Business Overview Albertsons traces its roots back to 1939 when Joe Albertson opened the first Albertson's Food Store in Boise, Idaho. Over the ensuing decades, the company grew organically and through acquisitions, eventually becoming one of the largest grocery retailers in the United States. In 1999, Albertsons merged with American Stores Company, creating one of the largest grocery retailers in the country.
In the early 2000s, Albertsons faced significant challenges, including increased competition, rising costs, and changing consumer preferences. This led the company to undertake a major restructuring effort, which included store closures, divestitures, and cost-cutting measures. In 2006, Albertsons was acquired by an investment group led by Supervalu, Cerberus Capital Management, and CVS Pharmacy.
Under new ownership, Albertsons continued to evolve, investing in its store network, enhancing its product offerings, and expanding its digital capabilities. In 2015, the company made a major move by acquiring Safeway, one of its key competitors, further solidifying its position as a leading grocery retailer. This acquisition provided Albertsons with a stronger presence on the West Coast and added several well-known banner names to its portfolio, including Vons, Pavilions, and Carrs.
Despite these successes, Albertsons has faced its share of challenges over the years. In 2018, the company filed for an initial public offering but decided to postpone it due to market conditions. The company eventually went public in 2020, raising $1.3 billion in its initial public offering. Since then, Albertsons has continued to evolve, investing heavily in its digital capabilities, loyalty program, and pharmacy business to better serve its customers.
Throughout its history, Albertsons has remained committed to serving its customers and communities, with a focus on providing a wide selection of high-quality products, excellent customer service, and a convenient shopping experience. The company's diverse portfolio of well-known grocery store banners, combined with its ongoing investments in technology and operations, have positioned Albertsons as a prominent player in the highly competitive grocery industry.
As of November 30, 2024, Albertsons operates 2,270 stores across 34 states and the District of Columbia. The company's stores operate under more than 20 well-known banners, including 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 approximately 285,000 employees, Albertsons is one of the largest food retailers in the United States.
Financials and Operational Efficiency As of Albertsons' most recent fiscal year ended February 2024, the company reported annual revenue of $79.24 billion and net income of $1.30 billion. The company's annual operating cash flow for fiscal year 2024 was $2.66 billion, with free cash flow of $628.20 million. Over the past three years, Albertsons has maintained a solid financial profile, with a current ratio of 0.93, a debt-to-equity ratio of 4.22, and a return on equity of 34.44%.
In an effort to drive long-term growth and profitability, Albertsons has placed a strong emphasis on improving its operational efficiency. The company has invested heavily in technology, automating its supply chain and implementing AI-powered tools to enhance productivity in its stores. These initiatives have enabled Albertsons to deliver $1.5 billion in cost savings over the past three years, which it has reinvested into its customer value proposition and growth initiatives.
For the third quarter of fiscal 2024, Albertsons reported net sales and other revenue of $18.77 billion, representing a 1.2% increase compared to the same period in the prior year. This growth was driven by a 2.0% increase in identical sales, excluding fuel, with strong performance in the pharmacy sales category being the primary driver. Digital sales continued to show robust growth, increasing by 23% compared to the third quarter of fiscal 2023.
Gross margin for the third quarter of fiscal 2024 was 27.9%, a decrease of 10 basis points compared to the prior year period. This decrease was primarily attributable to the strong growth in pharmacy sales, which carry a lower overall gross margin rate, as well as increased costs related to digital order fulfillment. Selling and administrative expenses increased to 25.1% of net sales and other revenue, up 30 basis points, primarily due to Merger-related costs and higher occupancy expenses, including increased third-party store security services.
Net income for the third quarter of fiscal 2024 was $400.6 million, or $0.69 per diluted Class A common share, compared to $361.4 million, or $0.62 per diluted Class A common share, in the prior year period. The current quarter's results included an $81.0 million, or $0.14 per share, benefit related to certain discrete state income tax benefits from the settlement of audits. Adjusted net income was $420.3 million, or $0.71 per diluted Class A common share, in the third quarter of fiscal 2024, compared to $462.3 million, or $0.79 per diluted Class A common share, in the prior year period.
Albertsons' Digital Transformation and Loyalty Program A key component of Albertsons' strategy has been its focus on digital transformation and enhancing the customer experience. The company has invested significantly in its e-commerce capabilities, with digital sales now accounting for over 7% of total grocery revenue. Albertsons has also leveraged its loyalty program, which has grown to 44.3 million members, to deepen customer engagement and foster long-term loyalty.
The company's Albertsons Media Collective (AMC) has been another area of focus, as Albertsons seeks to capitalize on the growing retail media opportunity. AMC is designed to provide brands with a robust, data-driven advertising platform to reach Albertsons' customer base, generating an additional revenue stream for the company.
