Albertsons Companies, Inc. — Form 10-Q Summary
Period: The supplied filing covers the 12 and 40 weeks ended December 2, 2023, compared with periods ended December 3, 2022. Although the request metadata says “2022 Q3,” the filing itself is for fiscal 2023’s third quarter. Figures are unaudited.
Business context and results
Albertsons operated 2,271 stores across 34 states and the District of Columbia, with 24 banners. It reported one operating segment. Third-quarter identical sales exclude fuel.
| Metric | 12 weeks ended Dec. 2, 2023 | Prior comparable period |
|---|---|---|
| Net sales and other revenue | $18.557 billion, up 2.2% | $18.155 billion |
| Identical sales, excluding fuel | Up 2.9% | Up 7.9% |
| Gross margin | $5.197 billion; 28.0% of sales | $5.122 billion; 28.2% |
| Operating income | $566.1 million; 3.1% of sales | $582.4 million; 3.2% |
| Net income | $361.4 million | $375.5 million |
| Diluted GAAP EPS | $0.62 | $0.20 |
| Adjusted net income / adjusted diluted EPS | $462.3 million / $0.79 | $505.1 million / $0.87 |
| Adjusted EBITDA / margin | $1.107 billion / 6.0% | $1.158 billion / 6.4% |
Pharmacy growth helped drive sales; digital sales increased 21% and loyalty membership rose 17% to 38.5 million. Pharmacy revenue was $2.283 billion versus $1.724 billion, while fuel revenue declined to $1.047 billion from $1.111 billion. Management said third-quarter gross margin pressure reflected pharmacy mix and higher shrink, partly offset by procurement and sourcing productivity. Selling and administrative expenses fell to 24.8% of sales from 25.0%, with lower employee costs partly offset by digital expansion, merger costs, occupancy costs and security services.
First 40 weeks and financial position
- Revenue was $60.898 billion, up 2.5%; identical sales rose 3.7%, compared with 7.3% growth in the prior period.
- Gross margin was $16.902 billion, or 27.8% of revenue, versus $16.671 billion, or 28.1%. Operating income declined to $1.643 billion from $1.874 billion; net income declined to $1.046 billion from $1.202 billion.
- Adjusted net income was $1.376 billion and adjusted diluted EPS was $2.34, versus $1.505 billion and $2.59. Adjusted EBITDA was $3.402 billion, or 5.6% of sales, versus $3.627 billion, or 6.1%.
- Operating cash flow was $1.731 billion, down from $2.072 billion. Investing cash outflow was $1.329 billion, including $1.535 billion of property, equipment and intangible payments. Financing cash outflow was $639 million, versus $874 million of inflow in the prior period. Operating cash flow less those payments was $196 million, compared with $505 million in the prior period.
- At December 2, cash and cash equivalents were $222.7 million; cash and restricted cash together were $227.2 million. Current assets were $6.662 billion and current liabilities $7.858 billion.
- Long-term debt and finance lease obligations totaled $8.535 billion, including $650 million drawn on the ABL Facility. ABL availability was $3.302 billion, net of letters of credit. Total stockholders’ equity was $2.527 billion.
Material changes, outlook and risks
Interest expense rose to $116.3 million in the quarter from $84.3 million, reflecting higher average borrowings and rates and lower interest income. The quarter’s effective tax rate was 20.8%, versus 24.4%; the year-to-date rate was 17.9%, benefiting in part from a $49.7 million tax reserve release. Year-to-date results also compare against $86.1 million of prior-year gains on property dispositions; current-year property disposition and impairment losses were $43.1 million.
The filing provides no specific earnings or sales guidance. Management said it expects adequate liquidity for the next 12 months and the foreseeable future, estimating liquidity needs of $5.0 billion to $5.7 billion. Needs include working capital, merger costs, capital spending, pension obligations, interest, dividends, leases and potentially repayment of ABL borrowings.
The proposed Kroger merger remained pending. The agreement provides $34.10 per share in cash, reduced by the $6.85 special dividend already paid. Kroger and Albertsons agreed to sell selected assets to C&S Wholesale Grocers; the transaction and merger remained subject to regulatory clearance and other closing conditions. The agreement’s stated outside date was January 13, 2024, with extensions of up to 270 days in aggregate under specified terms.
Notable contingencies include False Claims Act pharmacy cases remanded for further proceedings, with summary judgment motions pending in one case; the relators alleged damages exceeding $100 million before trebling and penalties in each case. The company has recorded estimated liabilities and is defending the claims. Other disclosed exposures include opioid litigation, a pharmacy benefit manager dispute and other ordinary-course claims. Management cautioned that actual outcomes could differ and materially affect results or cash flows. Reported risks also include merger uncertainty, inflation and consumer behavior, labor costs, supply-chain challenges, cyber incidents and continued reductions in COVID-19-related activity.
Key investor verification points
- Confirm the reporting period: this filing is for fiscal 2023 Q3, not 2022 Q3.
- Track merger and C&S divestiture regulatory developments, closing conditions, timing and any termination-fee implications.
- Assess whether sales growth, particularly pharmacy and digital, can offset margin pressure from pharmacy mix, shrink and price investments.
- Review cash conversion, capital spending, ABL utilization and liquidity needs; cash on hand was modest relative to current liabilities.
- Monitor the outcomes and recorded reserves for FCA, opioid, PBM and other litigation, and distinguish GAAP results from management’s adjusted measures.