Albertsons Cos. raises outlook after strong Q3

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BOISE, Idaho — Albertsons Cos. raised its outlook for fiscal 2020 on Tuesday after reporting strong results for the third quarter.

Highlights for the 12-week period ended December 5 included identical store sales growth of 12.3% and digital sales growth of 225%.

“Our constant focus on our customers continued to drive strong growth and market share gains in the third quarter,” said Vivek Sankaran, President & CEO. “It is clear that our strategy is working, and as we continue to execute on our strategic priorities, we believe we are well positioned to deliver sustainable growth over the long term. At the same time, we remain focused on delivering value to all stakeholders, including taking care of our customers, associates and the communities we serve as we continue to navigate through the pandemic.”

Third Quarter of Fiscal 2020 Results

Sales and other revenue was $15.4 billion during the 12 weeks ended December 5, compared to $14.1 billion during the 12 weeks ended November 30, 2019. The increase was driven by the company’s 12.3% growth in identical sales, partially offset by lower fuel sales. Identical sales benefited from the company’s 225% growth in digital sales.

AlbertsonsGross profit margin increased to 29.3% during the third quarter of fiscal 2020 compared to 28.3% during the third quarter of fiscal 2019. Excluding the impact of fuel, the gross profit margin increased 25 basis points. The increase was primarily driven by continued improvements in shrink expense and sales leverage on advertising and supply chain costs, partially offset by expenses related to our growth in digital sales and select investments in price.

Selling and administrative expenses were 28.0% of sales during the third quarter of fiscal 2020 compared to 27.0% of sales for the third quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales increased 40 basis points. The increase in selling and administrative expenses was primarily attributable to the $285.7 million charge (pre-tax) related to the previously announced withdrawal from the United Food and Commercial Workers International Union (“UFCW”) Union-Industry Pension Fund (“National Fund”) and incremental COVID-19 expenses to safeguard associates and customers, partially offset by sales leverage driven by higher identical sales and continued focus on cost control.

Gain on property dispositions and impairment losses, net was $59.0 million during the third quarter of fiscal 2020 compared to $18.7 million during the third quarter of fiscal 2019.

Interest expense was $115.9 million during the third quarter of fiscal 2020 compared to $154.8 million during the third quarter of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates. The weighted average interest rate during the third quarter of fiscal 2020 was 5.5% compared to 6.3% during the third quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.

Income tax expense was $29.5 million, representing a 19.3% effective tax rate, during the third quarter of fiscal 2020 compared to $12.9 million, representing a 19.1% effective tax rate, during the third quarter of fiscal 2019. The increase in income tax expense was primarily the result of the increase in income before taxes. The effective income tax rate for the third quarter of fiscal 2020 was favorably impacted by discrete benefits related to income tax credits and equity-based compensation deductions.

Net income was $123.7 million during the third quarter of fiscal 2020 compared to $54.8 million during the third quarter of fiscal 2019. Net income during the third quarter of fiscal 2020 included the $213.0 million charge, net of tax, related to the UFCW National Fund withdrawal.

Adjusted net income was $386.6 million, or $0.66 per share, during the third quarter of fiscal 2020 compared to $142.2 million, or $0.24 per share, during the third quarter of fiscal 2019.

Adjusted EBITDA was $967.7 million, or 6.3% of sales, during the third quarter of fiscal 2020 compared to $634.4 million, or 4.5% of sales, during the third quarter of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the Company’s 12.3% increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.

Year-To-Date Results

Sales and other revenue were $53.9 billion during the 40 weeks ended December 5, compared to $47.0 billion during the 40 weeks ended November 30, 2019. The increase was driven by the company’s 18.4% increase in identical sales, partially offset by lower fuel sales.

Gross profit margin increased to 29.4% during the first 40 weeks of fiscal 2020 compared to 28.0% during the first 40 weeks of fiscal 2019. Excluding the impact of fuel, the gross profit margin increased 65 basis points.

Selling and administrative expenses decreased to 26.2% of sales during the first 40 weeks of fiscal 2020 compared to 26.7% of sales for the first 40 weeks of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 120 basis points.

Interest expense was $425.1 million during the first 40 weeks of fiscal 2020 compared to $557.5 million during the first 40 weeks of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates.

Adjusted net income was $1,544.2 million, or $2.62 per share, during the first 40 weeks of fiscal 2020 compared to $417.9 million, or $0.71 per share, during the first 40 weeks of fiscal 2019.

Adjusted EBITDA was $3,607.1 million, or 6.7% of sales, during the first 40 weeks of fiscal 2020 compared to $2,078.8 million, or 4.4% of sales, during the first 40 weeks of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the Company’s 18.4% increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.

Liquidity

Net cash provided by operating activities was $2,996.0 million during the first 40 weeks of fiscal 2020 compared to $1,387.0 million during the first 40 weeks of fiscal 2019. The increase in cash flow from operations compared to the first 40 weeks of fiscal 2019 was primarily due to improvements in operating performance and changes in working capital.

Capital Allocation

The company’s capital allocation strategy is balanced, prioritizing increased levels of capital investment in the business to drive future growth, continued deleveraging of the balance sheet, the $0.10 per share quarterly dividend, and opportunistic share repurchases, all anchored on the strong and consistent free cash flow generated by the business. The company’s capital allocation program continues to be funded with cash on hand and cash generated from operations.

During the first 40 weeks of fiscal 2020, the company spent approximately $1.1 billion in capital expenditures, which included accelerated investment in digital and technology initiatives, and the completion of 225 store remodels.

During the third quarter of fiscal 2020, the company repurchased an aggregate of 6.8 million shares of common stock for an aggregate of $102.7 million pursuant to the company’s existing $300 million share repurchase authorization. Albertsons Cos. also paid its first quarterly dividend of $0.10 per share on November 10 to stockholders of record as of October 26. On Tuesday the company announced the next quarterly dividend of $0.10 per share, payable on February 10 to stockholders of record as of January 26.

Updated Fiscal 2020 Outlook

Albertsons Cos. has updated its fiscal 2020 outlook and now expects:

  • Identical sales in fiscal 2020 of approximately 16.5% (previously at least 15.5%)
  • Adjusted EPS in the range of $3.05 per share to $3.15 per share (previously $2.75 per share to $2.85 per share)
  • Adjusted EBITDA in the range of $4.4 billion to $4.5 billion (previously $4.15 billion to $4.25 billion)
  • Effective tax rate to be approximately 25% excluding discrete items (unchanged)
  • Capital expenditures in the range of $1.65 billion to $1.75 billion (previously $1.9 billion, due to a timing shift between fiscal 2020 and fiscal 2021)

 


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