Source: Albertsons Companies
July 26, 2022

Albertsons Companies, Inc. today reported results for the first quarter of fiscal 2022, which ended June 18, 2022.

First Quarter of Fiscal 2022 Highlights

- Identical sales increased 6.8%
- Digital sales increased 28%
- Net income of $484 million, or $0.84 per share
- Adjusted net income of $582 million, or $1.00 per share
- Adjusted EBITDA of $1,420 million

"In the first quarter, our teams continued to deliver strong operating and financial performance across all key metrics, and we continued to gain market share," said Vivek Sankaran, CEO. "As we look forward to the balance of the year, while we are thoughtful about the macro environment and the possible implications on consumer behavior, our teams have consistently demonstrated their ability to adapt to a changing back drop in real time. This puts us in a strong position to continue to execute against our Customers for Life strategy, including more deeply engaging our customers both digitally and in-store and delivering against our productivity agenda. We are so proud of the resilience, agility and passion of our teams and their ongoing service to our customers and communities."

First Quarter of Fiscal 2022 Results

Net sales and other revenue was $23.3 billion during the 16 weeks ended June 18, 2022 ("first quarter of fiscal 2022") compared to $21.3 billion during the 16 weeks ended June 19, 2021 ("first quarter of fiscal 2021"). The increase was driven by the Company's 6.8% increase in identical sales and higher fuel sales, with retail price inflation contributing to the identical sales increase.

Gross margin rate decreased to 28.1% during the first quarter of fiscal 2022 compared to 29.1% during the first quarter of fiscal 2021. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 27 basis points compared to the first quarter of fiscal 2021. The decrease was driven by fewer COVID-19 vaccines in the first quarter of fiscal 2022 compared to last year. The COVID-19 impact was partially offset, however, by the gross margin rate benefits from our productivity initiatives, offset by inflationary increases in product and supply chain costs.

Selling and administrative expenses decreased to 25.2% of Net sales and other revenue during the first quarter of fiscal 2022 compared to 25.9% during the first quarter of fiscal 2021. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 15 basis points. The decrease in Selling and administrative expenses was primarily attributable to lower COVID-19 related expenses and the execution of productivity initiatives, partially offset by expenses related to the Company's investments in its digital and omnichannel capabilities and other strategic priorities, increased employee costs and higher depreciation and amortization. The increase in employee costs was the result of market-driven wage rate increases and higher equity-based compensation expense.

Net gain on property dispositions and impairment losses was $79.4 million during the first quarter of fiscal 2022 compared to net loss of $0.3 million during the first quarter of fiscal 2021.

Interest expense, net was $138.9 million during the first quarter of fiscal 2022 compared to $153.3 million during the first quarter of fiscal 2021.

Other income, net was $6.3 million during the first quarter of fiscal 2022 compared to $43.5 million during the first quarter of fiscal 2021.

Income tax expense was $143.3 million, representing a 22.8% effective tax rate, during the first quarter of fiscal 2022 compared to $132.5 million, representing a 23.0% effective tax rate, during the first quarter of fiscal 2021.

Net income was $484.2 million, or $0.84 per share, during the first quarter of fiscal 2022 compared to $444.8 million, or $0.78 per share, during the first quarter of fiscal 2021.

Adjusted net income was $582.0 million, or $1.00 per share, during the first quarter of fiscal 2022 compared to $517.5 million, or $0.89 per share, during the first quarter of fiscal 2021.

Adjusted EBITDA was $1,420.3 million, or 6.1% of Net sales and other revenue, during the first quarter of fiscal 2022 compared to $1,308.1 million, or 6.2% of Net sales and other revenue, during the first quarter of fiscal 2021.

Capital Allocation

During the first quarter of fiscal 2022, capital expenditures were $613.8 million, which primarily included the building of our digital and technology platforms and investments in the modernization of our store fleet, including 27 remodels. During the first quarter of fiscal 2022, the Company paid a quarterly dividend of $0.12 per share of common stock on May 10, 2022 to stockholders of record as of April 26, 2022. On July 14, 2022, the Company announced the next quarterly dividend of $0.12 per share of Class A common stock payable on August 10, 2022 to stockholders of record as of July 26, 2022.

