A tough quarter for Albertsons
Albertsons reported negative same store sales and customer traffic in the third quarter despite aggressive promotions and pricing initiatives.
The company said in an SEC filing that same-store sales were down 1.8 percent, despite what Albertsons Chairman and CEO Bob Miller called “significant promotional and pricing investments” during a Jan. 16 conference call.
According to Miller, these investments drove the company’s third-quarter gross margin down 140 basis points from last year, and caused adjusted EBITDA of $429 million to come in below last year’s adjusted EBITDA by $246 million.
Further, as EVP and CFO Bob Dimond noted, sales and other revenue remained relatively flat, at $13.6 billion, in Q3, versus the year-ago period. He added that while fuel sales increased $117.6 million, and new stores and acquisitions, net of sales related to store closings, contributed an increase of $95 million, these gains were offset by a decrease of $225.3 million in sales from the company’s comps decline. He also observed that gross profit margin fell to 26.7 percent for the third quarter of fiscal 2017, compared to 28.1 percent last year, “primarily attributable to investments and promotions and pricing, in addition to an increase in shrink expense partially due to system conversions.”
However, as Miller asserted in his closing remarks, the company is “now halfway through the fourth quarter with positive identical-store sales. We have continued plans to drive sales in-store and online, and have numerous opportunities for cost reductions.”
The grocer was also quick to point out its many accomplishments during the quarter, such as its pending alliance with grocery delivery service Instacart; rollout of Plated meal kits in its stores; ramped-up growth of ecommerce business, including the expansion of its Drive-Up and Go options; a 62-basis-point increase in own-brands penetration; attainment of more than $1 billion in O Organics sales in the past 12 months for the first time; equity interest in Texas-based Hispanic specialty grocer El Rancho; and the 23 percent rise in households enrolled in company loyalty programs since fiscal 2016.
Miller additionally said that Albertsons’ integration team planned this year to convert the remaining 532 Shaw's, Jewel and Acme stores, as well as five distribution centers, to the company’s in-house systems, and that the grocer would continue to lower supply chain costs by consolidating two Southwest distribution centers into a single facility.
In other news, Albertsons wholly owned subsidiary Safeway will sell its 49 percent interest in Mexican food and general merchandise retailer Casa Ley to Tenedora CL del Noroeste for about $345 million. The deal, subject to Mexican antitrust approval and other customary closing conditions, is expected to close by the end of next month.
In relation to Albertsons’ 2015 acquisition of Safeway, former holders of common stock of Safeway Inc. received contingent value rights (CVRs). The Casa Ley CVRs give stockholders the right to receive certain net proceeds from the sale of Safeway’s stake in the retailer. According to Albertsons, the net proceeds per CVR to be distributed to Casa Ley stockholders is estimated at about 87 to 90 cents, and is expected to be distributed about six weeks after the sale closes.
Over the past three years, since the Casa Ley CVRs were issued, the Mexican-peso-to-U.S.-dollar exchange rate has dropped by more than 20 percent, Albertsons noted.
The Casa Ley sale doesn’t affect the CVRs issued in connection with the merger regarding the sale of Safeway’s former real estate development subsidiary, Property Development Centers (PDC), on which Albertsons said it would provide more information “when it has more clarity on the amount and timing of distributions with respect to the PDC CVRs.”
Boise, Idaho-based Albertsons operates stores in 35 states and the District of Columbia under 20 banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs, as well as New York-based meal kit company Plated.