Albertsons Companies, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2020 Q1, but the supplied filing is for the 16 weeks ended June 19, 2021, Albertsons’ first quarter of fiscal 2021. Comparisons are with the 16 weeks ended June 20, 2020, unless noted. Dollar amounts are in millions.
Business context and reporting period
Albertsons operates grocery and drug stores, pharmacies, fuel centers, distribution centers and manufacturing facilities, with one reportable segment. At June 19, 2021, it operated 2,278 stores. Management highlighted continued investment in digital and omnichannel services, productivity, stores and customer loyalty.
Financial results and liquidity
| Metric | 16 weeks ended June 19, 2021 | Prior comparable period |
|---|---|---|
| Net sales and other revenue | $21,269.4 | $22,751.6 |
| Gross profit / margin | $6,191.0 / 29.1% | $6,771.5 / 29.8% |
| Operating income / margin | $687.1 / 3.2% | $971.8 / 4.3% |
| Net income | $444.8 | $586.2 |
| Diluted earnings per Class A share | $0.78 | $1.00 |
| Adjusted EBITDA (non-GAAP) | $1,308.1; 6.2% of sales | $1,691.0; 7.4% of sales |
| Operating cash flow | $1,059.0 | $2,091.9 |
- Revenue declined 6.5%; identical sales excluding fuel fell 10.0%, following unusually high pandemic-related demand in the prior-year period. Two-year stacked identical sales growth was 16.5%; digital sales were flat year over year and up 276% on a two-year stacked basis.
- Gross margin fell 70 basis points overall, while management said it rose 10 basis points excluding fuel. Selling and administrative expenses increased to 25.9% of sales from 25.4%, reflecting sales deleverage and labor, depreciation, rent and occupancy costs.
- Interest expense declined to $153.3 from $180.6, attributed to lower average borrowings and interest rates. The weighted average interest rate was 5.6%, excluding specified financing-cost amortization, versus 6.0%.
- Cash and cash equivalents were $2,173.8 at June 19, 2021; cash plus restricted cash was $2,224.4. Total debt and finance lease obligations were $8,360.1, including $214.3 of current maturities. No borrowings were outstanding under the ABL facility; $349.1 of letters of credit were issued.
- Cash used in investing was $493.0, principally capital spending of $513.4 and acquisitions of $23.5. Cash used in financing was $109.2, including common and preferred dividends. Net debt ratio was 1.5x, as reported by management.
- Current assets were $7,377.5 and current liabilities were $6,704.2. Stockholders’ equity was $1,698.4.
Material changes versus the prior comparable period
- Net income declined by $141.4 and Adjusted EBITDA by $382.9. Management attributed the sales decline mainly to comparison with elevated pandemic demand in early fiscal 2020; lower sales also pressured operating leverage.
- Operating cash flow fell by $1,032.9, mainly due to working-capital comparisons, including accounts payable, the prior-year payroll-tax deferral and higher cash income taxes. Lower cash interest and pension contributions partly offset the decline.
- Other income was $43.5 versus other expense of $3.1, primarily reflecting gains on non-operating investments and pension-related items. The effective tax rate declined to 23.0% from 25.6%, primarily due to discrete state tax benefits.
- For additional context against pre-pandemic results, management reported 16.5% two-year stacked identical-sales growth and 22.1% two-year Adjusted EBITDA CAGR. These are supplemental comparisons, not substitutes for GAAP results.
Outlook, risks and unusual items
- Management expected fiscal 2021 capital expenditures of $1.9 billion to $2.0 billion and an annual effective tax rate of approximately 25%. It estimated next-12-month liquidity needs at $4.75 billion to $5.25 billion and said operating cash flows and other liquidity sources should be adequate, while noting cash generation and ABL availability are not assured.
- The company intended to pay annual common dividends of $0.40 per share, in quarterly installments, and paid $0.10 per share in the quarter. Convertible preferred stock carries a 6.75% annual dividend rate on liquidation preference.
- Management cited macroeconomic, industry, food-inflation or deflation, execution and COVID-19 uncertainties. It said there had been no material change in previously disclosed risk factors or market-risk exposure.
- Potentially significant contingencies include more than 80 opioid-related suits and False Claims Act matters concerning pharmacy pricing and insulin dispensing. Outcomes or reasonably possible losses could not be determined for certain matters. The company said it had recorded estimates for specified claims and settlements and believed the aggregate reasonably possible loss above accruals was immaterial, while acknowledging actual outcomes could differ.
- The company estimated its share of underfunding in 27 multiemployer pension plans at $4.7 billion. Sixteen plans, representing over 90% of that estimate, might qualify for federal special financial assistance; the company was evaluating the program and its potential impact.
- A California Air Resources Board settlement was reached July 7, 2021, after quarter-end, and an estimated liability was recorded. Other adjustments used in management’s non-GAAP results included $29.1 of legislatively required incremental COVID-related pay and $20.8 of facility-closure and transformation costs.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied 10-Q covers fiscal 2021 Q1, not 2020 Q1.
- Review the reconciliation and definitions of Adjusted EBITDA, Adjusted net income and net debt ratio; these are non-GAAP measures and may not be comparable across companies.
- Assess whether sales, margins and cash generation normalize after the unusually strong prior-year pandemic comparison, including the effects of fuel, pharmacy vaccines and digital sales.
- Track capital spending, debt and lease obligations, dividend commitments, and the company’s ability to meet its stated liquidity needs.
- Monitor developments in multiemployer pension funding and legal matters, particularly opioid and False Claims Act cases, where loss exposure was uncertain.