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Albertsons Cos. Reports Results For First Quarter FY 2019

Albertsons Cos., ExxonMobil

Boise, Idaho-based Albertsons Cos. Inc. reported results July 24 for the first quarter of fiscal 2019, which ended June 15. Results included net income of $49 million compared to a net loss of $17.7 million last year.

Other highlights included: identical sales increased 1.5 percent; adjusted EBITDA increased 7.5 percent to $877 million compared to last year; own brands sales penetration reached 25.3 percent; digital and e-commerce sales grew 33 percent; and net debt leverage reduced to 3.3x at end of first quarter.

“I am pleased with the position of our business at Albertsons Cos.,” said Vivek Sankaran, president and CEO. “Identical sales were positive for the sixth consecutive quarter, and we continue to expand our e-commerce and digital capabilities. We are focused on our sales momentum and will continue to elevate the end-to-end customer experience as we work to create a next-generation food retailer. We recognize the ever-changing retail consumer and are working swiftly to adapt our business to allow customers to shop with us whenever, wherever and however they want.”

“We also continue to deliver the balance sheet, which will reduce interest expense and increase financial flexibility,” Sankaran said.

First quarter results

Sales and other revenue increased 0.5 percent to $18.74 billion during the 16 weeks ended June 15, 2019, compared to $18.65 billion during the 16 weeks ended June 16, 2018. The increase was driven by the Albertsons Cos.’ 1.5 percent increase in identical sales, partially offset by a reduction in sales related to the stores closed in fiscal 2018 and the first quarter of fiscal 2019.

Gross profit margin increased to 28 percent during the first quarter of fiscal 2019 compared to 27.7 percent during the first quarter of fiscal 2018. Albertsons Cos.’ total gross profit margin benefited from better than expected fuel margins during the first quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 10 basis points compared to the first quarter of fiscal 2018. Improved shrink expense and lower advertising costs were partially offset by industrywide reimbursement rate pressures in pharmacy.

Selling and administrative expenses decreased to 26.2 percent of sales during the first quarter of fiscal 2019 compared to 26.7 percent of sales for the first quarter of fiscal 2018. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales also decreased 50 basis points. The decrease in selling and administrative expenses was primarily attributable to lower acquisition and integration costs as the store system conversions related to the Safeway integration were completed during fiscal 2018, and the continued realization of the Albertsons Cos.’ cost reduction initiatives, partially offset by higher employee wage and benefit costs.

Interest expense was $225.2 million during the first quarter of fiscal 2019 compared to $254.6 million during the first quarter of fiscal 2018. The decrease in interest expense is primarily attributable to lower average outstanding borrowings during the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. The weighted average interest rate during the first quarter of fiscal 2019 was 6.5 percent, excluding amortization and write-off of deferred financing costs and original issue discount, compared to 6.4 percent during the first quarter of fiscal 2018.

Loss on extinguishment of debt was $42.7 million during the first quarter of fiscal 2019 compared to no loss on extinguishment of debt during the first quarter of fiscal 2018. The loss on extinguishment of debt primarily consisted of the write-off of debt discounts associated with the tender offer and repurchase of notes as described below.

Income tax expense was $15.7 million during the first quarter of fiscal 2019 compared to income tax benefit of $3 million during the first quarter of fiscal 2018.

Net income was $49 million during the first quarter of fiscal 2019 compared to a net loss of $17.7 million during the first quarter of fiscal 2018.

Adjusted EBITDA increased 7.5 percent to $876.8 million, or 4.7 percent of sales, during the first quarter of fiscal 2019 compared to $815.8 million, or 4.4 percent of sales, during the first quarter of fiscal 2018. The increase in adjusted EBITDA was primarily attributable to higher fuel margins, the company’s increase in sales and the continued realization of cost reduction initiatives.

Liquidity, capital investments and strategic transactions

Net cash provided by operating activities was $802.7 million during the first quarter of fiscal 2019 compared to $911.6 million during the first quarter of fiscal 2018. The reduction in cash flow from operations compared to last year is due to changes in working capital, primarily related to accounts payable and inventory, partially offset by improvements in operating income, which includes the reduction in acquisition and integration costs. The year over year change in working capital was largely impacted by activities related to store conversions that were ongoing during the first quarter of fiscal 2018.

During the first quarter of fiscal 2019, the company invested approximately $362 million in capital expenditures, which included investments in strategic technology (including in e-commerce and digital capabilities) and the completion of 28 remodel projects and the opening of six new stores.

As of the end of the first quarter of fiscal 2019, the Albertsons Cos.’ total net debt to adjusted EBITDA ratio decreased to 3.3x.

As previously announced on June 7, the company’s wholly-owned subsidiaries Safeway Inc. and New Albertsons L.P. (NALP) completed a tender offer relating to an aggregate of seven outstanding Safeway and NALP notes. In total, the company repurchased approximately $437 million of par value of the notes for approximately $415 million in cash plus accrued and unpaid interest. In addition, during the first quarter of fiscal 2019, the company repurchased approximately $301 million of par value of NALP notes for approximately $294 million in cash plus accrued and unpaid interest. Subsequent to the end of the first quarter of fiscal 2019, the company repurchased approximately $253 million of NALP notes at par. 

In total, the company has reduced the amount of outstanding Safeway and NALP notes by nearly $1 billion to date during fiscal 2019, reflecting the continued commitment to deliver the balance sheet and improve financial flexibility.

Also subsequent to the end of the first quarter of fiscal 2019, the company completed two sale and leaseback transactions, which consisted of 50 store properties and one distribution center for an aggregate purchase price, net of closing costs, of approximately $886 million. In connection with the sale and leaseback transactions, the company entered into lease agreements for each of the properties for initial terms ranging from 15 to 20 years. The aggregate initial annual rent payment for the properties will be approximately $50 million and includes 1.50 percent to 1.75 percent annual rent increases over the initial lease terms. The company intends to use the net proceeds from these transactions to pay down additional debt.

Albertsons Cos. is a leading food and drug retailer in the United States. As of June 15, the company operated 2,268 retail food and drug stores with 1,739 pharmacies, 399 associated fuel centers, 23 dedicated distribution centers, six Plated fulfillment centers and 20 manufacturing facilities. The company’s stores predominantly operate under the banners Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Sav-On, Jewel-Osco, Acme, Shaw’s, Star Market, United Supermarkets, Market Street, Amigos, Haggen and United Express.

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Treva Bennett

After 32 years in the newspaper industry, she is enjoying her new career exploring the world of groceries at The Shelby Report.

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