Albertsons Beats Q2 Expectations on 13.8% Comps

More MFCs en route; eyes Kings as upscale Acme cousin
Photograph courtesy of Albertsons Cos.

Defying the notion that food shoppers and food stores will come out of the pandemic unchanged, and convinced the market outlook for its financial performance has been too gloomy, Albertsons Cos. went and trampled over consensus expectations in its fiscal second quarter, and said it was positioned to continue to benefit from sales and increased profits over the long term.

The Boise, Idaho-based retailer said sales in the 12-week period ended Sept. 12 increased by 11.2% to $15.8 billion, with a 13.8% identical-store sales increase, a 243% increase in digital sales, margins up 120 basis points to 29% of sales and net earnings of $284.5 million. The revenue growth was in-line with consensus estimates but adjusted earnings per share of 60 cents whalloped a 27-cent Wall Street estimate.

Adjusted EBITDA soared by 67% to $948.4 million, prompting analysts reviewing the figures to ask Albertsons executives in a conference call how sustainable those EBITDA gains could be in a “normalized” environment.

To that, Albertsons CEO Vivek Sankaran, responded with a question of his own. “I think we should ask ourselves what this new normalized environment is. There’s a narrative that we are going to turn the switch, and everything is going to go back to 2019. I don’t believe that. I believe that we’re going to go through this phase and come out of it with different behaviors. We’re eight months into this pandemic and I think that part of that different behavior is going to be eating more at home. And when you eat more at home, I think there is fundamentally a bigger market for us to pursue.”

A combination of those trends dovetailing with Albertsons’ ongoing efforts to drive top-line growth and pursue more efficiencies benefitting the bottom line—efforts Sankaran said were succeeding and yet still in the early stages—gives him confidence the company would “significantly beat” consensus EBITDA figures of $3.2 billion in fiscal 2021. And when a “normalized” environment returns, “we will grow from a new baseline,” Sankaran said.

During the quarter, Albertsons said adjustments it made to accommodate how shoppers were behaving since the pandemic—including larger baskets, fewer trips to the store and increased use of e-commerce options—had played to its favor.

“In general, we are seeing customers continue to come to our stores less often, but are buying much larger baskets, including new categories as we fill their one-stop shopping need,” Sankaran said. “And many have chosen to use our e-commerce offerings, both home delivery and Drive Up & Go, and overall have increased their household spending with us. This enduring secular shift in shopping habits is confirmed daily despite the economy opening in most parts of the country.

“Importantly, all income segments have increased their spend with us,” he added. “We watched the impact of the recession closely, and we are increasing our traction even with lower-income shoppers, who generally come a bit more often and spend less per trip,” relying on its Just 4 U loyalty program and opening price points in private brands.

Sankaran was quick to mention that not all of Albertsons’ momentum was simply a matter of absorbing consumer spending that were not for the pandemic, would wind up in alternative channels like restaurants. Its chains are gaining share from competitors in the supermarket space as well.

“Our belief is that at least, in my calculation, at least 40% of our growth is clearly coming from market share gains, which we hope to retain as we go forward,” he said.

Line of Sight to MFC Profitability

E-commerce growth accompanied news that Albertsons has a “line of sight to profitability” for the two microfulfillment centers it has opened inside stores, with more such units on the way. Albertsons has started construction on four additional sites and is planning six more than that in the next 18 months.

Technology investments are arriving in other areas of the business as well, Sankaran said noting announcements this week of automated pickup lockers coming to some Jewel-Osco and Safeway stores and a nationwide mobile pay program.

“We’re accelerating our investments to modernize our core technology platform. Last quarter, we completed the migration of our enterprise data to the public cloud, which is already being used for machine learning models and digital catalog for our e-commerce channels. We’re also refactoring major applications on legacy platforms to be cloud-native, while leveraging SaaS offerings for our finance and human resource platforms.”

These efforts will help support a $1 billion, three-year productivity savings goal.

Just Call it Pavilions East

Albertsons also made news recently in acquiring 27 Kings and Balducci’s outlets in a bankruptcy auction. Although still subject to court approval, Sankaran said the addition of the upscale banners would give the company’s Mid-Atlantic division—in particular its mainstream Acme banner—an upscale complement he likened to Pavilions stores’ role as an upscale mate of Vons stores in Southern California, or Haggen’s positioning relative to Safeway and Albertsons in the Northwest.

He said the acquisition would be “accretive from day 1” due to the price—and could provide synergies by combining back-end capabilities.

“We love these premium banners that give us a nice niche, and we’re starting to get to some degree of scale in that,” Sankaran said. “So we can start thinking about how we can get merchandising synergies across the country in these premium banners and then the back-end synergies with the local market and the distribution centers and the management teams we have there. That's the idea behind it.”

Sankaran described the Mid-Atlantic as “a market area where we are absolutely crushing it. And so, Kings and Balducci's allows us to extend our presence in that market area.”



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