Albertsons Companies, Inc. — Form 10-Q Summary
Period clarification: Although the request metadata says “2022 Q1,” this filing covers the 16 weeks ended June 17, 2023, compared with the 16 weeks ended June 18, 2022. Results are unaudited.
Business context
Albertsons operated 2,272 stores across 34 states and the District of Columbia, with 24 banners and approximately 290,000 employees. It reports one segment. The company’s proposed merger with Kroger remains a significant strategic and regulatory matter.
Financial performance
| Metric | 16 weeks ended June 17, 2023 | Comparable 2022 period |
|---|---|---|
| Net sales and other revenue | $24.05 billion, up 3.2% | $23.31 billion |
| Identical sales, excluding fuel | Up 4.9% | Up 6.8% |
| Gross margin | $6.66 billion; 27.7% of sales | $6.55 billion; 28.1% |
| Operating income | $622.2 million; 2.6% of sales | $760.1 million; 3.2% |
| Net income | $417.2 million | $484.2 million |
| Diluted GAAP EPS | $0.72 | $0.84 |
| Adjusted net income / diluted adjusted EPS | $545.7 million / $0.93 | $582.0 million / $1.00 |
| Adjusted EBITDA | $1.32 billion; 5.5% of sales | $1.42 billion; 6.1% |
Pharmacy revenue increased to $2.30 billion from $1.92 billion; fuel revenue declined to $1.40 billion from $1.65 billion. Digital sales grew 22%, and loyalty membership increased 16% to 35.9 million. Gross margin rate fell 40 basis points; excluding fuel and LIFO effects, management reported a 91-basis-point decline. Selling and administrative expense fell to 25.0% of sales from 25.2%.
Net cash from operations was $838.3 million, versus $991.9 million. Investing used $453.9 million, including $622.5 million of property, equipment and intangible spending, partly offset by $169.3 million of asset-sale proceeds. Financing used $615.0 million, including a $500.0 million ABL repayment and $69.0 million of common dividends. Cash and cash equivalents were $225.2 million at June 17; cash and restricted cash totaled $233.2 million.
Total debt and finance lease obligations were $8.40 billion, including $500.0 million outstanding on the ABL Facility, down from $8.91 billion at February 25, 2023. ABL availability was $3.45 billion, net of letters of credit. Current assets were $6.06 billion and current liabilities $7.72 billion. Management estimated cash needs of $5.1–$5.6 billion over the next 12 months and said it expects available resources to meet liquidity needs.
Changes, outlook and notable items
- Sales growth was led by identical sales, retail price inflation, pharmacy and digital; lower fuel sales partly offset growth. Identical-sales growth moderated from 6.8% to 4.9%.
- Management attributed lower gross margin to pharmacy mix and fewer COVID-19 vaccines, digital picking and delivery costs, shrink and warehouse costs; productivity gains supported customer price investments.
- GAAP net income included a $49.7 million tax benefit from releasing a reserve after a foreign statute expired; the effective tax rate was 13.7%, versus 22.8%. Adjusted results also include this benefit.
- Adjusted EBITDA and adjusted net income are non-GAAP measures; the company cautions they are supplemental and may not be comparable to similarly named measures at other companies.
- The merger agreement provides for $34.10 per share in cash, subject to reductions, including the $6.85-per-share special dividend already paid and a potential reduction tied to stores contributed to SpinCo. Regulatory divestitures and possible SpinCo arrangements remain relevant; the agreement’s outside date was January 13, 2024, subject to extension provisions.
- The Supreme Court reversed lower-court rulings in two False Claims Act pharmacy-pricing cases on June 1, 2023, and the cases were remanded for further review. Relators alleged damages exceeding $100 million in each case before trebling and penalties; Albertsons says it is defending the cases and has recorded an estimated liability.
- A $107 million Oregon class-action settlement was approved July 20, 2023, after quarter-end; the company recorded the liability and expected payment in fiscal 2023. Opioid-related litigation and government inquiries also remain, with outcomes or potential losses for remaining matters not determinable by the company.
Key facts for investors to verify
- Regulatory progress, divestiture scope, potential SpinCo terms and the resulting merger consideration.
- Whether sales growth and margins hold up as fuel, pharmacy, inflation and digital-delivery trends change.
- Cash generation, capital spending, ABL borrowings and liquidity against stated 12-month cash needs.
- Developments and potential exposure in the False Claims Act, opioid, PBM and other litigation matters.
- The effects of one-time items, particularly the tax-reserve release, on comparisons of reported and adjusted earnings.