Albertsons: Q2 Revenue Tops Estimates, But Competitive Headwinds Will Continue

Albertsons Companies surpassed analysts’ projections in reporting second-quarter net sales and other revenue of $18.6 billion today, up from $18.3 billion last year, propelled by an increase in digital sales and omnichannel shoppers.

“In the second quarter of fiscal 2024, investments in our Customers for Life strategy continued to drive strong growth in our digital sales and pharmacy operations. We also drove strong growth in our loyalty members and omnichannel shoppers and accelerated growth in our Albertsons Media Collective,” said CEO Vivek Sankaran in a press release.

Earlier this year, the Idaho-based grocery chain streamlined its “for U” loyalty program to enhance member experience and provide greater value. The system now features a single points-based system, double the time to earn points and a new automatic cash off option.

The decision has proven to be a fruitful one. In the quarter ended September 7, Albertsons’ loyalty members increased 15% to 43 million, while digital sales climbed 24%. Identical sales grew 2.5%.

In Q2, the grocery chain’s gross margin rate was flat at 27.6%. Excluding the impact of fuel and LIFO expenses, gross margin rate decreased 44 basis points compared to Q2 2023, driven by the growth in pharmacy sales – which carries an overall lower gross margin rate – and an increase in picking and delivery costs related to the rise in digital sales.

Selling and administrative expenses increased to 25.8% of net sales and other revenue during Q2 2024 compared to 25.1% during Q2 2023. Excluding the impact of fuel, selling and administrative expenses grew 41 basis points, primarily attributable to an increase in operating expenses related to the ongoing development of Albertsons’ digital and omnichannel capabilities, merger-related costs, higher employee costs, increased business transformation costs and additional third-party store security services.

Additionally, during the first 28 weeks of fiscal 2024, Albertsons completed 44 store remodels and opened two new stores, resulting in capital expenditures of $952.3 million.

Looking ahead, despite the optimistic tone of today’s earnings report, Albertsons says it will continue to face a multitude of growth challenges in the back half of the fiscal year, including increased competition and uncertainty surrounding its (heavily scrutinized) proposed $24.6 billion merger with Kroger.

“As we look ahead to the balance of fiscal 2024, we expect to see continued headwinds related to investments in associate wages and benefits, an increasing mix of our pharmacy and digital businesses, which carry lower margins, and an increasingly competitive backdrop,” said Sankaran. He believes the hurdles will be partially offset by ongoing and new productivity initiatives.

In light of the company’s entry into agreement and plan of merger with Kroger, Albertsons did not host a call with investors or provide financial guidance in conjunction with its Q2 results.

Earlier this month, a trial in Denver brought a bigger focus on the deal’s potential impact on prices. A pricing director for Kroger testified that the company raised prices at eight stores in Colorado to offset higher labor and operation costs. Colorado, in a bid to block the grocer’s mega-merger with Albertsons, said that Kroger raised prices at those stores because they face little or no competition from other supermarkets and argued the company will do the same following its proposed deal, reported Law360.

Closing statements in the Colorado trial are expected in the coming days.

In a separate press release today, Kroger announced it has extended the expiration date of the previously announced offers to exchange outstanding notes of Albertsons, for up to $7.4 billion aggregate principal amount of new notes. This pushes the expiration from Oct. 16 to Oct. 22.