Albertsons Companies, Inc. (NYSE: ACI) (the "Company") today
reported results for the first quarter of fiscal 2024, which ended
June 15, 2024.
First Quarter of Fiscal 2024
Highlights
- Identical sales increased 1.4%
- Digital sales increased 23%
- Loyalty members increased 15% to 41.4 million
- Net income of $241 million, or $0.41 per share
- Adjusted net income of $392 million, or $0.66 per share
- Adjusted EBITDA of $1,184 million
"In the first quarter of fiscal 2024, we continued to invest in
our Customers for Life strategy and the digital and omnichannel
capabilities necessary to support it," said Vivek Sankaran, CEO.
"Our Customers for Life strategy is placing the customer at the
center of everything we do, and we continued to drive strong
year-over-year growth in loyalty members as we launched our new
simplified 'for U' loyalty program. Amidst an evolving economic and
industry backdrop, we continued to deliver outsized growth in our
digital and pharmacy businesses."
Sankaran added, "We want to thank our teams for their ongoing
commitment to serving our customers and supporting our
communities."
Sankaran concluded, "As we look ahead to the balance of fiscal
2024, we expect to see continuing headwinds related to investments
in associate wages and benefits, an increasing mix of our pharmacy
and digital businesses which carry lower margins, and the cycling
of prior year food inflation. We expect these headwinds to be
partially offset by ongoing productivity initiatives."
First Quarter of Fiscal 2024
Results
Net sales and other revenue was $24.3 billion during the 16
weeks ended June 15, 2024 ("first quarter of fiscal 2024") compared
to $24.1 billion during the 16 weeks ended June 17, 2023 ("first
quarter of fiscal 2023"). The increase was driven by the Company's
1.4% increase in identical sales, with strong growth in pharmacy
sales driving the identical sales increase. We also continued to
grow our digital sales with a 23% increase during the first quarter
of fiscal 2024. The increase in Net sales and other revenue was
partially offset by lower fuel sales.
Gross margin rate increased to 27.8% during the first quarter of
fiscal 2024 compared to 27.7% during the first quarter of fiscal
2023. Excluding the impact of fuel and LIFO expense, gross margin
rate decreased 22 basis points compared to the first quarter of
fiscal 2023. The strong growth in pharmacy sales, which carries an
overall lower gross margin rate, increases in shrink, and increases
in picking and delivery costs related to the continued growth in
our digital sales were the primary drivers of the decrease,
partially offset by our procurement and sourcing productivity
initiatives.
Selling and administrative expenses increased to 25.9% of Net
sales and other revenue during the first quarter of fiscal 2024
compared to 25.0% during the first quarter of fiscal 2023.
Excluding the impact of fuel, Selling and administrative expenses
as a percentage of Net sales and other revenue increased 79 basis
points. The increase in Selling and administrative expenses as a
percentage of Net sales and other revenue was primarily
attributable to an increase in operating expenses related to the
ongoing development of our digital and omnichannel capabilities,
Merger-related costs, higher employee costs, increased store
occupancy costs and additional third-party store security services,
partially offset by the benefit of productivity initiatives.
Net loss on property dispositions and impairment losses was $5.3
million during the first quarter of fiscal 2024 compared to $27.6
million during the first quarter of fiscal 2023.
Interest expense, net was $145.7 million during the first
quarter of fiscal 2024 compared to $154.9 million during the first
quarter of fiscal 2023. The decrease in interest expense, net was
primarily attributable to lower average outstanding borrowings.
Other expense, net was $4.0 million during the first quarter of
fiscal 2024 compared to other income, net of $16.0 million during
the first quarter of fiscal 2023.
Income tax expense was $69.2 million, representing a 22.3%
effective tax rate, during the first quarter of fiscal 2024
compared to $66.1 million, representing a 13.7% effective tax rate,
during the first quarter of fiscal 2023. The increase in the
effective income tax rate in the first quarter of fiscal 2024 was
primarily due to the reduction of a reserve for an uncertain tax
position due to the expiration of a statute during the first
quarter of fiscal 2023.
Net income was $240.7 million, or $0.41 per share, during the
first quarter of fiscal 2024. Net income was $417.2 million, or
$0.72 per share, during the first quarter of fiscal 2023, which
included the $49.7 million or $0.09 per share benefit related to
the reduction in the reserve for an uncertain tax position.
Adjusted net income was $391.6 million, or $0.66 per share,
during the first quarter of fiscal 2024 compared to $545.7 million,
or $0.93 per share (which includes the tax benefit discussed
above), during the first quarter of fiscal 2023.
