Albertsons Companies, Inc. — Form 10-Q Summary
Period mismatch: The request identifies 2020 Q2, but the supplied filing is for the 12 and 28 weeks ended September 11, 2021 (fiscal 2021 second quarter and year-to-date). The filing compares those periods with the 12 and 28 weeks ended September 12, 2020.
Business context and reporting period
Albertsons operated 2,278 retail food and drug stores at quarter-end, including 1,725 pharmacies and 401 fuel centers. It reports as one segment. Management described a strong consumer environment and continued investment in digital and omni-channel capabilities, productivity, stores, and its workforce. Because the prior-year comparison reflects pandemic-era demand, management also presents selected two-year comparisons.
Financial results and liquidity
| Metric | 12 weeks ended September 11, 2021 | 12 weeks ended September 12, 2020 | 28 weeks ended September 11, 2021 | 28 weeks ended September 12, 2020 |
|---|---|---|---|---|
| Net sales and other revenue | $16,505.7 million | $15,757.6 million | $37,775.1 million | $38,509.2 million |
| Gross profit / margin | $4,717.0 million / 28.6% | $4,574.9 million / 29.0% | $10,908.0 million / 28.9% | $11,346.4 million / 29.5% |
| Operating income / margin | $485.9 million / 3.0% | $562.0 million / 3.5% | $1,173.0 million / 3.1% | $1,533.8 million / 4.0% |
| Net income | $295.2 million | $284.5 million | $740.0 million | $870.7 million |
| Diluted net income per Class A share | $0.52 | $0.49 | $1.26 | $1.49 |
| Adjusted EBITDA | $965.4 million | $948.4 million | $2,273.5 million | $2,639.4 million |
Quarterly sales increased 4.7%, while identical sales excluding fuel rose 1.5%; digital sales increased 5% year over year. First-28-week sales declined 1.9%, with identical sales down 5.3%. Two-year stacked identical sales growth was 15.3% in the quarter. Quarter gross margin declined 40 basis points year over year; management said fuel-adjusted gross margin was flat. Year-to-date gross margin declined 60 basis points. Higher product, supply-chain and labor costs, investments in digital capabilities, and sales deleverage pressured results. Adjusted EBITDA margin was 5.8% for the quarter and 6.0% year to date, versus 6.0% and 6.9%, respectively, a year earlier.
Operating cash flow for the first 28 weeks was $2,137.7 million, down from $2,720.8 million. Investing cash outflow was $790.5 million, including $822.5 million of capital spending; financing cash outflow was $214.4 million. Cash and cash equivalents were $2,849.8 million at September 11, 2021; cash plus restricted cash was $2,900.4 million. Total debt and finance lease obligations were $8,340.6 million, including $211.5 million of current maturities. There were no ABL borrowings, and reported ABL availability was $3,483.1 million after letters of credit. Management reported a 1.3x Net Debt Ratio.
Material changes and outlook
- Quarterly net income rose to $295.2 million from $284.5 million, while first-28-week net income fell to $740.0 million from $870.7 million. Year-to-date Adjusted EBITDA fell by $365.9 million, primarily reflecting lower sales compared with the prior-year period.
- Interest expense declined in both comparison periods; the weighted average interest rate was 5.4% for the quarter and 5.5% year to date, versus 6.0% in each prior-year period. The prior-year periods included a $49.1 million debt-extinguishment loss, absent in 2021.
- Management expected fiscal 2021 capital expenditures of $1.9 billion to $2.0 billion and an annual effective tax rate of approximately 23% to 24%. It estimated next-12-month liquidity needs of $4.75 billion to $5.25 billion and said cash flows and other liquidity sources were expected to meet those needs.
- Subsequent to quarter-end, the company announced a 20% increase in its quarterly common dividend, to $0.12 per share, and elected to redeem $200 million principal amount of 5.750% notes due 2025 on November 1, 2021, using cash on hand.
- Management cited uncertainty around macroeconomic conditions, food inflation, consumer behavior, productivity initiatives, and the continuing effects and duration of COVID-19. It also reported an estimated $4.7 billion share of underfunding across 27 multiemployer pension plans; 16 plans classified as Critical or Critical and Declining potentially qualify for federal assistance. Management expected the program to support plan solvency but was still evaluating its effects.
- Contingencies include an ongoing federal investigation concerning insulin-pen dispensing practices, opioid litigation, and other claims. The company said it could not determine the probability or range of possible loss for the insulin investigation or opioid matters. It had recorded estimated liabilities for certain matters, including False Claims Act cases and a California regulatory settlement.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers fiscal 2021 Q2, not 2020 Q2.
- Assess whether pandemic-related prior-year comparisons, lower year-to-date identical sales, and margin pressure are representative of underlying trends.
- Reconcile reported debt, cash, ABL availability, and management’s 1.3x Net Debt Ratio, including the treatment of leases and preferred stock.
- Monitor multiemployer pension exposure and the potential impact of federal assistance, as well as legal matters whose outcomes or losses remain uncertain.
- Check the timing and cash implications of the increased dividend and the announced 2025-note redemption.