Albertsons Companies, Inc. Q3 FY2025 earnings call

• Tech and AI transformation: Advanced cloud data infrastructure and global capability center in Bengaluru for scaling AI solutions. Focus on digital customer experience, merchandising intelligence, labor optimization, and supply chain optimization using AI.
• Digital and pharmacy acceleration: Digital sales up 21%, pharmacy and health strong with immunization and value-added services.
• Customer value proposition: Loyalty membership growth, media collective traction, and investments in value through loyalty enhancement and selective price investments.
• Productivity initiatives: $1.5B productivity gains over three fiscal years, SG&A spend reduced through labor optimization.
• Consumer backdrop: Mixed environment with low-income shoppers stretched, middle-income showing softening, high-income becoming value conscious.

Digital sales rose 21% with 9.5% penetration, over half of orders delivered in 3 hours or less and over 95% of delivery households eligible for 30-minute flash delivery. Pharmacy and Health saw sales increase 18% driven by immunization, GLP-one therapies, and core prescriptions, with customers engaging across grocery and pharmacy having higher lifetime value. Loyalty membership grew 12% to over 49 million members in Q3. Media Collective's On-site Media had double-digit growth and added transaction capability to Off-site Ad units. Identical sales grew 2.4%, gross margin was 27.4% (down 55bps year over year excluding fuel and LIFO).

• Identical sales range narrowed to 2.2%-2.5% due to Inflation Reduction Act impact.
• Adjusted EBITDA expected in range of $3.825B-$3.875B including ~$65M in Q4 related to 53rd week.
• Adjusted EPS range $2.08-$2.16.
• Effective income tax rate 23%-24%.
• Capital expenditures unchanged at $1.8-$1.9B.
• Inflation Reduction Act to reduce pharmacy sales but near neutral to profit, with ~65-70bps headwind to Q4 identical sales.

• Government shutdown and SNAP delays impacted identical sales.
• Competitive promotional environment.
• Uncertainty in GLP-1 adoption and its impact on pharmacy sales.
• Industry unit volume pressures.

Q: How is the overall pricing environment lined up relative to initial expectations and risk of incremental price investments?

A: Susan Morris stated they take a surgical, data-driven approach to price investments, pleased with initial results, and price is part of a value equation with fresh capabilities, proximity, etc. Sharon McCollam added focus on own brands.

Q: How are progressing with getting new pharmacy shoppers to cross over and purchase more grocery items, and any changes due to macro pressures?

A: Susan Morris said bulk of customers already shop in store, deepening engagement is key, with a 1-2 year journey to full loyalty platform.

Q: Comment on high level puts and takes for FY 2026 and confidence in algo?

A: Susan Morris and Sharon McCollam cited confidence in algo due to Customers for Life strategy, pharmacy, digital, media growth, value enhancement, and productivity, with initiatives building on each other.

Q: Detail on lower ID sales guide for 2025, key drivers, and Q4 trends?

A: Impact from Inflation Reduction Act drug pricing (65-70bps headwind in Q4), upside in GLP-1 adoption and industry units, and cautious view on industry units.

Q: Progress of cost savings and cadence in 2026?

A: Executing well against $1.5B plan, productivity fueling growth reinvestment, and new opportunities in 2026 with incremental gains.

Q: Wallet share of loyalty members and pharmacy customers?

A: Digitally engaged customers spend 2-3x more, and pharmacy customers entering the ecosystem see higher lifetime value.

Q: Price investment impact on units and core/noncore assets?

A: Strong unit improvement in price-invested categories, evaluating portfolio for strong markets, and sophisticating real estate operations.

Q: Q4 gross margin outlook and GLP-1 pill impact?

A: Q4 margin expected to be more like Q2 due to pharmacy seasonality, and GLP-1 pill not material impact on EBITDA in short term.

Q: Promotional environment across industry and funding?

A: Aggressive promotional environment continuing, leveraging size and scale for lower costs and promotional funding.

Q: Composition of sequential unit trend improvement and digital economic model?

A: Sequential improvement due to surgical price investment and loyalty-led value, digital sales up 21% with structural advantage and margin improvement expected.

Q: National buying campaign progress and gross margin outlook?

A: Progressing with new merchant and AI-driven merchandising intelligence, benefits to come in later years, and bullish on future potential benefits.

Q: Free income demographics and unit performance by income?

A: Low-income shoppers with smaller baskets, middle-income showing trade down, high-income stable but value conscious, and unit performance bolstered by price-invested categories.