Adjusted EBITDA was $1,183.9 million, or 4.9% of Net sales and
other revenue, during the first quarter of fiscal 2024 compared to
$1,318.5 million, or 5.5% of Net sales and other revenue, during
the first quarter of fiscal 2023.
Capital Expenditures
During the first 16 weeks of fiscal 2024, capital expenditures
were $543.0 million, which primarily included the completion of 17
remodels, the opening of one new store and continued investment in
our digital and technology platforms.
Merger Agreement
As previously announced, on October 13, 2022, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with The Kroger Company and Kettle Merger Sub, Inc.
Under the terms of the Merger Agreement, subject to regulatory
approval, Kroger (through Kettle Merger Sub, Inc.) will acquire all
of the outstanding shares of the Company's common stock (the
"Merger"). Details regarding the Merger Agreement and the
transactions contemplated by the Merger Agreement are available in
our Quarterly Report on Form 10-Q for the first quarter of fiscal
2024 filed with the Securities and Exchange Commission ("SEC") on
July 23, 2024.
About Albertsons
Companies
Albertsons Companies is a leading food and drug retailer in the
United States. As of June 15, 2024, the Company operated 2,269
retail food and drug stores with 1,725 pharmacies, 403 associated
fuel centers, 22 dedicated distribution centers and 19
manufacturing facilities. The Company operates stores across 34
states and the District of Columbia under more than 20 well known
banners including 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 Company is committed to helping people across
the country live better lives by making a meaningful difference,
neighborhood by neighborhood. In 2023, along with the Albertsons
Companies Foundation, the Company contributed more than $350
million in food and financial support, including more than $35
million through our Nourishing Neighbors Program to ensure those
living in our communities and those impacted by disasters have
enough to eat.
Forward-Looking Statements and Factors
That Impact Our Operating Results and Trends
This press release includes "forward-looking statements" within
the meaning of the federal securities laws. The "forward-looking
statements" include our current expectations, assumptions,
estimates and projections about our business, our industry and the
outcome of the Merger. They include statements relating to our
future operating or financial performance which the Company
believes to be reasonable at this time. You can identify
forward-looking statements by the use of words such as "outlook,"
"may," "should," "could," "estimates," "predicts," "potential,"
"continue," "anticipates," "believes," "plans," "expects," "future"
and "intends" and similar expressions which are intended to
identify forward-looking statements.
These statements are not guarantees of future performance and
are subject to numerous risks and uncertainties which are beyond
our control and difficult to predict and could cause actual results
to differ materially from the results expressed or implied by the
statements. Risks and uncertainties that could cause actual results
to differ materially from such statements include:
- uncertainties related to the Merger, including our ability to
close the transactions contemplated by the Merger Agreement, and
the impact of the costs related to the Merger;
- erosion of consumer confidence in our business as a result of
the Merger;
- restrictions on our ability to operate as a result of the
Merger Agreement;
- challenges in retaining and motivating our associates until the
closing of the Merger, particularly following the public
announcement of the locations to be divested, with difficulties in
attracting new employees during the pendency of the Merger;
- litigation related to the transactions contemplated by the
Merger Agreement;
- changes in macroeconomic conditions such as rates of food price
inflation or deflation, fuel and commodity prices and expiration of
student loan payment deferments;
- changes in consumer behavior and spending due to the impact of
macroeconomic factors;
- failure to achieve productivity initiatives, unexpected changes
in our objectives and plans, inability to implement our strategies,
plans, programs and initiatives, or enter into strategic
transactions, investments or partnerships in the future on terms
acceptable to us, or at all;
- changes in wage rates, ability to attract and retain qualified
associates and negotiate acceptable contracts with labor
unions;
- availability and cost of goods used in our food products;
- challenges with our supply chain;
- operational and financial effects resulting from cyber
incidents at the Company or at a third party, including outages in
the cloud environment and the effectiveness of business continuity
plans during a ransomware or other cyber incident; and
- changes in tax rates, tax laws, and regulations that directly
impact our business or our customers may adversely impact our
financial condition and results of operations.
All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by
these cautionary statements and risk factors. Forward-looking
statements contained in this press release reflect our view only as
of the date of this press release. We undertake no obligation,
other than as required by law, to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
In evaluating our financial results and forward-looking
statements, you should carefully consider the risks and
uncertainties more fully described in the "Risk Factors" section or
other sections in our reports filed with the SEC including the most
recent annual report on Form 10-K and any subsequent periodic
reports on Form 10-Q and current reports on Form 8-K.
