Boise, Idaho-based Albertsons Cos. has reported results for the third quarter of fiscal 2020, which ended Dec. 5, 2020.
Third quarter of fiscal 2020 highlights include:
- Identical sales growth of 12.3 percent;
- Digital sales growth of 225 percent;
- Net income per share of $0.20;
- Adjusted net income per share of $0.66;
- Net income of $124 million;
- Adjusted net income of $387 million;
- Adjusted EBITDA of $968 million, an increase of 53 percent compared to the third quarter last year; and
- Executed debt refinancing and announced paydown to drive an additional $25 million in annualized interest savings.
“Our constant focus on our customers continued to drive strong growth and market share gains in the third quarter,” said Vivek Sankaran, president and CEO. “It is clear that our strategy is working, and as we continue to execute on our strategic priorities, we believe we are well positioned to deliver sustainable growth over the long term. At the same time, we remain focused on delivering value to all stakeholders, including taking care of our customers, associates and the communities we serve as we continue to navigate through the pandemic.”
Third quarter of fiscal 2020 results
Sales and other revenue was $15.4 billion during the 12 weeks ended Dec. 5, 2020 (“third quarter of fiscal 2020”) compared to $14.1 billion during the 12 weeks ended Nov. 30, 2019 (“third quarter of fiscal 2019”). The increase was driven by the company’s 12.3 percent growth in identical sales, partially offset by lower fuel sales. Identical sales benefited from the company’s 225 percent growth in digital sales.
Gross profit margin increased to 29.3 percent during the third quarter of fiscal 2020 compared to 28.3% during the third quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 25 basis points. The increase was primarily driven by continued improvements in shrink expense and sales leverage on advertising and supply chain costs, partially offset by expenses related to growth in digital sales and select investments in price.
Selling and administrative expenses were 28.0 percent of sales during the third quarter of fiscal 2020 compared to 27.0 percent of sales for the third quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales increased 40 basis points. The increase in selling and administrative expenses was primarily attributable to the $285.7 million charge (pre-tax) related to the previously announced withdrawal from the United Food and Commercial Workers International Union (“UFCW”) Union-Industry Pension Fund (“National Fund”) and incremental COVID-19 expenses to safeguard associates and customers, partially offset by sales leverage driven by higher identical sales and continued focus on cost control.
Gain on property dispositions and impairment losses, net was $59 million during the third quarter of fiscal 2020 compared to $18.7 million during the third quarter of fiscal 2019.
Interest expense was $115.9 million during the third quarter of fiscal 2020 compared to $154.8 million during the third quarter of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates. The weighted average interest rate during the third quarter of fiscal 2020 was 5.5 percent compared to 6.3 percent during the third quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.
Income tax expense was $29.5 million, representing a 19.3 percent effective tax rate, during the third quarter of fiscal 2020 compared to $12.9 million, representing a 19.1 percent effective tax rate, during the third quarter of fiscal 2019. The increase in income tax expense was primarily the result of the increase in income before taxes. The effective income tax rate for the third quarter of fiscal 2020 was favorably impacted by discrete benefits related to income tax credits and equity-based compensation deductions.
Net income was $123.7 million during the third quarter of fiscal 2020, compared to $54.8 million during the third quarter of fiscal 2019. Net income during the third quarter of fiscal 2020 included the $213.0 million charge, net of tax, related to the UFCW National Fund withdrawal.
Adjusted net income was $386.6 million, or $0.66 per share, during the third quarter of fiscal 2020 compared to $142.2 million, or $0.24 per share, during the third quarter of fiscal 2019.
Adjusted EBITDA was $967.7 million, or 6.3 percent of sales, during the third quarter of fiscal 2020 compared to $634.4 million, or 4.5 percent of sales, during the third quarter of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the company’s 12.3 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.
Year-to-date results
Sales and other revenue was $53.9 billion during the 40 weeks ended Dec. 5, 2020 (“first 40 weeks of fiscal 2020”) compared to $47.0 billion during the 40 weeks ended Nov. 30, 2019 (“first 40 weeks of fiscal 2019”). The increase was driven by the company’s 18.4 percent increase in identical sales, partially offset by lower fuel sales.
