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Sales at Albertsons inch up in first quarter

Safeway integration on track, vote on Rite Aid acquisition nears

Albertsons Cos. saw an uptick in sales and improved operating results for its fiscal 2018 first quarter, despite posting a net loss.

For the 16 weeks ended June 16, revenue edged up 1% to $18.7 billion from $18.5 billion in the year-ago period, Albertsons said Monday. The Boise, Idaho-based supermarket retailer attributed the gain to a 0.2% rise in identical-store sales and a $154.1 million increase in fuel sales.

Albertsons noted that e-commerce sales, which include sales of meal kits from its Plated subsidiary, climbed by 108% in the quarter. Private-label penetration also rose 56 basis points to 24% as the company moves forward with the rollout of more than 400 new items in its own-brands portfolio.

At the bottom line, Albertsons reported a smaller net loss of $17.7 million for the 2018 quarter, compared with a net loss of $204.9 million a year earlier, which reflected the impact of financing- and acquisition-related costs.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the 2018 first quarter came in at $815.8 million, or 4.4% of sales, versus $771.7 million, or 4.2% of sales, a year ago. Albertsons said the gain exceeded its projections and stemmed from improved gross profit, which included the realization of cost reduction initiatives.

Net cash from operating activities surged to $911.6 million from $654.3 million a year earlier, fueled mainly by increased operating income and adjusted EBITDA as well as changes in working capital, related primarily to accounts payable and inventory, according to Albertsons.

Gross profit margin grew to 27.7% in the first quarter from 27.4% a year ago. Excluding fuel, the gain was 60 basis points. Albertsons attributed the margin increase mainly to lower advertising costs, an improved product mix and a lower shrink expense.

Meanwhile, selling and administrative expenses in the quarter decreased to 26.7% of sales from 27%, while interest expense fell to $254.6 million from $270.5 million.

"We are pleased with our first-quarter results, as both identical sales and adjusted EBITDA increased for the second consecutive quarter," Chairman and Chief Executive Officer Bob Miller said in a statement. "We continue to roll out unique options for our customers as we strive to differentiate through our best-in-class own brands and rapidly expanding e-commerce offerings. We are also reaffirming our fiscal 2018 guidance today and remain on track to deliver annual adjusted EBITDA of $2.7 billion and complete the store conversions related to the Safeway integration by September, which we expect to allow us to further grow and enhance our operating performance."

Albertsons said it converted 243 stores in the Safeway integration during the first quarter, compared with 132 a year earlier. The $9 billion Albertsons-Safeway merger deal closed in January 2015.

"We are also looking forward to our merger with Rite Aid," stated President and Chief Operating Officer Jim Donald. "Together, we will be a differentiated leader in food, health and wellness. We expect to realize $375 million in annual run-rate cost synergies within three years and have the opportunity to generate $3.6 billion in annual sales synergies to fuel our future growth."

The $24 billion merger deal took a big step forward in late March with the expiration of the Hart-Scott-Rodino (HSR) waiting period. The transaction is expected to close early in the second half of 2018, pending approval of Rite Aid shareholders in an Aug. 9 vote as well as regulatory clearance and other closing conditions.

Combined, Albertsons-Rite Aid would be among the top five U.S. food and drug retailers, behind Walmart, CVS Health, The Kroger Co. and Walgreens Boots Alliance. The merged company would field 4,868 stores under 22 banners, including 4,327 stand-alone and in-store pharmacies, across 38 states and the District of Columbia, generating sales of about $83 billion. Plans call for most Albertsons pharmacies to be rebannered as Rite Aid.

During the first quarter, Albertsons completed 24 store remodels and opened two new stores. Its capital outlays of about $350 million also included $37 million for Safeway integration-related spending.

As of June 16, Albertsons Cos. operated 2,300 supermarkets, with 1,762 pharmacies, 397 fuel centers, 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.

Looking ahead, and excluding the impact of the Rite Aid acquisition, Albertsons forecasts identical-store sales growth of 1.5% to 2% for the full 2018 fiscal year. Adjusted EBITDA is pegged at abou $2.7 billion. Capital expenditures are expected to total approximately $1.2 billion for the year.

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