Albertsons Companies, Inc. Q2 FY2022 earnings call

• Transformation strategy pillars:
  • In-store excellence: Right assortment using digital tools, friendly service, frictionless checkout.
  • Digital and omnichannel: Drive Up & Go to over 1,900 locations, expecting ~2,000 by year-end; micro fulfillment centers with plans for 7 by FY end (2 less than previously estimated); integrated loyalty app rolled out.
  • Productivity: Targeting $1.5 billion in annual gross savings by FY22.
  • Talent and culture: Adding talent, job fairs, training; pharmacy team administered over 7.5 million COVID vaccine doses; donated $500,000 to help with Hurricane Ida and California wildfires.

ID sales increased 1.5% in Q2 and 15.3% on a 2-year stack. Digital sales grew 5% year-over-year and 248% on a 2-year stack. Just for U loyalty program had 27.5 million members, a 17% year-over-year increase. Own Brands sales penetration was 25.2%, up approximately 60 basis points from Q2 '20. Fresh sales growth outpaced center store by ~250 basis points year-over-year.

• Updated full year 2021 outlook: ID sales range -2.5% to 3.5% (previously -5% to 6%); adjusted EPS $2.50-$2.60 per share (up $0.30 from prior guidance); adjusted EBITDA $3.95B-$4.05B (up $250M from prior guidance); tax rate 23%-24% (previously 25%).

• Inflationary pressures, with CPI around 2% in the quarter and expected to be higher in 3%-5% range.
  • Product supply chain challenges.
  • Labor-related challenges, including market-driven wage increases and equity-based compensation expenses.
  • Uncertain consumer behavior changes.

Q: Talk about product cost inflation or retail price inflation to the customer, where it is and how trending sequentially?

A: CPI inflation was ~2% in the quarter; Albertsons' cost inflation was ~3% for the quarter. Expect inflation to be higher in 3%-5% range, manageable with productivity and strong customer base.

Q: Perception on pricing parity with large competitors?

A: Emphasize gaining market share in dollars and units as key, surgical approach to pricing, building pricing team with data-driven strategies, and continuing to adjust pricing where beneficial to customer stickiness.

Q: Gross margin outlook for the balance of the year?

A: Expect gross margin tailwinds from mix, shrink, promotions, own brand penetration, supply chain benefits, and cost of goods reduction; back half gross margins expected to be manageable with ongoing productivity initiatives.

Q: Categories with highest inflation and customer reaction?

A: Protein inflation is a key area, with no material change in customer behavior; managed locally with alternatives and optimizing baskets to keep affordability and sales.