Strategic Alternative Developments

In connection with our previously-announced Board led review of potential strategic alternatives to enhance the Company's growth and maximize stockholder value (the "Strategic Alternatives Review"), the Company engaged a third party to review the value of its real estate portfolio. Based on the completed real estate appraisal, the total value of Company-owned and ground-leased properties has increased approximately $2.5 billion to $13.7 billion, up from $11.2 billion in 2019.

In addition, as previously disclosed in an 8-K filed June 22, 2022, we entered into an extended lock-up agreement (the "Extended Lock-Up Agreement") with entities affiliated with five of our largest stockholders (Cerberus Capital Management, L.P., Kimco Realty Corporation, Klaff Realty, L.P., Lubert-Adler Partners and Jubilee Limited Partnership), who we refer to as our Sponsors. The Sponsors were each party to the lock-up agreement dated June 25, 2020 (the "2020 Lock-Up Agreement") which was due to expire on June 30, 2022. Under the terms of the Extended Lock-up Agreement, which supersedes the 2020 Lock-Up Agreement, each Sponsor agreed to restrictions, subject to certain exceptions set forth in the Extended Lock-Up Agreement, on its ability to offer, sell, transfer, contract to sell, pledge or otherwise dispose of shares of our common stock that it owns through September 10, 2022, the end of the Company's second fiscal quarter. The Sponsors beneficially own, in the aggregate, 366,043,040 shares of common stock as of the date of this report.

The Board has not set a timetable for the conclusion of the Strategic Alternatives Review, nor has it made any decisions related to any further actions or potential strategic alternatives at this time. There can be no assurance that the Strategic Alternatives Review will result in any transaction or other strategic change or outcome.

Convertible Preferred Stock

Subsequent to the end of the first quarter of fiscal 2022, certain holders of the Company's convertible preferred stock converted approximately 4,411 shares of convertible preferred stock into 256,162 shares of the Company's Class A common stock. As of July 22, 2022, the Company has issued, in the aggregate, 61,489,721 shares of common stock to holders of convertible preferred stock, representing approximately 61% of the originally issued convertible preferred stock. As a result, there are 40,122,279 shares of common stock reserved for issuance upon the potential conversion of the remaining outstanding convertible preferred stock.

Fiscal 2022 Outlook

The Company is providing an updated fiscal 2022 outlook and now expects:

- Identical sales in fiscal 2022 of approximately 3% to 4% (previously 2% to 3%)
- Adjusted EBITDA in the range of $4.25 billion to $4.35 billion (previously $4.15 billion to $4.25 billion)
- Adjusted net income per share in the range of $2.80 to $2.95 per share (previously $2.70 to $2.85 per share)
- Effective tax rate in the range of 23% to 24% excluding discrete items (unchanged)
- Capital expenditures in the range of $2.0 billion to $2.1 billion (unchanged)

The Company is unable to provide a full reconciliation of the GAAP and Non-GAAP Measures (as defined below) used in the updated fiscal 2022 outlook without unreasonable effort because it is not possible to predict certain of the adjustment items with a reasonable degree of certainty. This information is dependent upon future events and may be outside of the Company's control and could have a significant impact on its GAAP financial results for fiscal 2022. The expected effective tax rate does not reflect potential rate adjustments for the resolution of tax audits or potential changes in tax laws, which cannot be predicted with reasonable certainty.

Conference Call

The Company will hold a conference call today at 8:30 a.m. Eastern Time, which will be hosted by Vivek Sankaran, CEO, and Sharon McCollam, President & CFO. The call will be webcast and can be accessed at https://albertsonscompanies.com/investors/events-and-presentations. A replay of the webcast will be available for at least two weeks following the completion of the call.

Photo Credit: Albertsons Companies