Additional Information and Where to
Find It
The Company has filed with the SEC a definitive information
statement on Schedule 14C with respect to the approval of the
Merger and has mailed the definitive information statement to the
Company's stockholders. You may obtain copies of all documents
filed by the Company with the SEC regarding this transaction, free
of charge, at the SEC's website, www.sec.gov or from the Company's
website at
https://www.albertsonscompanies.com/investors/overview/.
Non-GAAP Measures and Identical
Sales
Non-GAAP Measures. EBITDA, Adjusted EBITDA, Adjusted net income,
Adjusted net income per Class A common share and Net debt ratio
(collectively, the "Non-GAAP Measures") are performance measures
that provide supplemental information the Company believes is
useful to analysts and investors to evaluate its ongoing results of
operations, when considered alongside other GAAP measures such as
net income, operating income, gross margin, and net income per
Class A common share. These Non-GAAP Measures exclude the financial
impact of items management does not consider in assessing the
Company's ongoing core operating performance, and thereby provide
useful measures to analysts and investors of its operating
performance on a period-to-period basis. Other companies may have
different definitions of Non-GAAP Measures and provide for
different adjustments, and comparability to the Company's results
of operations may be impacted by such differences. The Company also
uses Adjusted EBITDA and Net debt ratio for board of director and
bank compliance reporting. The Company's presentation of Non-GAAP
Measures should not be construed as an inference that its future
results will be unaffected by unusual or non-recurring items.
Identical Sales. As used in this earnings release, the term
"identical sales" includes stores operating during the same period
in both the current fiscal year and the prior fiscal year,
comparing sales on a daily basis. Direct to consumer digital sales
are included in identical sales, and fuel sales are excluded from
identical sales.
Albertsons Companies, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Operations
(dollars in millions, except
per share data)
(unaudited)
16 weeks ended
June 15, 2024
June 17, 2023
Net sales and other revenue
$
24,265.4
$
24,050.2
Cost of sales
17,526.5
17,387.5
Gross margin
6,738.9
6,662.7
Selling and administrative
expenses
6,274.0
6,012.9
Loss on property dispositions and
impairment losses, net
5.3
27.6
Operating income
459.6
622.2
Interest expense, net
145.7
154.9
Other expense (income), net
4.0
(16.0
)
Income before income taxes
309.9
483.3
Income tax expense
69.2
66.1
Net income
$
240.7
$
417.2
Net income per Class A common
share
Basic net income per Class A common
share
$
0.42
$
0.73
Diluted net income per Class A common
share
0.41
0.72
Weighted average Class A common shares
outstanding (in millions)
Basic
578.6
573.7
Diluted
581.3
580.1
% of net sales and other
revenue
Gross margin
27.8
%
27.7
%
Selling and administrative expenses
25.9
%
25.0
%
Store data
Number of stores at end of quarter
2,269
2,272
Albertsons Companies, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(in millions)
(unaudited)
June 15, 2024
February 24,
2024
ASSETS
Current assets
Cash and cash equivalents
$
291.1
$
188.7
Receivables, net
809.4
724.4
Inventories, net
4,720.0
4,945.2
Other current assets
387.4
429.2
Total current assets
6,207.9
6,287.5
Property and equipment, net
9,509.8
9,570.3
Operating lease right-of-use assets
6,017.7
5,981.6
Intangible assets, net
2,415.4
2,434.5
Goodwill
1,201.0
1,201.0
Other assets
725.2
746.2
TOTAL ASSETS
$
26,077.0
$
26,221.1
LIABILITIES
Current liabilities
Accounts payable
$
3,898.2
$
4,218.2
Accrued salaries and wages
1,196.4
1,302.6
Current maturities of long-term debt and
finance lease obligations
82.6
285.2
Current maturities of operating lease
obligations
675.0
677.6
Other current liabilities
1,213.8
974.1
Total current liabilities
7,066.0
7,457.7
Long-term debt and finance lease
obligations
7,774.8
7,783.4
Long-term operating lease obligations
5,610.3
5,493.2
Deferred income taxes
754.8
807.6
Other long-term liabilities
1,958.0
1,931.7
Commitments and contingencies
STOCKHOLDERS' EQUITY
Class A common stock
6.0
5.9
Additional paid-in capital
2,126.2
2,129.6
Treasury stock, at cost
(304.2
)
(304.2
)
Accumulated other comprehensive income
86.7
88.0
Retained earnings
998.4
828.2
Total stockholders' equity
2,913.1
