As Albertsons Cos. and its new CEO finalize a comprehensive strategy, quarterly financial results released this week indicate there’s new operating and financial momentum to the business.
Boise, Idaho-based Albertsons said identical-store sales in the fiscal second quarter were their highest in three years behind improving store operations and loyalty, private brand penetration and e-commerce. These four areas are key growth drivers underlying the developing strategy, President and CEO Vivek Sankaran said in a conference call. They accompanied improved financial performance that also saw sales, margins and earnings improve for the quarter, as well as reduced debts.
For the period, which ended Sept. 7, Albertsons saw sales improve by 1.1% to $14.2 billion, with identical-store sales climbing by 2.4%. The comp figure marked Albertsons’ seventh straight quarter of positive comps and its best single quarter in three years. Net income of $294.8 million swung from a $32.4 million loss in last year’s second quarter, helped along by decreased expenses as a percentage of sales and better margins that improved to 28.7% of sales from 28.3% in the same period last year. Excluding the effect of higher fuel margins, gross margins increased by 30 basis points, reflecting improved shrink expense and increased private brand penetration, partially offset by continued reimbursement rate pressures in pharmacy and higher distribution center rent expense.
Private brand penetration increased to 25.3% of sales, officials said, while digital sales, helped along by an increase in the retailer’s Drive Up & Go and delivery availability, increased by 40%.
Albertsons also significantly addressed debts in the period, with help from a sale-leaseback deal raising funds to pay down indebtedness while it refinanced other loans in the period. The company’s total net debt to adjusted EBITDA ratio decreased to 2.9x, giving the company greater flexibility to invest.
Sankaran, who joined Albertsons earlier this year from PepsiCo, said he was still at work on a comprehensive strategic review but outlined what he called four key growth drivers that strategy will be built around.
In stores, Albertsons goal is to enhance operations through superior customer experience, saying the retailer would focus on variety, an exciting sensory experience in perishables, personalized customer service and the integration of technology tools focused on price and promotion, replenishment and inventory management.
Those tools—which Sankaran did not immediately identify—will be headed to stores soon.
Albertsons is also looking to customer loyalty to win a larger share of its customers’ spending, saying the company’s Just for U digital loyalty program saw a 22% signup and the relaunch of a gas rewards program in some banners during the second quarter.
Enhanced e-commerce efforts include plans to continue a rollout of its Drive Up & Go click-and-collect program, now in 500 stores. Albertsons is also testing micro-fulfillment in two West Coast stores: The first of these is already in operation, and the second is expected to go live next month. Plans to test these facilities, in partnership with Takeoff Technologies, was announced a year ago.
E-commerce efforts are still dilutive to margins relative to sales taking place in stores, Sankaran said in response to a question, but are accretive to sales in that digital customers tend to spend more with the company overall. Micro-fulfillment, he added, represents one opportunity to address the costs associated with online sales.
“We have great locations, very close to where people live,” Sankaran said. “So our philosophy is, why not give people a chance to pick up. Micro-fulfillment is a great option to get real productivity, and we’re going to learn from it.”
Finally, Sankaran said, private label would support Alberstons’ growth through unique items not currently provided by branded goods—for example, he said, a cauliflower crust pizza available under its Open Nature free-from line and expansions of clean-ingredient, eco-friendly and sustainably packaged items.