Albertsons Companies, Inc. — Form 10-Q summary
Period clarification: The filing covers the 12 and 40 weeks ended December 3, 2022, with comparisons to periods ended December 4, 2021. This differs from the request metadata label “2021 Q3.” Dollar amounts are in millions unless noted.
Business context and reporting period
Albertsons operated 2,270 food and drug stores at quarter-end, alongside pharmacies, fuel centers, distribution centers and manufacturing facilities. The company reports one segment. Management described ongoing investments in digital engagement, store experience and modernization; identical sales excluding fuel rose 7.9% for the quarter.
Financial performance and position
| Metric | 12 weeks ended Dec. 3, 2022 | 12 weeks ended Dec. 4, 2021 | 40 weeks ended Dec. 3, 2022 | 40 weeks ended Dec. 4, 2021 |
|---|---|---|---|---|
| Net sales and other revenue | $18,154.9 | $16,728.4 | $59,384.6 | $54,503.5 |
| Gross margin | $5,121.7 (28.2%) | $4,830.1 (28.9%) | $16,671.3 (28.1%) | $15,738.1 (28.9%) |
| Operating income | $582.4 | $599.6 | $1,873.5 | $1,772.6 |
| Net income | $375.5 | $424.5 | $1,202.4 | $1,164.5 |
| Diluted GAAP EPS | $0.20 | $0.74 | $1.72 | $1.95 |
| Adjusted EBITDA | $1,158.0 (6.4% of sales) | $1,051.2 (6.3%) | $3,626.8 (6.1%) | $3,324.7 (6.1%) |
| Adjusted net income | $505.1 | $457.2 | $1,505.4 | $1,344.2 |
For the 40 weeks, operating cash flow was $2,072.0, investing cash flow was $(1,478.7), and financing cash flow was $874.4, versus $2,782.8, $(1,177.1), and $(661.7), respectively, in the prior-year period. Capital spending on property, equipment and intangibles was $1,566.9. Management attributed the operating cash-flow decline mainly to working-capital movements, particularly inventory and accounts payable.
At December 3, cash and cash equivalents were $4,412.3; total current assets were $10,685.7 and current liabilities were $13,309.0. Reported total debt, including finance leases, was $9,117.3, of which $2,025.6 was current; long-term debt and finance lease obligations were $7,091.7. The ABL Facility had $1,200.0 outstanding and $2,743.9 of availability net of letters of credit. Total stockholders’ equity was $819.0.
Material changes versus the prior comparable period
- Quarterly revenue increased 8.5%; identical sales excluding fuel increased 7.9%, compared with 5.2% in the prior-year quarter. Management cited retail price inflation as the primary driver of identical-sales growth.
- Quarterly gross margin rate declined 70 basis points to 28.2%. Management cited product, shrink and supply-chain costs, lower vaccine activity, and digital picking and delivery costs. Selling and administrative expense declined to 25.0% of sales from 25.4%, reflecting productivity and sales leverage, partly offset by wage, digital investment and merger costs.
- Quarterly operating income fell to $582.4 from $599.6, and net income fell to $375.5 from $424.5. The prior-year quarter included a $13.4 gain on property dispositions and impairment versus a $7.3 loss in the current quarter; other income also declined substantially.
- Quarterly adjusted net income and Adjusted EBITDA increased year over year. Reported GAAP EPS was affected by the special dividend’s allocation to convertible preferred holders; the company reported adjusted diluted EPS of $0.87 versus $0.79.
- Year-to-date revenue, operating income, net income and Adjusted EBITDA increased. The gross margin rate declined 80 basis points; operating cash flow decreased, while capital spending increased.
- Cash rose to $4,412.3 from $2,902.0 at February 26, 2022, while debt increased, including the new ABL borrowing for the declared special dividend. The special dividend payable and $3,921.3 reduction to retained earnings contributed to the decline in equity.
Outlook, commentary, risks and unusual items
- No specific operating earnings or sales guidance is provided in the filing. Management said it believed liquidity sources were sufficient for the next 12 months and foreseeable future, estimating needs of $9.9 billion to $11.1 billion. The estimate includes the $3,921.3 special dividend, ABL borrowings, a $750.0 note maturity in February 2023, and other anticipated requirements.
- Albertsons agreed to be acquired by The Kroger Co. for $34.10 per share in cash, subject to specified reductions, including for any SpinCo stores and the special dividend. Closing was expected in early 2024, subject to regulatory clearance and other conditions. Divestitures or a SpinCo may be required; the merger could be delayed, conditioned or blocked.
- The $6.85-per-share special dividend, totaling $3,921.3, was declared but remained unpaid at the filing date and was recorded as a payable. A Washington court’s temporary restraining order remained in place pending state Supreme Court review; other states’ and the District of Columbia’s requests for injunctions had been denied. The payment date was uncertain.
- Merger-related costs were $14.4 in the quarter and $23.8 year to date. The company also disclosed a retention program of up to $100 million, approved after quarter-end. Year-to-date results included an $86.1 net gain on property dispositions and impairments and a $19.0 non-cash gain from removing an Excess Plan pension liability.
- Key stated risks include food and fuel inflation or deflation, labor and wage pressures, supply-chain challenges, changing consumer behavior, cybersecurity, litigation, special-dividend challenges, and merger regulatory approval and execution risks. The filing also describes opioid, pharmacy-benefit-manager, False Claims Act and other legal matters; management says it has recorded estimated liabilities where applicable, but actual outcomes could differ.
Important facts for investors to verify
- Check the filing period against the requested period: this is the quarter ended December 3, 2022, not a 2021 quarter.
- Track the special dividend’s court status, payment timing and funding, including the $1,200.0 ABL balance and its repayment or refinancing.
- Monitor Kroger merger approvals, potential divestitures or SpinCo terms, purchase-price reductions, closing timetable and termination provisions.
- Assess whether inflation-driven sales growth can offset pressure on gross margin, shrink, supply-chain costs and digital fulfillment economics.
- Review working-capital trends, capital spending, the February 2023 $750.0 note maturity, liquidity assumptions and the outcomes of material litigation.