Albertsons Companies, Inc. Q1 FY2022 earnings call

• Q1 results exceeded internal plans across key metrics. ID sales grew 16.5% over 2 years, and the company gained market share in food on a 1-year basis and in MULO on a 2-year basis. Adjusted EBITDA was $1.3 billion and adjusted EPS was $0.89 per share. • Digital initiatives: The company retained sales levels achieved last year with digital sales virtually flat year-over-year in Q1, and had 95% customer coverage with eCommerce. Omnichannel households were 3.6 times higher than in 2019. Just for U loyalty program members increased by over 18% to 26.7 million in Q1 '21. • Productivity: Made progress in labor efficiency, shrink, promotions optimization, and expected to achieve $1.5 billion in gross savings by the end of fiscal '22. • Talent and culture: Added talent throughout the company, with the pharmacy team administering 6 million COVID vaccine doses. The Nourishing Neighbors fundraising drive raised $9 million, matched by the Albertsons Companies Foundation to $18 million. • ESG: Introduced the first 100% zero-emission refrigerated grocery delivery truck and enhanced the supplier diversity program.

ID sales grew 16.5% on a 2-year basis. Digital sales were virtually flat year-over-year in Q1 with a 2-year stacked ID sales growth of 276%. Fresh department sales growth outpaced center store by approximately 200 basis points on a 2-year basis. Own Brands sales penetration was 25.2% in Q1 '21, up over 100 basis points from Q1 '20.

• Updated fiscal 2021 guidance: Identical sales on a 2-year stack basis are expected to be in the range of approximately 11% to 12% compared to prior guidance of 9.5% to 11%. Adjusted EPS is expected to be in the range of $2.20 to $2.30 per share, up $0.25 from prior guidance. Adjusted EBITDA is expected to be in the range of $3.7 billion to $3.8 billion, up $200 million from previous guidance. • Q2 EBITDA margin consensus was considered appropriate due to seasonality and the tapering off of COVID vaccine revenue. • Accelerated the DUG rollout into Q2.

• Impact of the COVID-19 pandemic on results. • Risks associated with centralizing the supply chain, including short-term benefits but potential long-term issues. • Inflation and the ability to pass cost increases through to customers.

Q: Thoughts on secular trends post-COVID and strategic investments?

A: Secular trends include a healthy consumer, more meals eaten at home, and continued digital engagement. The company's priority is on organic growth, investing in the fleet, digital capabilities, and being opportunistic with M&A.

Q: Inflation impact on cost of goods and pricing?

A: Product cost inflation was modest (1.5%-1.7%) in the quarter, and may be slightly higher in the back half. Own Brands pricing balances opening price points and aggressive pricing for destination products to compete with national brands.

Q: EBITDA margin for Q2 and vaccine impact?

A: The EBITDA margin consensus for Q2 was considered appropriate due to normal seasonality and the tapering off of vaccine revenue.

Q: Centralization of supply chain risks and rewards?

A: There are risks related to short-term benefits vs long-term issues with centralization, but the company is focusing on leveraging local knowledge and maintaining central teams to mitigate risks.

Q: Cash balance and optionality?

A: The focus is on investing the cash back into the business to drive sales, with potential to pay down debt and consider M&A opportunistically.

Q: Omnichannel and store environment?

A: eCommerce relies on great stores, and MFCs provide optionality. Delivery is moving to an asset-light point-to-point model.

Q: Market share gain and promotions?

A: Market share gains have been steady, with fewer promotions and more digital and personalized promotions using promotion technology to avoid waste.

Q: MFC learning and M&A deal flow?

A: The company is learning about MFC integration, inventory optimization, and testing different configurations. Deal flow was higher pre-COVID, and the company is patient with opportunities to modernize the business.

Q: Prepared meals and wages?

A: Salad bars and wing bars are being brought back with a deliberate approach. Wages see pressure on turnover, but are covered by overtime, with negotiated contracts around 2% increases.