Terminated Merger with Kroger In October 2022, Albertsons announced that it had entered into a merger agreement with Kroger, the nation's largest supermarket chain. The proposed $25 billion transaction was viewed by both companies as a strategic move to better compete in an increasingly competitive and consolidated grocery landscape.
However, the merger faced significant regulatory scrutiny, with the Federal Trade Commission (FTC) and several state attorneys general filing lawsuits to block the deal. In December 2024, a federal judge in Oregon issued a preliminary injunction, effectively halting the merger. Albertsons subsequently exercised its right to terminate the agreement, and the two companies went their separate ways. Following the termination, Albertsons filed a lawsuit against Kroger, alleging breach of contract.
The collapse of the Kroger-Albertsons merger was a significant setback for both companies, but Albertsons has remained resolute in its commitment to driving long-term growth and shareholder value. The company has reaffirmed its fiscal 2024 guidance and outlined a plan to deliver $1.5 billion in cost savings over the next three years, which it intends to reinvest into its customer value proposition and growth initiatives.
Leadership Transition and the Path Forward In March 2025, Albertsons announced a CEO succession plan, with Susan Morris, the company's Executive Vice President and Chief Operations Officer, set to succeed Vivek Sankaran as CEO effective May 1, 2025. Sankaran, who had led Albertsons since 2019, will be retiring as part of the planned transition.
Under Morris' leadership, Albertsons is poised to continue its digital transformation, expand its pharmacy and health offerings, and further enhance its customer loyalty program. The company has also committed to returning capital to shareholders through a recently announced $2 billion share repurchase program, in addition to maintaining its quarterly dividend.
Despite the challenges posed by the failed Kroger merger, Albertsons remains a formidable player in the U.S. grocery market. The company's focus on operational efficiency, digital innovation, and customer engagement has positioned it well to navigate the evolving competitive landscape and create long-term value for its shareholders.
Liquidity Albertsons maintains a strong liquidity position, with $202.30 million in cash and cash equivalents as of November 30, 2024. The company also has access to a $3.96 billion asset-based revolving credit facility, with $37.20 million in letters of credit outstanding as of November 30, 2024. This robust liquidity position enables Albertsons to invest in strategic initiatives, manage its debt obligations, and navigate potential economic uncertainties.
The company's current ratio stands at 0.93, while its quick ratio is 0.21. These ratios indicate that Albertsons has a solid ability to meet its short-term obligations, although the lower quick ratio suggests a higher reliance on inventory to cover current liabilities.
Financial Guidance and Future Outlook Based on its solid performance in the third quarter of fiscal 2024, Albertsons has updated its guidance for the full fiscal year. The company now expects identical sales growth of 1.8% to 2%, slightly narrowed from the previous range of 1.8% to 2.2%. Adjusted EBITDA guidance has been increased to $3.95 billion to $3.99 billion, up from the previous range of $3.90 billion to $3.98 billion. Adjusted earnings per share (EPS) guidance has also been raised to $2.25 to $2.31 per diluted share, compared to the previous range of $2.20 to $2.28 per share.
The improved guidance reflects the ongoing benefits from Albertsons' productivity initiatives and investments. The company also expects its full-year tax rate to be in the range of 15% to 16%, benefiting from an $81 million discrete state income tax benefit recognized in the third quarter. Capital expenditures are projected to remain in the range of $1.8 billion to $1.9 billion for the fiscal year.
Albertsons continues to invest in its "Customers for Life" strategy, which focuses on driving customer growth and engagement through digital platforms, enhancing the customer value proposition, modernizing capabilities through technology, and driving productivity. The company's capital expenditures during the first 40 weeks of fiscal 2024 were approximately $1.45 billion, primarily including the completion of 84 remodels, the opening of 9 new stores, and continued investment in digital and technology initiatives.
Conclusion Albertsons Companies (ACI) has weathered significant changes in recent years, from its transition to public ownership to the high-profile collapse of its proposed merger with Kroger. However, the company has remained steadfast in its commitment to improving operational efficiency, enhancing the customer experience, and driving long-term growth.
As Albertsons embarks on a new chapter under the leadership of Susan Morris, investors will be closely watching the company's ability to execute on its strategic initiatives and capitalize on the opportunities presented by the rapidly evolving grocery industry. With a strong financial profile, a robust digital platform, and a renewed focus on innovation, Albertsons appears well-positioned to continue its trajectory as a leading player in the U.S. grocery market.
The company's updated guidance for fiscal 2024 demonstrates confidence in its ability to deliver solid financial results despite the competitive landscape and ongoing economic challenges. By focusing on its core strengths, investing in digital capabilities, and optimizing its store network, Albertsons is laying the groundwork for sustainable growth and value creation in the years to come.