Albertsons Companies, Inc. — Form 10-K Summary
Reporting period: Fiscal 2022, the 52 weeks ended February 25, 2023, compared with fiscal 2021, ended February 26, 2022. Although the request metadata says “2021 Q4,” this filing reports fiscal 2022 annual results, not a standalone quarterly period. Amounts below are in U.S. dollars.
Business context
Albertsons is a food and drug retailer operating 2,271 stores across 34 states and the District of Columbia, with 24 banners, pharmacies, fuel centers, distribution centers, manufacturing facilities and digital channels. It reported one segment. The company served an average of 34.7 million customers weekly and employed approximately 290,000 associates at year-end.
Financial and operating performance
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales and other revenue | $77.65 billion | $71.89 billion |
| Gross margin | $21.76 billion; 28.0% | $20.72 billion; 28.8% |
| Operating income | $2.31 billion; 3.0% of sales | $2.44 billion; 3.3% of sales |
| Net income | $1.51 billion; diluted EPS $2.27 | $1.62 billion; diluted EPS $2.70 |
| Adjusted net income | $1.97 billion; adjusted diluted EPS $3.37 | $1.78 billion; adjusted diluted EPS $3.07 |
| Adjusted EBITDA | $4.68 billion; 6.0% of sales | $4.40 billion; 6.1% of sales |
| Operating cash flow | $2.85 billion | $3.51 billion |
| Capital investment payments | $2.16 billion | $1.59 billion |
Identical sales, excluding fuel, rose 6.9%, following a 0.1% decline in fiscal 2021. Digital sales increased 28%. Revenue growth reflected identical-sales gains, higher fuel sales, retail price inflation, pharmacy growth and digital sales. Fuel revenue increased to $4.86 billion from $3.75 billion.
Gross margin rate declined 80 basis points. The company cited pharmacy mix and fewer COVID-19 vaccinations, as well as higher product, shrink, supply-chain and digital picking and delivery costs; productivity initiatives partly offset these pressures. Selling and administrative expenses fell to 25.2% of sales from 25.5%, reflecting productivity benefits and sales leverage, partly offset by wage and equity-compensation costs, legal and regulatory accruals, digital investment and merger-related costs.
Balance sheet, debt and liquidity
Cash and cash equivalents were $455.8 million at year-end, down from $2.90 billion. Net cash used in financing was $3.37 billion, principally reflecting payment of the $3.92 billion special dividend. Operating cash flow decreased year over year, mainly due to working-capital changes, including inventory and accounts payable.
Total debt, including finance leases, was $8.91 billion, up from $7.97 billion. This included $1.00 billion outstanding under the $4.00 billion ABL facility, with $2.95 billion of availability after letters of credit. The company issued $750 million of 6.50% notes due 2028 and used the proceeds to repay $750 million of 3.50% notes due 2023. Its disclosed weighted-average interest rate was 5.3% for fiscal 2022, excluding amortization of debt discounts and financing costs.
Management estimated cash needs of $5.2 billion to $6.2 billion over the next 12 months and said it expected available cash, operating cash flow and borrowing capacity to meet liquidity needs. Contractual obligations totaled $22.25 billion, including operating leases; the filing separately expects approximately $570 million of multiemployer pension contributions in fiscal 2023.
Material changes, outlook and significant items
- Kroger merger: The October 2022 agreement provides for $34.10 per share in cash, subject to specified reductions, including potential store divestitures and the special dividend. Closing was expected in early 2024, subject to regulatory clearance and other conditions. The filing describes potential divestitures and a possible SpinCo as part of the regulatory process; completion was not assured.
- Special dividend: Albertsons paid $3.92 billion, or $6.85 per share, on January 20, 2023, after court proceedings delayed payment. The company partially funded it with ABL borrowings. The merger consideration is subject to reductions described in the filing.
- Capital spending: Management expected fiscal 2023 capital expenditures of $2.0 billion to $2.1 billion. Fiscal 2022 included 173 store remodels and five store openings.
- Pensions: The company estimated its allocable share of underfunding across multiemployer plans at $5.1 billion, based on available plan information. It stated this estimate is not itself a liability it is obligated to pay. Contributions were $546.5 million in fiscal 2022; approximately $570 million was expected in fiscal 2023. Assistance to certain plans under the American Rescue Plan Act could reduce plan-solvency concerns, but does not eliminate the company’s ongoing contribution obligations.
- Legal and regulatory matters: The company recorded an estimated $107 million liability for a proposed Oregon class-action settlement, pending final court approval. It also disclosed pharmacy-related False Claims Act and PBM litigation, opioid cases and other proceedings; outcomes and potential losses in certain matters were uncertain. Management said recorded provisions were reasonable but acknowledged actual outcomes could materially affect results or cash flows.
- Other notable items: Property-sale gains were $147.5 million, primarily from real estate sales. The company administered approximately 4.1 million COVID-19 vaccinations, versus 11.0 million in fiscal 2021. The auditors gave unqualified opinions on the financial statements and internal controls; self-insurance liabilities of $1.23 billion were identified as a critical audit matter.
Key risks include food, fuel and wage inflation; competitive price pressure and low industry margins; supply-chain and severe-weather disruption; union negotiations and pension costs; cyber and technology incidents; debt, refinancing and interest-rate exposure; and regulatory, litigation and execution risks related to the proposed merger. No formal earnings guidance is provided in the supplied filing text.
Most important facts for investors to verify
- Merger status, regulatory approvals, potential divestitures or SpinCo, closing timing, and the final per-share consideration after applicable reductions.
- Whether operating cash flow and ABL availability can support planned capital spending, debt service, lease payments, pension contributions and dividends after the special dividend.
- The persistence of sales growth and whether gross-margin pressure from costs, pharmacy mix and digital fulfillment moderates.
- Actual contributions, funding developments and potential withdrawal exposure for multiemployer pension plans; the $5.1 billion estimate is an allocable underfunding estimate, not a recorded payable obligation.
- Developments and ultimate exposure in the Oregon settlement, pharmacy-related litigation, opioid matters and merger-related proceedings.
- Adjusted EBITDA and adjusted net income reconciliations: these non-GAAP measures exclude items management deems outside core performance and are not measures of discretionary cash.