Boise, Idaho-based Albertsons Cos. has reported results for the first quarter of fiscal 2020, which ended June 20.
“I am inspired by the many ways my colleagues continue to step up to serve our customers and help our communities around the country during this time of need,” said Vivek Sankaran, president and CEO. “Their hard work and dedication have also allowed us to successfully navigate this extraordinary environment, and we have accelerated our digital and e-commerce strategy to adapt to market conditions. We generated strong financial performance in the first quarter, including robust cash flow and enhanced liquidity, which support our continued investment to benefit our associates, customers, communities and stockholders.”
First quarter of fiscal 2020 results
Sales and other revenue increased 21.4 percent to $22.8 billion during the 16 weeks ended June 20, 2020, compared to $18.7 billion during the 16 weeks ended June 15, 2019. The increase was driven by the company’s 26.5 percent increase in identical sales, partially offset by a reduction in sales related to store closures and lower fuel sales. Identical sales benefited from the company’s 276 percent growth in digital sales and an increase in store sales, both largely driven by the COVID-19 pandemic.
Gross profit margin increased to 29.8 percent during the first quarter of fiscal 2020 compared to 28.0 percent during the first quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 80 basis points compared to the first quarter of fiscal 2019, primarily due to a reduction in shrink expense as a percent of sales.
Gross profit margin also benefited from lower promotional activity during most of the first quarter of fiscal 2020 before promotional activity started to increase in the last week of May and throughout June.
Selling and administrative expenses decreased to 25.4 percent of sales during the first quarter of fiscal 2020 compared to 26.4 percent of sales for the first quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 190 basis points.
The decrease in selling and administrative expenses was primarily attributable to sales leverage driven by significantly higher identical sales. The improved selling and administrative rate included the company’s incremental COVID-19 investments, including more than $275 million in appreciation pay to front-line associates and the company’s $53 million contribution to hunger relief and other investments related to supporting and protecting its associates and customers. In addition, the company incurred incremental expenses related to the civil disruption in certain of its markets in late May and June.
Interest expense was $180.6 million during the first quarter of fiscal 2020 compared to $225.2 million during the first quarter of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates. The weighted average interest rate during the first quarter of fiscal 2020 was 6.0 percent compared to 6.5 percent during the first quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.
Income tax expense was $201.9 million during the first quarter of fiscal 2020 compared to income tax expense of $15.7 million during the first quarter of fiscal 2019. The increase in income tax expense is the result of the increase in income before taxes.
Net income was $586.2 million during the first quarter of fiscal 2020 compared to net income of $49.0 million during the first quarter of fiscal 2019.
Adjusted EBITDA was $1,691.0 million, or 7.4 percent of sales, during the first quarter of fiscal 2020 compared to $876.8 million, or 4.7 percent of sales, during the first quarter of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the company’s 26.5 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses.
Liquidity, capital expenditures and strategic transactions
Net cash provided by operating activities was $2,091.9 million during the first quarter of fiscal 2020 compared to $802.7 million during the first quarter of fiscal 2019. The increase in cash flow from operations compared to the first quarter last year was primarily due to improvements in operating performance and changes in working capital primarily related to inventory and accounts payable driven by the increase in sales volume during the first quarter of fiscal 2020.
During the first quarter of fiscal 2020, the company spent approximately $402.3 million in capital expenditures, which included investments in strategic technology and accelerated investment in e-commerce and the completion of 46 remodel projects.
Private placement of convertible preferred stock and IPO
On June 9, the company completed the sale and issuance of $1.75 billion liquidation preference of convertible preferred stock to certain investors led by funds managed, advised or controlled by affiliates of Apollo Global Management Inc. The aggregate proceeds received by the company, net of original issue discount, was $1.68 billion. The company used cash in an amount equal to the proceeds from the sale and issuance of the convertible preferred stock to repurchase shares of ACI common stock from its existing stockholders.
The company’s common stock began trading on the New York Stock Exchange on June 26, under the symbol “ACI” and on June 30, certain selling stockholders completed the sale of a total of 50,000,000 shares of the company’s common stock at an initial price to the public of $16.00 per share (resulting in aggregate gross proceeds of $800 million). The company did not receive any proceeds from the sale of shares of common stock by the selling stockholders in the initial public offering.
Update on COVID-19
Since the beginning of fiscal 2020, the company has experienced significant increases in product demand and overall basket size in stores and in its e-commerce business as customers responded to the circumstances around COVID-19. Due to these circumstances, the company remains unable to predict the continuing impact of COVID-19 on its business for the balance of the year with reasonable certainty.
The ongoing COVID-19 pandemic has dramatically changed the landscape of food-at-home consumption and the company continues to prioritize the health and safety of its associates, customers and communities.
As of June 20, the company operated 2,252 retail food and drug stores with 1,726 pharmacies, 402 associated fuel centers, 23 dedicated distribution centers and 20 manufacturing facilities. Albertsons Cos. operates stores across 34 states and the District of Columbia under 20 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs.