Albertsons Companies, Inc. Q3 FY2022 earnings call

Key Points

• Q3 '21 ID sales up 5.2% and 17.5% 2-year stacked; gained unit and dollar market share in food and MULO.
• Adjusted EBITDA $1.05 billion, adjusted EPS $0.79 per share.
• Digital sales up 9% YOY, 234% 2-year stacked; omnichannel households down 4x vs Q3 '19, sales retention strong.
• Just for U Loyalty Program has 28M members, up 17% YOY; actively engaged members spend 4x more than non-active.

Strategy Progress

• Driving in-store excellence: Elevated fresh offerings, automated production planning in fresh departments, 146 remodels and 9 new stores opened.
• Accelerating digital and omnichannel: Expanded Drive Up & Go to 96% of households, 80% can get orders in 2 hours; launched Albertsons Media Collective retail media network.
• Increasing productivity: Aiming for $1.5B annual gross savings by FY2022; continued retail and supply chain initiatives.
• Strengthening talent and culture: Senior leadership listening tours, associate experience surveys; pharmacy team administered 11M COVID vaccines, collected $9M for meal programs.

In Q3 '21, ID sales increased 5.2% and 17.5% on a 2-year stacked basis. Gross margin rate was 28.9% in Q3 2021 compared to 29.3% in Q3 2020 and 28.3% in Q3 2019. Excluding fuel, gross margin rate increased 10 basis points. Q3 '21 adjusted EBITDA was $1.05 billion, and adjusted net income was $457 million or $0.79 per fully diluted share. Digital sales in Q3 '21 increased 9% year-over-year and 234% on a 2-year stacked basis. The Just for U Loyalty Program had 28 million members, a 17% year-over-year increase, with actively engaged members spending 4x more than non-active ones.

• Raised full year FY2021 ID sales range to negative 0.8% to negative 1.2% from previous negative 2.5% to negative 3.5%, 2-year stacked ID range 15.7% to 16.1% vs prior 13.4% to 14.4%.
• Adjusted EBITDA range $4.25B to $4.3B vs previous $3.95B to $4.05B.
• Adjusted EPS range $2.90 to $2.95 per share vs previous $2.50 to $2.60.
• Capital expenditures now expected $1.8B to $1.9B, slightly lower than previous $1.9B to $2B due to supply constraints.

• Inflationary pressures impacting product costs and supply chain costs.
• Uncertainty around COVID-19 variants like Omicron affecting consumer behavior and supply chain.
• Potential impact of reduction in SNAP benefits on consumer spending.

Q: Michael Montani asked about COVID vaccine benefit and margin rationality.

A: Vivek Sankaran said vaccine administered 11M, contributes to ID sales and gross profit; margin environment rational, retail media launch in Feb, loyalty card purchases substantial.

Q: Robert Ohmes asked about Q4 ID decel and supply chain.

A: Sharon McCollam said Q4 guidance considers consumer program tailing off, but quarter-to-date running better; Vivek Sankaran said supply chain capacity expected to come in as Omicron passes.

Q: Scott Mushkin asked about equity action and planning.

A: Sharon McCollam said focus on execution, debt retirement, dividend; Vivek Sankaran said philosophy on gross margin tailwinds and productivity initiatives for planning.

Q: Karen Short asked about gross margin and Own Brands.

A: Sharon McCollam said Q4 similar to Q3 in guidance; Vivek Sankaran said Own Brands penetration back to pre-pandemic, potential constrained by supply but not consumer uptake.

Q: Robert Moskow asked about Q4 gross margin and Own Brands growth.

A: Sharon McCollam said Q4 expected similar to Q3; Vivek Sankaran said Own Brands sales growing, penetration back to pre-pandemic levels.