Albertsons said inflation helped drive same-store sales gains of 7.9% in the third fiscal quarter, but higher costs put some pressure on margins.
The Boise, Idaho-based company said net income for the 12-week period that ended Dec. 2, 2022, was down about 11.5%, to 375.5 million, compared with the year-ago third quarter, when the company realized several one-time gains.
Revenues for the recently ended quarter were up 8.5%, to $18.2 billion, including a 33% increase in digital sales.
The cost of fulfilling those sales had a negative impact on profitability, however.
The company said its gross margin rate fell to 28.2% of sales during the quarter, compared with 28.9% a year ago. Excluding the impact of fuel and last-in first-out (LIFO) inventory expense, the gross margin rate decreased by 47 basis points.
Albertsons attributed the decline primarily to increases in product, shrink and supply chain costs, a decline in COVID-related revenue due to administering fewer vaccines, and increases in picking and delivery costs related to the growth in digital sales. These costs were partially offset by increased COVID at-home test kit revenue and the benefits of ongoing productivity initiatives.
Selling and administrative expenses, meanwhile, improved in the quarter, as they decreased to 25% of revenues, vs. 25.4% during the third quarter of fiscal 2021.
The company attributed the decrease primarily to ongoing productivity initiatives and sales leverage, partially offset by wage rate increases, investments related to the acceleration of digital and omnichannel capabilities and costs related to the company’s pending merger with Cincinnati-based Kroger Co.
Vivek Sankaran, CEO of Albertsons, attributed the sales performance in the quarter to investments in digital, differentiation in private label and fresh offerings and the modernization of the company’s operational capabilities.
“As we look ahead to the balance of the year and into fiscal 2023, we believe that all of these initiatives position us well to continue to drive top-line growth and deepen our customer and community engagement both online and in-store,” he said. “At the same time, our ongoing productivity engine is expected to continue to support our investments and partially offset anticipated inflationary cost increases, declines in COVID-19 vaccination and at-home test kit revenue, and macro-consumer headwinds.”
Through the first three quarters of the fiscal year, net income was up about 3.2%, to $1.2 billion, on a sales gain of about 9%, to $59.4 billion.
The company did not hold a conference call with investors because of the pending merger. The company in October announced plans to be acquired by Kroger for about $24.6 billion in a deal that is expected to close in early 2024 following an antitrust review.
In a filing with the Securities and Exchange Commission on Tuesday, Albertsons said it had approved up to $100 million for a retention program covering certain executives and other employees in order to “ensure a successful and efficient integration process” related to the merger. Half the retention bonus would be paid at the close of the merger, and the other half six months later. The bonuses would be paid even if the merger is terminated.
As previously reported, the company has separately agreed to pay a special dividend to shareholders valued at nearly $4 billion, pending a hearing slated for Jan. 17 in the Supreme Court for the State of Washington.