2,747.5
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$
26,077.0
$
26,221.1
Albertsons Companies, Inc. and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in millions)
(unaudited)
16 weeks ended
June 15, 2024
June 17, 2023
Cash flows from operating
activities:
Net income
$
240.7
$
417.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on property dispositions and
impairment losses, net
5.3
27.6
Depreciation and amortization
552.0
530.6
Operating lease right-of-use assets
amortization
207.6
203.6
LIFO expense
14.6
34.0
Deferred income tax
(56.3
)
(96.4
)
Contributions to pension and
post-retirement benefit plans, net of expense (income)
(10.9
)
(6.4
)
Deferred financing costs
4.9
4.8
Equity-based compensation expense
36.7
31.9
Other operating activities
6.0
(16.3
)
Changes in operating assets and
liabilities:
Receivables, net
(84.5
)
5.2
Inventories, net
210.7
(96.9
)
Accounts payable, accrued salaries and
wages and other accrued liabilities
(304.0
)
(222.8
)
Operating lease liabilities
(125.9
)
(123.4
)
Self-insurance assets and liabilities
21.5
31.1
Other operating assets and liabilities
242.5
114.5
Net cash provided by operating
activities
960.9
838.3
Cash flows from investing
activities:
Payments for property, equipment and
intangibles, including lease buyouts
(543.0
)
(622.5
)
Proceeds from sale of assets
3.8
169.3
Other investing activities
1.2
(0.7
)
Net cash used in investing
activities
(538.0
)
(453.9
)
Cash flows from financing
activities:
Payments on long-term borrowings,
including ABL facility
(200.2
)
(500.2
)
Payments of obligations under finance
leases
(12.5
)
(13.0
)
Dividends paid on common stock
(69.5
)
(69.0
)
Dividends paid on convertible preferred
stock
—
(0.8
)
Employee tax withholding on vesting of
restricted stock units
(38.6
)
(33.1
)
Other financing activities
—
1.1
Net cash used in financing
activities
(320.8
)
(615.0
)
Net increase (decrease) in cash and
cash equivalents and restricted cash
102.1
(230.6
)
Cash and cash equivalents and
restricted cash at beginning of period
193.2
463.8
Cash and cash equivalents and
restricted cash at end of period
$
295.3
$
233.2
Albertsons Companies, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures
(in millions, except per share
data)
The following tables reconcile Net income
to Adjusted net income, and Net income per Class A common share to
Adjusted net income per Class A common share:
16 weeks ended
June 15, 2024
June 17, 2023
Numerator:
Net income
$
240.7
$
417.2
Adjustments:
Gain on energy hedges, net (d)
(0.8
)
(0.6
)
Business transformation (1)(b)
17.3
12.1
Equity-based compensation expense (b)
36.7
31.9
Loss on property dispositions and
impairment losses, net
5.3
27.6
LIFO expense (a)
14.6
34.0
Merger-related costs (2)(b)
92.3
47.1
Certain legal and regulatory accruals and
settlements, net (b)
(8.9
)
—
Amortization of debt discount and deferred
financing costs (c)
4.9
4.7
Amortization of intangible assets
resulting from acquisitions (b)
14.7
15.4
Miscellaneous adjustments (3)(f)
19.8
(2.4
)
Tax impact of adjustments to Adjusted net
income
(45.0
)
(41.3
)
Adjusted net income
$
391.6
$
545.7
Denominator:
Weighted average Class A common shares
outstanding - diluted
581.3
580.1
Adjustments:
Restricted stock units and awards (4)
9.3
6.7
Adjusted weighted average Class A common
shares outstanding - diluted
590.6
586.8
Adjusted net income per Class A common
share - diluted
$
0.66
$
0.93
16 weeks ended
June 15, 2024
June 17, 2023
Net income per Class A common share -
diluted
$
0.41
$
0.72
Non-GAAP adjustments (5)
0.26
0.22
Restricted stock units and awards (4)
(0.01
)
(0.01
)
Adjusted net income per Class A common
share - diluted
$
0.66
$
0.93
Albertsons Companies, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures
(in millions, except per share
data)
The following table is a reconciliation of
Adjusted net income to Adjusted EBITDA:
16 weeks ended
June 15, 2024
June 17, 2023
Adjusted net income (6)
$
391.6
$
545.7
Tax impact of adjustments to Adjusted net
income
45.0
41.3
Income tax expense
69.2
66.1
Amortization of debt discount and deferred
financing costs (c)
(4.9
)
(4.7
)
Interest expense, net
145.7
154.9
Amortization of intangible assets
resulting from acquisitions (b)
(14.7
)
(15.4
)
Depreciation and amortization (e)
552.0
530.6
Adjusted EBITDA
$
1,183.9
$
1,318.5
(1)
Includes costs associated with third-party
consulting fees related to our operational priorities and
associated business transformation.
