Albertsons Companies, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Focus on customer growth/engagement via digital connection, media collective growth, enhanced customer value proposition, technology modernization, and transformational productivity.
• Digital Platforms: E-commerce (25% growth) drives sales and data for media collective; loyalty program has 47M members (14% growth); pharmacy and health grew 20% YOY; mobile app integrates in-store and online experiences.
• Customer Value Proposition: Invested in loyalty, promotions, and own brands (25.7% penetration), launched new brands like Chef Counter.
• Technology Modernization: Advanced technology platform supports various operations, with AI used in pricing, personalization, etc.
• Productivity: Productivity engine aims for $1.5B in savings 2025-2027, leveraging scale for national buying.
• Labor Negotiations: Reached agreements covering nearly half of 120,000 associates, improving wages/benefits.

Segment Performance

• E-commerce: Grew 25% and reached 9% of total grocery revenue in Q1. Near breakeven and improving.
• Loyalty: Grew 14% to 47 million members in Q1, with engaged households increasingly using cash-off option.
• Pharmacy and health: Grew 20% YOY, driven by script and immunization growth, and integrated into digital experience.
• Media collective: Significantly increased high-impact digital inventory, expected to grow faster than retail media market.

Guidance

• Identical sales growth expected in 2%-2.75% range, up from prior 1.5%-2.5%.
• Adjusted EBITDA range $3.8B-$3.9B.
• Adjusted EPS range $2.30-$2.16.
• Capital expenditures expected $1.7B-$1.9B.
• Fiscal 2026 expected to align with 2%+ identical sales and higher adjusted EBITDA growth.

Risks

• Factors from SEC filings, including cost inflation, competitive landscape, labor negotiations, and regulatory changes.

Question and Answer Q: Curious if you could talk about the drivers of the gross margin decline this quarter, maybe find some for us, and how we should think about each of them remaining a headwind for the rest of the year, which stay, which might go away, which become less of a headwind.

A: Thanks, Paul. As I think about gross margins, so we've been very clear that our top priority is driving sales and specifically driving an increase in units. And we're investing in that and remain true to that. We expect to continue that, by the way, throughout the rest of the year. As we think about Q1, it was actually one of our largest overlaps year over year. And thus the compare that you're seeing from the gross margin investment. That said, as I mentioned before, we're gonna continue to invest in margin, but we also expect our productivity to begin to provide a tailwind as our national buying gradually kicks in as the year progresses. Also keep in mind, our focus is on gross margin pillars.

Q: Good morning. Thank you for taking my question. You made an interesting comment that e-commerce profitability is near breakeven and improving. Just seeing if you could provide more detail on the key drivers supporting that improvement. You know, how much is Albertsons media collective a factor at this point? And what's your line of sight into reaching breakeven in that business.

A: So, Leah, I think it's really important to recognize that different companies are calling e-commerce different things in their P&Ls. When we are talking about e-commerce, that is specifically our e-commerce business. There is nothing in our e-commerce P&L related to the media collective from a financial point of view. Of course, it creates data for the media collective, and it is a major provider of information for the media collective, but from a P&L point of view, it's pure. What is driving that is volume. First and foremost. Leveraging the fixed cost of the operations of that business. Labor efficiency in the business. We've invested in tools and systems in order to drive efficiency and labor. And then we are also very much focused on continuing to leverage transportation costs in that process. So it's across the P&L where we're seeing improvement, but in that type of a business where you've got fixed costs, that put the space in the stores, the real estate, because all that's allocated to that business. We are continuing to lever that. So we are getting very close to breakeven in our e-commerce business.

Q: Hi. Good morning, everyone. I was hoping that you could maybe take a step back and update us on your price investment goals, you know, just kinda given what you have seen so far you customer response, you know, does that give you any confidence maybe to lean in a little bit more? And then as you think about know, productivity initiatives rolling in, then you think about, you know, returning to your algo next year, is it your expectation that that eventually get to the point where, you know, you will continue to invest in price, productivity offsets, gross margin is a bit more stable. Curious as to how we should be thinking about all that.

A: Sure. Thanks, Ed, for the question. So as as we think about price, just a reminder, as as we went into the year, we have an incredible amount of data, and our price investments are very surgical. We know the categories and the markets. Where we need to make those investments, and and we've begun that process. And and keep also keeping in mind too that as we talk about investing in price, it's really investing in the total value proposition. So, yes, some of it's based pricing. It's promotional, is investing in our loyalty programs as well, and, of course, focusing on own brands. To date, it's still early. In the investment process, so we'll be able to understand a little bit more. This is certainly a journey not something that we're is a one and done. It'll be an iterative process with multiple multiple phases launching throughout the year. Right now, we've seen sequential improvements in our unit trajectory, which is what we expected to see.