Double-digit identical-sales growth and booming e-commerce sales in the fiscal 2020 third quarter helped Albertsons Cos. beat Wall Street’s per-share earnings forecast by 24 cents.
For the 12 weeks ended Dec. 5, net sales and other revenue totaled $15.41 billion, up 9.3% from $14.1 billion a year earlier, Albertsons said Tuesday. The Boise, Idaho-based retailer attributed the gain to 12.3% growth in identical sales, partially offset by lower fuel sales.
“During the quarter, we continued to gain significant market share within both fuel and food in both dollars and units and experienced strong growth across geographies, regardless of the level of COVID restrictions in place. This gives us confidence in the sustainability of our competitiveness in the future,” Albertsons President and CEO Vivek Sankaran told analysts in a conference call Tuesday morning.
“We had over 6 million new households shopping with us this quarter, and we are retaining existing customers. Those who shopped with us last quarter have returned this quarter at a higher rate than in Q2,” he noted. “Customers continue to consolidate trips, and we continue to see fewer trips per household but larger baskets. And these households are spending more with us compared to last year.”
Albertsons’ Just for U loyalty program, with 24.3 million registered users, is playing a key role in driving customer transactions and retention. Just for U has seen a 23.5% year-over-year increase in users, who are spending an average of 2.5 times more than shoppers not in the program.
“Actively engaged households in our loyalty programs have increased 17.5% year over year and encompass nearly 40% of transactions and 50% of sales,” Sankaran said. “These customers spend 4.1 times more than non-active customers.”
Digital sales jumped 225% year over year, Albertsons’ third straight quarter of more than 200% e-commerce growth (up 243% and 276% in the second and first quarters, respectively).
To support surging online grocery sales, Albertsons continues to expand its Drive Up & Go curbside pickup service, which saw 800%-plus sales growth in the third quarter as the retailer launched 231 new pickup sites. Drive Up & Go is now available at 1,181 stores, putting Albertsons ahead of schedule to have more than 1,400 curbside locations by the 2020 fiscal year-end and over 1,800 sites in fiscal 2021.
“We firmly believe some consumer behaviors adopted during the pandemic will continue post-pandemic, and we believe increased use of digital offerings will be one of the key behaviors that sticks. To capitalize on this trend, we are investing over $300 million in capex and opex to accelerate our offerings in this area during fiscal year 2020 to launch new capabilities that build on our strengths as well as drive scale and profitability,” Sankaran said.
“For instance, we rolled out zero-touch payment capabilities to all our stores in October, allowing customers to enter their loyalty credentials for discounts and rewards and pay for their groceries from their phone without touching the PIN tab. We also set up the ability to accept SNAP for online payment on Drive Up & Go orders in 199 stores and plan to expand to additional stores and to delivery orders in early fiscal 2021,” he explained. “From a customer experience and convenience perspective, we’ve made noticeable improvements to our app, which have resulted in increased usage, and are piloting a number of Walk Up & Go options in select stores in Chicago and Northern California, involving walk-up counters, lockers and stand-alone kiosks in our parking lots.”
Albertsons has improved online grocery profitability via reduced operational expenses, including lower picking costs achieved through labor planning, process improvements and new software that has simplified workflows, according to Sankaran. “We’re also planning on adding seven additional micro-fulfillment centers by the end of fiscal 2021,” he added.
Other bright spots in the quarter include fresh departments and private label. Sankaran said in the call. Albertsons’ most loyal shoppers raised their average spend on fresh by 200 basis points, and the retailer saw higher-than-average identical sales, notably in seafood, meat and floral. Meanwhile, the easing of temporary supply issues gave a lift to the Own Brands portfolio, where sales penetration exceeded 25% in the last four weeks of the quarter, keeping the company on track to reach its goal of 30% penetration in the next few years.
“We’ve launched over 1,000 new items in Q3, exceeding our stated goal of 800-plus new items this fiscal year,” Sankaran said. Overall, the Own Brands roster encompasses over 12,000 items across more than 500 categories and generates $14 billion in sales annually across nine primary brands, four of which top $1 billion in sales.
At the bottom line, Albertsons posted third-quarter reported net income of $123.7 million, or 20 cents per diluted share, compared with $54.8 million, or 9 cents per share, a year ago. The company said earnings reflect $44.7 million in COVID-related bonus payments to front-line associates and a $285.7 million charge ($213 million charge after tax) related to its withdrawal from the United Food and Commercial Workers International Union-Industry Pension Fund. Ratified in late November by nine union locals, the agreement calls for Albertsons to transition UFCW member workers to a variable annuity-based pension plan.
Adjusted earnings came in at $386.6 million, or 66 per diluted share, versus $142.2 million, or 24 cents per share, in the prior-year period. Analysts, on average, projected adjusted earnings per share of 42 cents, with estimates ranging from a low of 24 cents to a high of 57 cents, according to Refinitiv/Thomson Reuters.
Looking ahead, Albertsons raised its fiscal 2020 guidance and now expects adjusted EPS of $3.05 to $3.15, compared with the previous outlook of $2.75 to $2.85 per share and identical sales growth of 16.5%, up from the prior forecast of 15.5%.
“We continue to generate strong outperformance and illustrate the power of sales leverage on our P&L during the third quarter,” Chief Financial Officer Robert Dimond said in the analyst call.
Wall Street’s consensus estimate is for fiscal 2020 adjusted EPS of $2.78, with projections running from a low of $1.76 to a high of $2.97, according to Refinitiv/Thomson Reuters.
CFRA Research equity analyst Arun Sundaram foresees Albertsons riding the wave of higher food-at-home spending longer than the market expects.
"We maintain our strong buy rating as Albertsons Cos.' fundamentals continue to look strong, yet investor expectations seem low as Albertsons trades at a steep discount relative to peers," Sundaram wrote in a research note on Tuesday. "We think investors are overestimating the rate that food-at-home demand moderates in 2021 and that Albertsons' strong fresh offerings — 41% of sales vs. The Kroger Co.'s 24% — combined with recent reinvestments and strong execution will drive better-than-anticipated sales/earnings next fiscal year."
Albertsons completed 225 store remodels during the first three quarters of fiscal 2020 as part of $1.1 in capital expenditures. The retailer finished the third quarter with 2,253 food and drug stores in 34 states and the District of Columbia, including such retail banners as Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs. Operations also include 1,727 pharmacies, 400 fuel centers, 22 distribution centers and 20 manufacturing facilities.
“We believe we are well-positioned to continue to drive growth and emerge from the pandemic stronger, more resilient and more competitive than ever, delivering industry-leading performance,” Sanakaran said. “We believe that the behavioral impact of this crisis will be long-lasting. Our job as a management team is to emerge from this crisis with a strong omnichannel relationship with the customer that will have long-lasting benefit to them, our business and all of our stakeholders, even as the pandemic subsides.”
*Editor's Note: Article updated with analyst comment.