(2)
Primarily relates to third-party legal and
advisor fees and retention program expense related to the proposed
Merger.
(3)
Primarily includes net realized and
unrealized gains and losses related to non-operating investments,
lease adjustments related to non-cash rent expense and costs
incurred on leased surplus properties, adjustments for
unconsolidated equity investments and other costs not considered in
our core performance.
(4)
Represents incremental unvested restricted
stock units ("RSUs") and unvested restricted stock awards ("RSAs")
to adjust the diluted weighted average Class A common shares
outstanding during each respective period to the fully outstanding
RSUs and RSAs as of the end of each respective period.
(5)
Reflects the per share impact of Non-GAAP
adjustments for each period. See the reconciliation of Net income
to Adjusted net income above for further details.
(6)
See the reconciliation of Net income to
Adjusted net income above for further details.
Non-GAAP adjustment classifications within
the Condensed Consolidated Statements of Operations:
(a)
Cost of sales
(b)
Selling and administrative expenses
(c)
Interest expense, net
(d)
Gain on energy hedges, net:
16 weeks ended
June 15, 2024
June 17, 2023
Cost of sales
$
0.1
$
1.3
Selling and administrative expenses
(0.9
)
(1.9
)
Total Gain on energy hedges, net
$
(0.8
)
$
(0.6
)
(e)
Depreciation and amortization:
16 weeks ended
June 15, 2024
June 17, 2023
Cost of sales
$
53.6
$
46.7
Selling and administrative expenses
498.4
483.9
Total Depreciation and amortization
$
552.0
$
530.6
(f)
Miscellaneous adjustments:
16 weeks ended
June 15, 2024
June 17, 2023
Selling and administrative expenses
$
12.4
$
10.0
Other expense (income), net
7.4
(12.4
)
Total Miscellaneous adjustments
$
19.8
$
(2.4
)
Albertsons Companies, Inc. and
Subsidiaries
Reconciliation of Non-GAAP
Measures
(in millions)
The following table is a reconciliation of
Net Debt Ratio on a rolling four quarter basis:
June 15, 2024
June 17, 2023
Total debt (including finance leases)
$
7,857.4
$
8,399.2
Cash and cash equivalents
291.1
225.2
Total debt net of cash and cash
equivalents
7,566.3
8,174.0
Rolling four quarters Adjusted EBITDA
$
4,183.1
$
4,575.2
Total Net Debt Ratio
1.81
1.79
The following table is a reconciliation of
Net income to Adjusted EBITDA on a rolling four quarter basis:
Rolling four quarters
ended
June 15, 2024
June 17, 2023
Net income
$
1,119.5
$
1,446.5
Depreciation and amortization
1,800.4
1,790.0
Interest expense, net
482.9
420.6
Income tax expense
296.1
344.8
EBITDA
3,698.9
4,001.9
(Gain) loss on interest rate swaps and
energy hedges, net
(3.4
)
9.5
Business transformation (1)
50.3
56.6
Equity-based compensation expense
109.3
134.9
Loss (gain) on property dispositions and
impairment losses, net
21.6
(40.5
)
LIFO expense
32.6
239.9
Government-mandated incremental COVID-19
pandemic related pay (2)
—
4.9
Merger-related costs (3)
225.8
97.5
Certain legal and regulatory accruals and
settlements, net
(15.6
)
67.9
Combined Plan (4)
—
(19.0
)
Miscellaneous adjustments (5)
63.6
21.6
Adjusted EBITDA
$
4,183.1
$
4,575.2
(1)
Includes costs associated with third-party
consulting fees related to our operational priorities and
associated business transformation.
(2)
Represents incremental COVID-19 related
pay legislatively required in certain municipalities in which we
operate.
(3)
Primarily relates to third-party legal and
advisor fees and retention program expense related to the proposed
Merger and costs in connection with our previously-announced
Board-led review of potential strategic alternatives.
(4)
Includes the $19.0 million gain during the
second quarter of fiscal 2022 related to the withdrawal in fiscal
2020 from the Food Employers Labor Relations Association and United
Food and Commercial Workers Pension Fund ("FELRA") and the
Mid-Atlantic UFCW and Participating Pension Fund ("MAP" and
together with FELRA, the "Combined Plan").
(5)
Primarily includes net realized and
unrealized gains and losses related to non-operating investments,
lease adjustments related to non-cash rent expense and costs
incurred on leased surplus properties, adjustments for
unconsolidated equity investments and other costs not considered in
our core performance.
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