Albertsons Companies, Inc. (ACI) is one of the largest food and drug retailers in the United States, operating a diverse portfolio of well-known banners such as Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw's, Star Market, United Supermarkets, Market Street, Haggen, Kings Food Markets, and Balducci's Food Lovers Market. With a strong presence across 34 states and the District of Columbia, the company serves an average of 36.3 million customers each week through its network of 2,269 stores as of June 15, 2024.

Financials

The company's impressive scale is reflected in its financial performance. In the fiscal year ended February 24, 2024, Albertsons reported annual revenue of $79,237.7 million and net income of $1,295.0 million. The company's strong cash flow generation is also noteworthy, with annual operating cash flow of $2,659.5 million and free cash flow of $628.2 million.

In the first quarter of fiscal 2024, which ended on June 15, 2024, Albertsons continued to demonstrate its resilience. The company reported net sales and other revenue of $24,265.4 million, a 0.9% increase from the $24,050.2 million reported in the first quarter of fiscal 2023. This growth was driven by a 1.4% increase in identical sales, excluding fuel, as the company's pharmacy and digital sales channels continued to perform well.

Gross margin for the first quarter of fiscal 2024 was 27.8%, up slightly from 27.7% in the prior-year period. However, excluding the impact of fuel and LIFO expense, the gross margin rate decreased by 22 basis points, primarily due to the strong growth in pharmacy sales, which carry a lower overall gross margin rate, as well as increases in shrink and picking and delivery costs related to the company's growing digital sales.

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% in the prior-year period. Excluding the impact of fuel, selling and administrative expenses as a percentage of net sales and other revenue increased by 79 basis points. This was primarily attributable to an increase in operating expenses related to the ongoing development of Albertsons' 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 income for the first quarter of fiscal 2024 was $240.7 million, or $0.41 per diluted Class A common share, compared to $417.2 million, or $0.72 per diluted Class A common share, in the first quarter of fiscal 2023. The decrease in net income was primarily due to the $49.7 million, or $0.09 per share, benefit related to the reduction in the reserve for an uncertain tax position that was recognized in the first quarter of fiscal 2023.

Adjusted net income, which excludes the impact of certain items, was $391.6 million, or $0.66 per diluted Class A common share, in the first quarter of fiscal 2024, compared to $545.7 million, or $0.93 per diluted Class A common share, in the first quarter of fiscal 2023. Adjusted EBITDA, a non-GAAP measure, was $1,183.9 million, or 4.9% of net sales and other revenue, in the first quarter of fiscal 2024, compared to $1,318.5 million, or 5.5% of net sales and other revenue, in the prior-year period.

Liquidity

The company's liquidity position remains strong, with $295.3 million in cash and cash equivalents and restricted cash as of June 15, 2024. Albertsons generated $960.9 million in net cash from operating activities during the first 16 weeks of fiscal 2024, compared to $838.3 million in the same period of the prior year. The company's total debt, net of unamortized debt discounts and deferred financing costs, was $7,484.0 million as of June 15, 2024.

Business Overview

Albertsons' diverse product mix and geographic footprint have been key drivers of its resilience. The company's non-perishables segment, which includes general merchandise, grocery, dairy, and frozen foods, accounted for 49.7% of net sales and other revenue in the first quarter of fiscal 2024. The fresh segment, comprising produce, meat, deli and prepared foods, bakery, floral, and seafood, contributed 32.6% of net sales and other revenue. The pharmacy segment, which has been a strong performer, generated 10.8% of net sales and other revenue, while fuel sales accounted for 5.4% and other products and services made up the remaining 1.5%.

Albertsons' digital transformation has also been a key focus, with digital sales increasing 23% in the first quarter of fiscal 2024 compared to the prior-year period. The company's loyalty program has also been a success, with the number of loyalty members increasing 15% to 41.4 million as of June 15, 2024.

Outlook

Looking ahead, Albertsons' management has not provided specific financial guidance for the remainder of fiscal 2024. However, the company remains focused on executing its strategic initiatives, including further enhancing its digital and omnichannel capabilities, optimizing its supply chain, and driving operational efficiencies to navigate the challenging macroeconomic environment.

Recent Developments

The proposed merger with The Kroger Co. (KR) announced in October 2022 is currently pending regulatory approval. The companies have entered into a comprehensive divestiture plan with C&S Wholesale Grocers, LLC to address potential antitrust concerns. While the outcome of the regulatory review process remains uncertain, the merger, if approved, could create significant synergies and strengthen Albertsons' position in the highly competitive grocery industry.

Conclusion

Despite the ongoing challenges, Albertsons' diversified business model, strong cash flow generation, and focus on strategic initiatives position the company well to navigate the current environment. As the company continues to adapt and innovate, investors will be closely watching Albertsons' ability to maintain its market share and profitability in the highly competitive grocery landscape.