Albertsons Companies, Inc. — Form 10-Q Summary
Period: The filing covers the 12 weeks ended November 30, 2019 (fiscal 2019 third quarter) and the first 40 weeks of fiscal 2019, compared with the corresponding 2018 periods. The supplied metadata says “2018 Q3,” which conflicts with the filing’s stated period.
Business context and performance
Albertsons operated 2,260 stores, 1,732 pharmacies and 402 fuel centers. It reported one segment. Quarterly identical sales, excluding fuel, rose 2.7%; the 40-week increase was 2.1%, supported in part by eCommerce and Own Brands.
| Metric | 12 weeks ended Nov. 30, 2019 | 12 weeks ended Dec. 1, 2018 | 40 weeks ended Nov. 30, 2019 | 40 weeks ended Dec. 1, 2018 |
|---|---|---|---|---|
| Net sales and other revenue | $14,103.2m | $13,840.4m | $47,018.3m | $46,517.9m |
| Gross margin | 28.3% | 27.8% | 28.0% | 27.6% |
| Operating income | $206.6m | $174.4m | $1,110.5m | $498.9m |
| Net income (loss) | $54.8m | $45.6m | $398.6m | $(4.5)m |
| Adjusted EBITDA | $634.4m | $649.7m | $2,078.8m | $2,014.1m |
| Adjusted EBITDA margin | 4.5% | 4.7% | 4.4% | 4.3% |
Cash flow, debt and liquidity
- Operating cash flow for the first 40 weeks was $1,387.0m, up from $1,069.1m. Investing activities used $25.4m, versus $360.6m; financing activities used $1,912.7m, versus $903.2m. Cash and restricted cash ended at $416.6m, down from $967.7m at the start of the period.
- Adjusted Free Cash Flow was $995.1m, compared with $1,097.2m. Capital expenditures were $1,083.7m.
- Total debt, including finance lease obligations, was $8,749.2m at November 30, 2019, compared with $10,586.4m at February 23, 2019. Cash and cash equivalents were $406.4m. The company reported $18.0m drawn on its $4.0bn ABL facility and approximately $3.5bn of availability, net of letters of credit.
- The company issued $750m of 5.875% notes due 2028 and $750m of 4.625% notes due 2027, using proceeds to repay term loans. It reported compliance with debt covenants.
- Liquidity needs for the next 12 months were estimated at $4.0bn–$4.5bn. Management expected operating cash flow and other liquidity sources, including the ABL facility, to be sufficient, while cautioning that cash generation and borrowing access are not assured.
Changes, outlook and notable items
- Quarterly sales increased 1.9%; quarterly Adjusted EBITDA fell 2.4%, with rent and occupancy costs from sale-leasebacks and strategic investment partly offsetting sales and shrink improvements. Year-to-date sales rose 1.1% and Adjusted EBITDA rose about 3.2%.
- Year-to-date net income improved from a loss to profit, but results included $463.6m of gains from sale-leaseback transactions, other asset-sale gains and a $65.8m debt-extinguishment loss. Fiscal 2019 results also included a $38.6m impairment related mainly to Plated meal-kit assets.
- The company sold and leased back 53 stores and one distribution center for $931.3m net proceeds. Initial annual rent was approximately $53m, with annual increases of 1.50%–1.75% and initial lease terms of 15–20 years.
- Adoption of the lease accounting standard added $5.3bn of operating lease assets and $5.4bn of operating lease liabilities at adoption; the quarter-end balance sheet reported $5.8bn of operating lease right-of-use assets and $6.0bn of operating lease obligations.
- Management projected approximately $1.5bn of fiscal 2019 capital expenditures. No earnings or sales guidance was provided in the supplied filing text.
- Risks include the FELRA multiemployer pension fund’s projected insolvency in early 2021, with potential company payments dependent on negotiations and other uncertain events; the filing says the outcome could materially affect financial position and results. The company also disclosed opioid litigation, two False Claims Act pharmacy cases alleging damages above $100m each before trebling and penalties, and other investigations and lawsuits whose outcomes or loss ranges could not be determined.
Key investor verification points
- Confirm the intended reporting period: the filing is for fiscal 2019 Q3, not 2018 Q3.
- Verify the unusual cover-page response indicating the company had not filed all required reports during the preceding 12 months.
- Assess how much reported profit and operating income depended on property-sale gains, especially sale-leasebacks, and the recurring cost of associated rents.
- Review debt maturities, refinancing terms, covenant headroom and the effect of leases on leverage and fixed obligations.
- Monitor FELRA negotiations and developments in the disclosed pharmacy, opioid and other legal matters.