gains for its fiscal 2023 second quarter but topped Wall Street’s earnings forecast.

For the 12-week second quarter ended Sept. 9, net sales and other revenue totaled to nearly $18.29 billion, up 2.1% from $17.92 billion in the comparable period a year earlier, Albertsons said Tuesday. The Boise, Idaho-based grocer said the gain reflected a 2.9% uptick in identical sales plus with strong growth in pharmacy and online sales, and retail price inflation across most categories, partially offset by lower fuel sales.

The net and identical sales gains came atop growth of 8.6% and 7.4%, respectively, in the fiscal 2022 second quarter and continued the momentum from increases of 3.2% in net sales and 4.9% in ID sales in the 2023 first quarter.

Fiscal 2023 Q2 digital sales climbed by 19% year over year, keeping up the pace from 22% e-commerce sales growth in Q1 and building on a 36% surge in the fiscal 2022 quarter, Albertsons reported.  

The base of Just for U customer loyalty program members also expanded 17% to 37.4 million in the 2023 second quarter, up from a 16% increase to 35.9 million in the first quarter and an earlier gain of 16% to 31.8 million in the fiscal 2022 second quarter.

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“During the second quarter, we continued to execute against our ‘Customers for Life’ transformation strategy and drive solid operating results, despite increasing macro-economic headwinds. We want to thank all our teams for their commitment to our customers and communities,” Albertsons Cos. CEO Vivek Sankaran said in a statement. “As we look ahead to the balance of the year, our focus remains the same—advancing operational excellence in our stores, driving growth in our digital and pharmacy operations, and deepening our relationships with our customers."

As of the close of fiscal 2022 Q2, Albertsons stopped holding its usual quarterly call with analysts because of the $24.6 billion merger deal with Kroger, which remains in the antitrust review phase a year after it was announced on Oct. 14, 2022. Albertsons noted in its Q2 2023 report that the SpinCo option anticipated as a divestiture solution for the planned merger “no longer a requirement” under the agreement and “will no longer be pursued by the company and Kroger,” after the two companies agreed to sell 413 stores, eight distribution centers and two offices in 17 states and the District of Columbia plus five Albertsons Cos. private brands to C&S Wholesale Grocers in a $1.9 billion deal unveiled in September.

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At the bottom line, Albertsons turned fiscal 2023 second-quarter net earnings of $266.9 million, or 46 cents per diluted Class A common share, compared with $342.7 million, or 59 cents per diluted Class A common share, a year ago. Excluding merger-related costs plus business transformation, equity-based compensation and LIFO expenses and other items, adjusted net income came in at $367.7 million, or 63 cents per diluted Class A common share, versus $418.3 million, or 72 cents per diluted Class A common share, in the prior-year period.

Analysts, on average, had projected adjusted EPS of 56 cents for the 2023 second quarter, with estimates ranging from a low of 45 cents to a high of 61 cents, according to Refinitiv.

For the 28-week fiscal 2023 first half, Albertsons tallied net income of $684.1 million, or $1.18 per diluted Class A common share, compared with $826.9 million, or $1.43 per diluted Class A common share, in the comparable fiscal 2022 period. Adjusted net earnings for the first half were $913.4 million, or $1.56 per diluted Class A common share, versus just over $1 billion, or $1.72 per diluted Class A common share, a year ago. Net sales and other revenue in the 2023 first half rose 2.7% to $42.34 billion from $41.23 billion a year earlier.

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“We are also mindful of a more challenging economic backdrop, including declining federal and state government assistance and higher interest rates, and their effects on consumer spending and our business,” Sankaran added in looking ahead to the rest of fiscal 2023. “We also expect slowing food inflation, ongoing labor investment, broad inflationary cost increases and significant declines in COVID-19 vaccination and test kit revenue. We continue to partially offset these headwinds with the benefits of our productivity initiatives.”  

As of the end of Q2, 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.

Though Albertsons beat Wall Street's consensus Q2 adjusted EPS estimate, its ID sales fell short, noted CFRA Research analyst Arun Sundaram.

"Identical sales growth of 2.9% missed the 3.1% consensus, driven by slowing food inflation and the effects of declining government assistance and higher interest rates on consumer spending," Sundaram wrote in a research note on Tuesday.

"Adjusted EBITDA of $977 million (-7%) beat the $947 million consensus. Nonetheless, adjused EBITDA margins fell 50 basis points year over year to 5.3%. While Albertsons is currently seeing stronger identical sales growth compared to Kroger (Albertsons 2.9% versus Kroger 1%), the downside has been weakening margins," he explained. "Kroger's BITDA margins, while lower than Albertsons', have been somewhat stable over the past few quarters. However, Albertsons' EBITDA margins seem to be on a downward trend, which will likely continue if identical sales growth continues to decelerate. Ongoing labor investments seem to be a major headwind."

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