As challenging as meeting consumer demands has been for food retailers over the past six weeks, there’s little question that virtually all retailers have reaped significant sales gains over that time frame. One of the first operators to post both sales and earnings for part of that period was Albertsons Cos., the second largest pure-play supermarket retailer in the country.
In its recently completed fourth quarter (ended February 29), the Boise, ID-based merchant posted identical sales growth of 1.8 percent, its ninth consecutive quarter of identical sales gains. Additionally, net income declined to $68 million and adjusted EBITDA increased $756 million, slightly ahead of its expectations. Digital sales growth was also significant with online sales gaining 32 percent.
Moreover, Albertsons said that since the beginning of fiscal 2020, the company has experienced significant increases in customer traffic, product demand and overall basket size in stores and online as customers adjust to the circumstances around COVID-19. As a result, identical sales jumped 47 percent during the first four weeks of fiscal 2020 (ending March 28, 2020) and also increased 21 percent during the second four weeks of fiscal 2020 (ending April 25, 2020). Quarter to date identical sales for the first eight weeks of fiscal 2020 increased 34 percent compared to the comparable period during fiscal 2019.
“We are pleased that our momentum continued as we closed fiscal 2019, with improved performance on the top and bottom line. However, the world has changed since then, and we are heavily focused on supporting our associates, our customers and the communities we serve as we respond to the increased demand resulting from the COVID-19 pandemic,” said Vivek Sankaran, Albertsons’ president and CEO, who took the helm of the big retailer a little more than a year ago. “We are so proud of the efforts of our store, distribution and manufacturing teams, whose work has been heroic in the face of this crisis, and we thank them for everything they continue to do. Both our stores and our online business are seeing significantly increased demand as consumers shift to more food-at-home.”
During Q4, Albertsons’ overall sales and other revenue was $15.4 billion during the 13 weeks ended February 29, 2020 compared to $14.0 billion during the 12 weeks ended February 23, 2019.The increase in sales was primarily driven by the extra week in the fourth quarter of fiscal 2019, which contributed approximately $1.1 billion, and the company’s 1.8 percent increase in identical sales, partially offset by a reduction in sales related to store closures. Albertsons said that its 1.8 percent increase in identical sales was negatively impacted by approximately 30 basis points due to the timing of the Thanksgiving holiday.Net income was $67.8 million during the fourth quarter of fiscal 2019 compared to net income of $135.6 million during the fourth quarter of fiscal 2018.
Adjusted EBITDA was $755.6 million during the fourth quarter of fiscal 2019 compared to $727.2 million during the fourth quarter of fiscal 2018. The increase in adjusted EBITDA primarily reflects the extra week in the fourth quarter of fiscal 2019 and the retailer’s 1.8 percent increase in identical sales, partially offset by lower fuel margins compared to a year ago, an increase in rent expense related to sale leaseback transactions and investments in strategic digital and technology initiatives.
Highlights from Albertsons’ full year included ID sales growth of 2.1 percent; net income of $466 million; adjusted EBITDA increased to $2.83 million; and digital revenue rose by 39 percent. Annual overall sales and other revenue were $62.5 billion during the 53 weeks ended February 29, compared to $60.5 billion during the 52 weeks ended February 23, 2019. The increase in sales was primarily driven by Albertsons’ 2.1 percent increase in identical sales and the extra week in fiscal 2019, partially offset by a reduction in sales related to store closures.
Net income was $466.4 million during fiscal 2019 compared to net income of $131.1 million during fiscal 2018.
Adjusted EBITDA was $2.83 billion during fiscal 2019 compared to $2.74 billion during fiscal 2018. The increase in adjusted EBITDA primarily reflects Albertsons’ increase in identical sales, improvements in shrink expense, higher fuel margins and the impact of the extra week in fiscal 2019, partially offset by an increase in rent expense related to sale leaseback transactions and investments in strategic digital and technology initiatives.
The big retailer’s net cash provided by operating activities was $1.9 billion during fiscal 2019 compared to $1.7 billion during fiscal 2018. The increase in cash flow from operations was primarily driven by the improvement in adjusted EBITDA, lower acquisition and integration costs, lower contributions to pension plans, lower interest paid and the additional week in fiscal 2019, partially offset by an increase in income taxes paid, incremental rent expense related to sale leaseback transactions and changes in working capital.
During fiscal 2019, Albertsons invested approximately $1.5 billion in capital expenditures, which included the completion of 243 remodel projects, the opening of 14 new stores and investments in distribution center automation and capital related to other strategic technology initiatives.
On February 5, 2020, the company issued $750 million in aggregate principal amount of new 3.50 percent senior unsecured notes due February 15, 2023, $600 million in aggregate principal amount of additional 4.625 percent senior unsecured notes due January 15, 2027 and $1,000 million in aggregate principal amount of new 4.875 percent senior unsecured notes due February 15, 2030.
Albertsons noted that it made significant progress in fiscal 2019 in delivering the balance sheet, reducing its principal debt balance by approximately $2.0 billion. At the end of fiscal 2019, the company’s total net debt to adjusted EBITDA ratio was 2.9 times.
Prior to the COVID-19 pandemic, the company’s plan for fiscal 2020 included the following: identical sales of 2.0 percent; adjusted EBITDA of $2.875 billion; operating income of $1.3 billion; and capital expenditures of $1.5 billion.
Due to the significant sales gains during the first eight weeks of fiscal 2020, the merchant’s identical sales increased 34 percent and generated higher than normal flow through to operating income and adjusted EBITDA. Although Albertsons said it is unable to predict the continuing impact of COVID-19 on sales, gross profit and expenses for the balance of the year, it is currently expected that it can achieve or exceed its original plan. In addition, to preserve financial flexibility during the COVID-19 pandemic, the large supermarket chain drew down $2.0 billion on its $4.0 billion asset-based revolving credit facility in March 2020.
Recapping its COVID-19 actions, Albertsons noted that from the beginning of the pandemic it has acted swiftly to prioritize the safety of its front-line associates and customers, while delivering the essential services it provides in its communities. In responding to the pandemic, it has taken a number of pro-active steps including:
- Increasing the frequency of how often they clean and disinfect all departments, restrooms, and other high-touch points in its stores, including check stands and service counters, and at the end of each business day Albertsons conducts a thorough disinfecting of all of its stores.
- The installation of wipes and hand sanitizer stations in key locations within stores.
- Adjustment store hours in certain stores to give store teams the time they need to rest, restock shelves and clean and disinfect.
- Reserving special times for seniors and other vulnerable shoppers who must leave home to obtain their groceries.
- Installing plexiglass in checkout lanes in all stores to serve as a protective barrier at the check stand.
- Securing masks and gloves for front-line employees.
- Limiting store occupancy to ensure proper social distancing during all hours, and further limiting occupancy during times reserved for its most vulnerable customers to improve safety.
- Responded to increased demand for our e-commerce offerings by hiring additional pickers and drivers, and also simplified e-commerce offerings to focus on the products that are most in demand.
- Instituted “contact-free” delivery procedures for home delivery and its “Drive Up and Go” curbside pickup program.
- Provided a temporary increase in pay for all front-line associates of $2 per hour for every hour that they work beginning March 15, 2020 in recognition of their significant efforts.
- Hiring more than 55,000 new associates since the beginning of fiscal 2020, partnering with more than 35 companies to help keep Americans working.
- Announced a $50 million commitment to hunger relief and previously launched a major fundraiser to help feed families in need during the COVID-19 crisis and to help ensure that they get the food they need.