MW Albertsons leans on technology and cost cuts to go it alone - but faces this near-term hurdle
By Ciara Linnane and Bill Peters
The grocery chain raised its profit outlook for 2024, but tempered its same-store sales guidance
With no Kroger Co. merger to rely on, grocery chain Albertsons Cos. Inc. on Wednesday said it would lean into an array of initiatives - e-commerce, wellness, automation and its loyalty program - to drive growth.
But while it raised its profit outlook, Albertsons $(ACI)$ also grew more cautious on sales trends, citing a slowdown last month.
During the company's earnings call, executives said they planned to build out Albertsons's online-sales infrastructure and lean into a recently simplified rewards program.
Management also talked up the potential for its pharmacy business as people flock to GLP-1 drugs like Wegovy and Ozempic, and as rivals like Walgreens Boots Alliance Inc. $(WBA)$ and CVS Health Corp. $(CVS)$ shutter locations. It also said it planned to provide more digital ad space for brands to advertise, and more automation to the ways it brings groceries and other items to store shelves.
Leadership said the company planned to "deliver $1.5 billion in savings" over the next three years to invest in "value proposition and growth initiatives, as well as to offset inflationary headwinds." However, further details were minimal.
Still, the Boise, Idaho-based company said that shoppers, who have been in belt-tightening mode for some three years thanks to higher prices, have been buying things at more retailers. And Chief Executive Vivek Sankaran suggested the shorter Thanksgiving-to-Christmas window may have also weighed on demand trends.
"The food-and-beverage sector overall sequentially slowed down in December and it's tough to get back a Christmas holiday," he said.
Albertsons said it now expects fiscal 2024 same-store sales to rise by 1.8% to 2.0%, compared with prior guidance for a range of 1.8% to 2.2%. The company expects adjusted earnings per share of $2.25 to $2.32, compared with prior guidance of $2.20 to $2.30.
Albertsons's stock rose 0.8% Wednesday. Management's remarks came after the company and fellow supermarket giant Kroger $(KR)$ abandoned their plans to combine after judges blocked the deal last month, following concerns from regulators and others that it would send grocery prices higher and harm competition. Albertsons last month said it was suing Kroger for billions in damages, alleging that Kroger didn't put in enough effort to ease regulators' concerns.
Albertsons on Wednesday beat profit estimates for its fiscal third quarter, offsetting a small revenue miss.
The company had net income of $400.6 million, or 69 cents a share, for the quarter ended Nov. 30, up from $361.4 million, or 62 cents a share, in the year-earlier period. Adjusted for one-time items, per-share earnings came to 71 cents, ahead of the 66-cent FactSet consensus.
Sales rose 1.2% to $18.775 million, just below the $18.819 billion FactSet consensus. Same-store sales rose 2%, matching the FactSet consensus.
Sankaran, in the company's earnings release, said Albertsons benefited from investments in a program aimed at improving customer loyalty, which helped drive digital engagement. Same-store sales growth was driven by strong growth in pharmacy sales.
"As we look ahead to the balance of fiscal 2024 and beyond, we are energized about our plans to accelerate growth through our Customers for Life strategy, leveraging investments to enhance digital engagement and omnichannel revenue growth, improve our value proposition with customers, and drive digital-media growth," he said.
BMO analyst Kelly Bania said the numbers suggested underlying grocery trends are weak and that the company is losing market share. BMO has a market-perform, or neutral, rating on the stock and a $19 price target that's just below its current price. In a separate note later in the day, she said the results likely reflect "the need for further investment which could weigh on the 2025 outlook (expected in April)."
Bill Kirk, an analyst at Roth Capital, said Albertsons's caution around December trends created "some postdeal uncertainty" around the outlook for its next fiscal year. But he said the $1.5 billion savings program would benefit the bottom line.
"We continue to believe the combination of outsized pharmacy growth, digital growth, and loyalty growth bodes well for development of long-term, margin-accretive customers," he said.
The stock has fallen 14% in the last 12 months, while the S&P 500 SPX has gained 24%.
-Ciara Linnane -Bill Peters
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January 08, 2025 18:52 ET (23:52 GMT)
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