Albertsons Companies, Inc. Q2 FY2026 earnings call

• Strategic Turnaround & Simplification: Management announced a comprehensive business review to accelerate progress, citing that previous initiatives created unnecessary complexity. The focus is shifting to simplifying operations, reducing costs, and improving decision-making speed.
• ACI Edge Acceleration: The ACI Edge initiative is being accelerated, specifically centralizing Center Store merchandising and moving from 11 divisions to four regions to improve buying power and cost efficiency.
• Cost Reduction Focus: The company aims to expand its $2 billion cost savings program over three years. Key areas for additional savings include third-party spend (goods for resale and not for resale), SG&A headcount, and store execution (inventory discipline and shrink reduction).
• Customer Value & Pricing Strategy: Emphasis is placed on delivering better customer value through surgical price investments rather than broad-based cuts. The strategy involves leveraging loyalty programs for personalized offers and improving freshness, convenience, and selection.
• Portfolio Optimization: Albertsons is evaluating its portfolio of banners and markets to exit underperforming assets and double down on markets where it holds number one or two market share.
• Operational Execution: There is a renewed commitment to store standards, associate training, and inventory management to reduce shrink and improve the overall shopping experience.

Identical sales declined by 0.8% year-over-year. Adjusted EBITDA was $784 million, and adjusted EPS was $0.36 per diluted share. Gross margin rate decreased by 17 basis points to 26.8%, excluding fuel and LIFO. Operating cash flow for the first half of fiscal 2026 was $1.2 billion, with capital expenditures of approximately $900 million, resulting in free cash flow of more than $300 million. Net leverage ended the quarter at 2.4 times.

• No Incremental Update: Management did not provide an incremental update to financial guidance for the remainder of fiscal 2026, stating that results were in line with revised expectations.
• Comprehensive Plan Delay: A fully vetted financial outlook, expanded productivity/cost reduction program details, pricing improvement frameworks, and portfolio optimization actions will be presented at the fourth-quarter earnings call.
• Investor Day: An investor day is planned for spring 2027 to further detail the turnaround plan and multi-year financial outlook.
• Capital Allocation: The company intends to maintain its current share repurchase authorization ($1.7 billion remaining) and dividend payments while holistically reviewing capital allocation priorities as part of the broader strategic review.

• Economic Headwinds: Persistent high inflation, elevated fuel prices, and pressure on lower-income customers are negatively impacting traffic and unit growth.
• Pharmacy Regulatory Impact: The Inflation Reduction Act continues to create sales headwinds in the pharmacy segment, alongside a structural shift from branded to generic prescriptions.
• Operational Failures: Specific incidents such as the cyclospora outbreak impacted produce sales and increased shrink, highlighting vulnerabilities in supply chain and inventory management.
• Competitive Pressure: Intense competition, particularly in coastal markets, continues to challenge market share gains and necessitates aggressive value proposition adjustments.
• Litigation Uncertainty: Ongoing litigation against Kroger could potentially impact funding plans and asset decisions, though management stated current strategies are independent of trial outcomes.

Q: Mark Carden (UBS) asked why the comprehensive business review is happening now given the recent ACI Edge announcement and how it impacts the scope and ramp of ACI Edge. / A: Susan Morris explained that this is an evolution of ACI Edge, focusing on moving faster and more aggressively. She acknowledged that past initiatives created complexity and competing priorities, so the new approach pauses non-critical projects to focus strictly on customer experience, financial performance, and cost/complexity reduction. The detailed evolution of ACI Edge will be shared at the Q4 call.

Q: Edward Kelly (Wells Fargo) inquired about the remaining room for cost savings and how the company balances speed with change risk, as well as criteria for portfolio divestitures. / A: Susan Morris stated there is substantial 'blue sky' for cost out in goods for resale, goods not for resale, SG&A, and shrink/waste management. She emphasized that focusing on fewer initiatives allows for greater speed and clarity. Cody Perdue added that they are currently reviewing store performance and capital requirements to identify underperforming assets, but no specific exits have been declared yet.

Q: John Heinbockel (Guggenheim) asked about the gap between perceived and actual value perception and how to insulate stores from distraction during the upstream business review. / A: Susan Morris described their value proposition as balanced, not just cheapest, using data-driven, surgical price investments by market and category. Regarding distractions, she noted that ACI Edge’s regional executives are focused on elevating store conditions and execution, ensuring teams remain focused on serving customers directly or supporting those who do, eliminating noise from corporate reviews.

Q: Simeon Gutman (Morgan Stanley) asked about national vs. local pricing progress and how the pause in guidance affects capital allocation and buybacks. / A: Susan Morris clarified that pricing opportunities vary significantly by market and item, relying on surgical investments informed by recent campaign successes, with more details coming in Q4. Cody Perdue confirmed that while they are reviewing capital allocation holistically, they remain opportunistic with the remaining $1.7 billion share repurchase authorization and will continue dividends.

Q: Joe Feldman (Telsey Advisory Group) asked how technology and AI are leveraged to support the turnaround and operational improvements. / A: Susan Morris highlighted four AI 'big bets': Merch Intelligence for smarter assortment/pricing decisions, Store Labor for productivity, Demand Forecasting for inventory optimization, and others. She stated these technologies are complementary and essential for accelerating store standard improvements, enhancing customer value, and removing cost/complexity, with some solutions already aiding current operations.