Gross profit margin increased to 29.4 percent during the first 40 weeks of fiscal 2020 compared to 28.0% during the first 40 weeks of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 65 basis points.
Selling and administrative expenses decreased to 26.2 percent of sales during the first 40 weeks of fiscal 2020 compared to 26.7 percent of sales for the first 40 weeks of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 120 basis points.
Interest expense was $425.1 million during the first 40 weeks of fiscal 2020 compared to $557.5 million during the first 40 weeks of fiscal 2019. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates.
Adjusted net income was $1,544.2 million, or $2.62 per share, during the first 40 weeks of fiscal 2020 compared to $417.9 million, or $0.71 per share, during the first 40 weeks of fiscal 2019.
Adjusted EBITDA was $3,607.1 million, or 6.7 percent of sales, during the first 40 weeks of fiscal 2020 compared to $2,078.8 million, or 4.4 percent of sales, during the first 40 weeks of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the company’s 18.4 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses, excluding the adjustment items.
Liquidity
Net cash provided by operating activities was $2,996.0 million during the first 40 weeks of fiscal 2020 compared to $1,387.0 million during the first 40 weeks of fiscal 2019. The increase in cash flow from operations compared to the first 40 weeks of fiscal 2019 was primarily due to improvements in operating performance and changes in working capital.
Capital allocation
The company’s capital allocation strategy is balanced, prioritizing increased levels of capital investment in the business to drive future growth, continued deleveraging of the balance sheet, the $0.10 per share quarterly dividend, and opportunistic share repurchases, all anchored on the strong and consistent free cash flow generated by the business. The company’s capital allocation program continues to be funded with cash on hand and cash generated from operations.
During the first 40 weeks of fiscal 2020, the company spent approximately $1.1 billion in capital expenditures, which included accelerated investment in digital and technology initiatives, and the completion of 225 store remodels.
During the third quarter of fiscal 2020, the company repurchased an aggregate of 6.8 million shares of common stock for an aggregate of $102.7 million pursuant to the company’s existing $300 million share repurchase authorization. The company also paid its first quarterly dividend of $0.10 per share on Nov. 10, 2020 to stockholders of record as of Oct. 26, 2020 and, on Jan. 12, 2021, announced the next quarterly dividend of $0.10 per share payable on Feb. 10, 2021 to stockholders of record as of Jan. 26, 2021.
On Dec. 22, 2020, the company issued $600 million in aggregate principal amount of additional 3.500 percent senior notes due 2029, issued at 99 percent of the principal amount (the “2029 Notes”). The company used the net proceeds from the 2029 Notes, together with approximately $230 million of cash on hand, to (i) fund a partial redemption of $800 million aggregate principal amount of its outstanding 5.750 percent senior notes due 2025 (the “Redemption”) and (ii) pay fees and expenses related to the Redemption and issuance of the 2029 Notes. This refinancing and debt reduction is expected to save the company approximately $25 million in annualized pre-tax interest expense. In total, the company’s refinancing and debt reduction during the first 40 weeks of fiscal 2020 is expected to save the cCompany approximately $77 million in annualized pre-tax interest expense.
Updated Fiscal 2020 outlook
The company is providing an updated fiscal 2020 outlook and now expects:
- Identical sales in fiscal 2020 of approximately 16.5 percent (previously at least 15.5 percent);
- Adjusted EPS in the range of $3.05 per share to $3.15 per share (previously $2.75 per share to $2.85 per share);
- Adjusted EBITDA in the range of $4.4 billion to $4.5 billion (previously $4.15 billion to $4.25 billion);
- Effective tax rate to be approximately 25 percent excluding discrete items (unchanged); and
- Capital expenditures in the range of $1.65 billion to $1.75 billion (previously $1.9 billion, due to a timing shift between fiscal 2020 and fiscal 2021).
The company is unable to provide a full reconciliation of the GAAP and Non-GAAP Measures used in the updated fiscal 2020 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 2020.
Albertsons Cos. is a leading food and drug retailer in the United States. As of Dec. 5, 2020, the company operated 2,253 retail food and drug stores with 1,727 pharmacies, 400 associated fuel centers, 22 dedicated distribution centers and 20 manufacturing facilities. The company operates stores across 34 states and the District of Columbia under 20 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs.
