Albertsons Companies saw a significant increase in profits and revenue in the first quarter of fiscal 2023, which ended June 17, 2023. This success was attributed to the positive performance of its eCommerce sales and the success of its customer loyalty program.
During the first quarter, the For U loyalty program experienced a significant boost in memberships, with almost two million new members bringing the total to 35.9 million. Additionally, eCommerce sales experienced a growth of 22%. However, the grocery company did not disclose the revenue generated by this increase in digital sales.
“Our first quarter results demonstrate the resilience of our business, and the effectiveness of our Customers for Life transformation strategy, even as the economic environment has become more challenging. We want to thank all our teams for their commitment to our customers and communities,” said Albertsons Companies CEO Vivek Sankaran.
Highlights of the first quarter of fiscal 2023 also included a 4.9% increase in identical sales; net income was $417 million, or $0.72 per share; adjusted net income reached $546 million, or $0.93 per share; and adjusted EBITDA of $1,319 billion.
“As we look ahead to the balance of the year, we remain focused on driving operational excellence in our stores and continued growth in our digital and pharmacy operations. We will also continue to drive the initiatives supporting our Customers for Life strategy, including delivering on our customer promises, deepening our relationships with them, and serving them where, when, and how they want to be served,” added Sankaran.
According to the Albertsons CEO, the company is mindful of the evolving economic environment due to slowing food inflation, declining government subsidies, rising interest rates, and their potential effects on consumer spending and the supermarket chain.
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Albertsons expect ongoing labor investment, widespread inflationary cost increases, and significant COVID-19 vaccination and test kit revenue declines.
However, Sankaran expressed optimism that these headwinds will be partially offset by the benefits of Albertsons Companies’ productivity initiatives.
Albertsons First Quarter of Fiscal 2023 Results
Net sales and other revenue were $24.1 billion during the 16 weeks ended June 17, 2023 (“first quarter of fiscal 2023”) compared to $23.3 billion during the 16 weeks ended June 18, 2022 (“first quarter of fiscal 2022”).
The increase was driven by the company’s 4.9% increase in identical sales, with retail price inflation across most categories, growth in pharmacy, and increasing digital penetration contributing to the identical sales increase. Lower fuel sales partially offset the increase in Net sales and other revenue.
The gross margin rate decreased to 27.7% during the first quarter of fiscal 2023 compared to 28.1% during the first quarter of fiscal 2022. Excluding the impact of fuel and LIFO expenses, the gross margin rate decreased by 91 basis points compared to the first quarter of fiscal 2022.
Albertsons’ pharmacy operations drove almost half of the rate decrease, with the remaining decrease being the result of increases in shrink, picking, and delivery costs related to the continued growth in digital sales and warehouse costs.
The rate decrease related to pharmacy operations was primarily due to growth in pharmacy sales and fewer COVID-19 vaccines in the first quarter of fiscal 2023. In addition, benefits from their productivity initiatives allowed Albertsons to provide incremental price investments to its customers during the first quarter of fiscal 2023.
Selling and administrative expenses decreased to 25.0% of Net sales and other revenue during the first quarter of fiscal 2023 compared to 25.2% during the first quarter of fiscal 2022.
Excluding the impact of fuel, selling, and administrative expenses as a percentage of Net sales and other revenue decreased by 53 basis points.
The decrease in selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to sales leverage on employee costs, which includes the benefit of ongoing productivity initiatives, lower depreciation and amortization, and lower legal and regulatory accruals and settlements, partially offset by merger-related costs.
Net loss on property dispositions and impairment losses was $27.6 million during the first quarter of fiscal 2023, compared to a net gain of $79.4 million during the first quarter of fiscal 2022.
Interest expense net was $154.9 million during the first quarter of fiscal 2023 compared to $138.9 million during the first quarter of fiscal 2022.
Other income, net was $16.0 million during the first quarter of fiscal 2023 compared to other income, net of $6.3 million during the first quarter of fiscal 2022.
According to Albertsons, income tax expense was $66.1 million, representing a 13.7% effective tax rate, during the first quarter of fiscal 2023, compared to $143.3 million, representing a 22.8% effective tax rate, during the first quarter of fiscal 2022.
The favorability in the effective income tax rate in the first quarter of fiscal 2023 was driven by the reduction of a reserve for an uncertain tax position due to the expiration of a statute during the first quarter of fiscal 2023.
Net income was $417.2 million, or $0.72 per share, during the first quarter of fiscal 2023, which included the $49.7 million or $0.09 per share benefit related to the reduction in the reserve for an uncertain tax position. Net income was $484.2 million, or $0.84 per share, during the first quarter of fiscal 2022.
Adjusted net income was $545.7 million, or $0.93 per share (which includes the tax benefit discussed above), during the first quarter of fiscal 2023 compared to $582.0 million, or $1.00 per share, during the first quarter of fiscal 2022.
Adjusted EBITDA was $1,318.5 million, or 5.5% of Net sales and other revenue, during the first quarter of fiscal 2023 compared to $1,420.3 million, or 6.1% of Net sales and other revenue, during the first quarter of fiscal 2022.
The decrease in Adjusted EBITDA in the first quarter of fiscal 2023 was primarily due to fewer COVID-19 vaccinations and a decrease in gross margin rate compared to the first quarter of fiscal 2022.
Albertsons expect a continued decline in providing COVID-19 vaccinations and at-home test kits, resulting in an approximate $130 million headwind to Adjusted EBITDA for the remaining three quarters of fiscal 2023.
Capital Expenditures
During the first quarter of fiscal 2023, capital expenditures were $622.5 million, which primarily included the completion of 43 remodels, the opening of two new stores and continued investment in our digital and technology platforms.
Merger Agreement
On October 13, 2022, Albertsons entered into an Agreement and Plan of Merger with The Kroger Company and Kettle Merger Sub, Inc. Under the terms of the Merger Agreement, Kroger (through Kettle Merger Sub, Inc.) will acquire all of the outstanding shares of the company’s common stock for total consideration of $34.10 per share, subject to certain reductions, including a special cash dividend of $6.85 per share paid on January 20, 2023.