January 09, 2024 BOISE, Idaho–(BUSINESS WIRE)–Albertsons Companies, Inc. BB #:193326 today reported results for the third quarter of fiscal 2023, which ended December 2, 2023.
Third Quarter of Fiscal 2023 Highlights
- Identical sales increased 2.9%
- Digital sales increased 21%
- Loyalty members increased 17% to 38.5 million
- Net income of $361 million, or $0.62 per share
- Adjusted net income of $462 million, or $0.79 per share
- Adjusted EBITDA of $1,107 million
“We delivered another solid quarter amidst a challenging economic backdrop,” said Vivek Sankaran, CEO. “We want to thank all our teams for their commitment to serving our customers and communities. As we look ahead, our ambition is to create Customers for Life, in part through our focus on operational excellence in our stores, driving growth in our digital and pharmacy operations, and deepening our relationships with our customers.”
Mr. Sankaran continued, “While we are benefiting from our productivity initiatives, we expect to continue to see the impacts of investments in associate wages and benefits, cycling significant prior year food inflation, customers receiving less government assistance, the resumption of student loan payments and other types of payment deferrals, inflationary cost increases and the outsized growth of our pharmacy and digital businesses as we continue to lean into increased customer engagement in our Customers for Life strategy.”
Third Quarter of Fiscal 2023 Results
Net sales and other revenue was $18.6 billion during the 12 weeks ended December 2, 2023 (“third quarter of fiscal 2023”) compared to $18.2 billion during the 12 weeks ended December 3, 2022 (“third quarter of fiscal 2022”). The increase was driven by the Company’s 2.9% increase in identical sales, with strong growth in pharmacy sales driving the identical sales increase. We also continued to grow our digital business with a 21% sales increase during the third quarter of fiscal 2023.
Gross margin rate decreased to 28.0% during the third quarter of fiscal 2023 compared to 28.2% during the third quarter of fiscal 2022. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 64 basis points compared to the third quarter of fiscal 2022. The strong growth in pharmacy operations, which carries an overall lower gross margin rate, and increases in shrink were the primary drivers of the decrease, partially offset by our procurement and sourcing productivity initiatives.
The rate decrease related to pharmacy operations was primarily due to growth in pharmacy sales and a lower margin rate on COVID-19 vaccines in the third quarter of fiscal 2023. In addition, the benefits from our productivity initiatives allowed us to continue to provide incremental targeted price investments to our customers during the third quarter of fiscal 2023.
Selling and administrative expenses decreased to 24.8% of Net sales and other revenue during the third quarter of fiscal 2023 compared to 25.0% during the third quarter of fiscal 2022. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 28 basis points.
The decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to lower employee costs, which includes the benefit of ongoing productivity initiatives, and lower depreciation and amortization, partially offset by an increase in operating expenses related to the expansion of our digital and omnichannel capabilities, ongoing Merger-related costs, increased store occupancy costs and additional third-party store security services.
Net loss on property dispositions and impairment losses was $23.9 million during the third quarter of fiscal 2023 compared to $7.3 million during the third quarter of fiscal 2022.
Interest expense, net was $116.3 million during the third quarter of fiscal 2023 compared to $84.3 million during the third quarter of fiscal 2022. The increase in interest expense, net was primarily attributable to lower interest income, as well as higher average outstanding borrowings and higher average interest rates.
Other income, net was $6.7 million during the third quarter of fiscal 2023 compared to other expense, net of $1.7 million during the third quarter of fiscal 2022.
Income tax expense was $95.1 million, representing a 20.8% effective tax rate, during the third quarter of fiscal 2023 compared to $120.9 million, representing a 24.4% effective tax rate, during the third quarter of fiscal 2022. The favorability in the effective income tax rate in the third quarter of fiscal 2023 was primarily due to an increase in federal tax credits.
Net income was $361.4 million, or $0.62 per share, during the third quarter of fiscal 2023. Net income was $375.5 million, or $0.20 per share, during the third quarter of fiscal 2022. Net income per share during the third quarter of fiscal 2022 includes a $0.45 per share reduction related to the special cash dividend of $6.85 per share attributable to holders of convertible preferred stock on an as-converted basis.
Adjusted net income was $462.3 million, or $0.79 per share, during the third quarter of fiscal 2023 compared to $505.1 million, or $0.87 per share, during the third quarter of fiscal 2022.
Adjusted EBITDA was $1,106.5 million, or 6.0% of Net sales and other revenue, during the third quarter of fiscal 2023 compared to $1,158.0 million, or 6.4% of Net sales and other revenue, during the third quarter of fiscal 2022. As we look ahead to the fourth quarter of fiscal 2023, we expect continued outsized growth and margin impact in our pharmacy and digital operations.
Capital Expenditures
During the first 40 weeks of fiscal 2023, capital expenditures were $1,535.0 million, which primarily included the completion of 115 remodels, the opening of five new stores and continued investment in our digital and technology platforms.
Merger Agreement
On October 13, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Kroger Company (“Kroger”) and Kettle Merger Sub, Inc. Under the terms of the Merger Agreement, Kroger (through Kettle Merger Sub, Inc.) will acquire all of the outstanding shares of the Company’s common stock for total consideration of $34.10 per share, reduced by the special cash dividend of $6.85 per share paid on January 20, 2023 (the “Merger”). Details regarding the Merger Agreement and the transactions contemplated by the Merger Agreement can be found in the Form 8-K filed on October 14, 2022 and the joint press release issued by the Company and Kroger on October 14, 2022.
In connection with the Merger, on September 8, 2023, the Company and Kroger announced that the parties had entered into a definitive agreement, dated September 8, 2023, with C&S Wholesale Grocers, LLC (“C&S”) for the sale of select stores, banners, distribution centers, offices and private label brands to C&S. Also on September 8, 2023, Kroger notified the Company that, in accordance with the Merger Agreement, Kroger intends to sell the SpinCo Business (as defined in the Merger Agreement) to C&S. As a result, the creation of SpinCo and spin-off previously contemplated by the Company and Kroger is no longer a requirement under the Merger Agreement and will no longer be pursued by the Company and Kroger. Details regarding the definitive agreement with C&S can be found in the Form 8-K filed on September 8, 2023 and the joint press release issued by the Company and Kroger on September 8, 2023.
About Albertsons Companies
Albertsons Companies is a leading food and drug retailer in the United States. As of December 2, 2023, the Company operated 2,271 retail food and drug stores with 1,726 pharmacies, 401 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Company operates stores across 34 states and the District of Columbia with 24 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market. The Company is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. In 2022, along with the Albertsons Companies Foundation, the Company contributed more than $200 million in food and financial support, including more than $40 million through our Nourishing Neighbors Program to ensure those living in our communities and those impacted by disasters have enough to eat.
Contacts
For Investor Relations, contact investor-relations@albertsons.com
For Media Relations, contact media@albertsons.com
