Albertsons Companies, Inc. — Form 10-K summary
Period clarification: The supplied filing is the annual report for fiscal 2020, the 52 weeks ended February 27, 2021—not a 2019 Q4 filing. The comparable fiscal 2019 period was 53 weeks ended February 29, 2020.
Business context and reporting period
Albertsons is a U.S. food and drug retailer operating 2,277 stores across 34 states and the District of Columbia, with pharmacies, fuel centers, distribution centers, manufacturing facilities and digital channels. It reports one segment. Fiscal 2020 operations were materially affected by COVID-19, which drove elevated grocery demand and accelerated digital shopping.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Net sales and other revenue | $69.69 billion | $62.46 billion |
| Gross profit / margin | $20.41 billion / 29.3% | $17.59 billion / 28.2% |
| Operating income | $1.62 billion | $1.44 billion |
| Net income | $850.2 million | $466.4 million |
| Diluted GAAP EPS | $1.47 | $0.80 |
| Adjusted EBITDA | $4.52 billion | $2.83 billion |
| Operating cash flow | $3.90 billion | $1.90 billion |
| Capital expenditures | $1.63 billion | $1.48 billion |
Identical sales, excluding fuel, rose 16.9% (versus 2.1% in fiscal 2019); digital sales grew 258%. Adjusted net income per diluted share was $3.24, versus $1.04. These are non-GAAP measures and should be considered alongside GAAP results.
Cash and cash equivalents were $1.72 billion at year-end. Total debt, including finance leases, was $8.31 billion, down from $8.71 billion; finance leases accounted for $612.7 million. The company reported a 1.5x net debt ratio, compared with 2.9x a year earlier, and approximately $3.58 billion available under its asset-based revolving facility, with no borrowings outstanding at year-end. The company said operating cash flow and other liquidity sources should meet needs over the next 12 months.
Material changes versus the prior period
- Revenue increased 11.6%; the company attributed identical-sales growth to pandemic-related demand, digital growth and market-share gains. The comparison was affected by fiscal 2019’s extra week, which contributed about $1.1 billion of sales, and by lower fuel sales in fiscal 2020.
- Gross margin expanded 110 basis points, primarily from lower shrink and improved distribution, warehousing and supplies costs, partly offset by digital delivery costs and price investments.
- Operating cash flow more than doubled, supported by higher Adjusted EBITDA, working-capital changes and a $426.6 million deferral of employer Social Security taxes; pension payments and higher cash taxes partly offset the increase.
- Interest expense declined to $538.2 million from $698.0 million, reflecting lower average debt and interest rates. Debt declined by $401.1 million, while the company refinanced and redeemed debt during the year.
- Fiscal 2020 included $892.9 million of charges for multiemployer pension withdrawals: $607.2 million for the Combined Plan and $285.7 million for the UFCW National Fund. The fourth quarter recorded a $144.2 million net loss, including the Combined Plan charge.
Outlook, risks and unusual items
- Management forecast fiscal 2021 capital expenditures of $1.9 billion to $2.0 billion. It provided no specific revenue or earnings guidance in the supplied filing text.
- COVID-19 generated nearly $1.0 billion of incremental costs in fiscal 2020, including frontline pay, cleaning, health screening and protective supplies. Management said the pandemic’s ongoing effects and the pace of normalization remained uncertain.
- Management reported more than $500 million of productivity savings in fiscal 2020 and described initiatives in labor efficiency, shrink, procurement, promotions and overhead. Future savings and timing are not assured.
- The company estimated its allocable share of multiemployer pension-plan underfunding at approximately $4.7 billion, while stating that it is not obligated for the plans’ total underfunding. It also disclosed recurring plan contributions of $524 million in fiscal 2020 and expected approximately $520 million in fiscal 2021. The American Rescue Plan’s potential effect on certain obligations remained uncertain.
- Other material risks include substantial debt and lease commitments, labor negotiations (agreements covering about 67,000 employees expired or were scheduled to expire in fiscal 2021), competition, supply disruptions, cybersecurity, self-insurance claims and pending legal matters. The filing identifies several investigations and lawsuits whose outcomes or potential losses could not be determined clearly.
- The company issued $1.68 billion of convertible preferred stock, carrying a 6.75% annual dividend and real-estate exchange rights under specified triggers. It also paid common-stock dividends and repurchased shares. These arrangements, along with sponsor control, can affect common-stockholder claims, governance and flexibility.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers fiscal 2020, not 2019 Q4.
- Assess how much of fiscal 2020’s sales and earnings strength is sustainable as pandemic-driven demand and unusual customer behavior normalize.
- Review the pension-withdrawal charges, future payment schedules and any effects of multiemployer-plan assistance; distinguish accounting charges from cash payments.
- Reconcile operating cash flow and Adjusted EBITDA for working-capital movements, deferred payroll taxes and other adjustments; do not treat non-GAAP Adjusted Free Cash Flow as discretionary cash.
- Evaluate total debt alongside operating and finance lease commitments, preferred-stock dividends and the company’s refinancing needs.
- Track labor-contract renewals, unresolved legal and regulatory proceedings, and the potential obligations under the preferred-stock real-estate exchange provisions.