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Albertsons reports sales uptick for third quarter

Refinancing moves help shrink debt by $1 billion

Albertsons Cos. saw sales edge up in its fiscal 2018 third quarter and posted net income after a loss in the previous quarter.

The Boise, Idaho-based supermarket retailer also said Monday that, in connection with some refinancing measures, it has cut its debt load by about $1 billion over the past 12 months.

For the quarter ended Dec. 1, Albertsons turned in revenue of $13.8 billion, up 1.8% from $13.6 billion a year earlier. The company said the gain reflects a 1.9% uptick in identical-store sales and higher fuel sales of $91.7 million, partially offset by lost sales from store closures. E-commerce sales surged 73% year over year.

The gross profit margin rose to 27.8% in the quarter from 26.7% a year ago, primarily due to improved shrink expense as a percentage of sales, lower advertising costs, increased private-label penetration to 25.2% and cost-reduction initiatives, Albertsons reported. Selling and administrative expenses fell to 26.6% of sales from 27.4% in the prior-year period.

At the bottom line, net earnings totaled $45.6 million in 2018 third quarter, compared with a $32.4 million net loss in the 2018 second quarter and net income of $218.1 million in the 2017 third quarter.

EBITDA (earnings before interest, taxes, depreciation and amortization) was $594.8 million in the 2018 third quarter versus $332.9 million a year earlier.

Albertsons reported adjusted EBITDA of $649.7 million, or 4.7% of sales, for the 2018 quarter compared with $429 million, or 3.2% of sales, for the year-ago period. The company attributed the gain mainly to higher identical-store sales, increased gross profit and progress in its cost-reduction efforts.

Interest expense came in at $213 million for the third quarter, compared with $193.9 million a year ago. The company reported an income tax benefit of $65.4 million in the quarter (including from the federal Tax Cuts and Jobs Act) versus $523.5 million in the 2017 quarter, which reflects a corporate reorganization and a non-cash reversal of a valuation allowance against net deferred tax assets.

"We continue to gain traction in our efforts to deliver a seamless shopping experience for our customers in both the four-wall and no-wall environment. The third quarter marked our strongest identical-sales increase since the first quarter of fiscal 2016,” President and CEO Jim Donald (left) said in a statement. “Identical sales grew for the fourth consecutive quarter, and adjusted EBITDA grew over 50% compared to the same quarter last year, as the business has rebounded from fiscal 2017. We achieved a record-high sales penetration rate on our Own Brands products as we continue to delight our customers with our portfolio of award-winning brands."

Albertsons said that on Nov. 16, before the end of the third quarter, it refinanced its term loan and asset-based loan facilities. In tandem with the refinancing, the company paid down about $976 million in aggregate principal amount of term loans, using cash on hand and $410 million in borrowings from its asset-based loan facility. 

Also before the quarter’s end, Albertsons repaid $610 million in borrowings under its asset-based loan facility, and its Safeway subsidiary purchased $23 million in its 7.450% senior notes due 2027 and $311 million in 7.250% debentures due 2031. The transaction was funded using cash on hand and $200 million of borrowings under the company’s asset-based loan facility.

Albertsons added that, under its $4 billion asset-based loan facility, it currently has $3.4 billion available and no outstanding borrowings. The company’s long-term debt stood at nearly $10.66 billion as of Dec. 1, compared with $11.71 billion as of Feb. 24.

"We successfully refinanced our term loan and asset-based loan facilities during the quarter as we secure long-term financing and delever our balance sheet,” Donald stated.

For the 40 weeks through Dec. 1, Albertsons posted a revenue gain of 1.4% to $46.5 billion. Identical-store sales inched up 0.9% for the year to date. The company recorded a net loss was $4.5 million, compared to net loss of $342 million in the prior-year period (which included a goodwill impairment charge of $142.3 million). Adjusted EBITDA for the 40 weeks was $2 billion, or 4.3% of sales, up from $1.7 billion, or 3.7% of sales, in the 2017 period.

Prior to the end of the third quarter, Albertsons entered a $660 million agreement for the sale and leaseback of five distribution centers. The deal was closed in two separate transactions on Dec. 17, 2018, and Jan. 2, 2019. In connection with the sale and leasebacks, the company also entered into lease agreements for the properties for initial terms of 15 to 20 years.

Looking ahead to the full 2018 fiscal year, Albertsons expects identical sales gains of 0.8% to 1.0% and adjusted EBITDA guidance of $2.65 billion to $2.7 billion. The latter projection includes a negative impact of 10 basis points from the industrywide recall of romaine lettuce, California wildfires and Alaska earthquake as well as incremental rent expense from distribution center sale/leasebacks, the company said.

Fiscal 2018 capital expenditures are forecast at $1.4 billion. Through the end of the third quarter, the company spent about $917 million in cap-ex, including $45 million for the Safeway integration, the opening of three new stores, 91 store remodels, digital marketing investments.

As of Dec. 1, Albertsons Cos. operated 2,277 stores, including 1,743 pharmacies and 395 fuel centers plus 23 distribution centers, five Plated fulfillment centers and 20 manufacturing facilities. Its store banners include 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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