Albertsons Companies: Digital sales grew 276 percent in fiscal Q1-2020

Boise / ID. (abc) Albertsons Companies reported results for the first quarter of fiscal 2020, which ended June 20, 2020. First quarter of fiscal 2020 highlights:

• Identical sales growth of 26.5 percent
• Digital sales growth of 276 percent
• Diluted net income per share of USD 1.00; Adjusted net income per share of USD 1.35
• Net income of USD 586 million
• Adjusted Ebitda of USD 1.7 billion, an increase of 93 percent compared to the first quarter last year
• Covid-19 related investments of approximately USD 615 million to support and protect our front-line associates and customers, including more than USD 275 million in appreciation pay and USD 53 million for hunger relief in our communities

«I am inspired by the many ways my colleagues continue to step up to serve our customers and help our communities around the country during this time of need,» said Vivek Sankaran, President and Chief Executive Officer. «Their hard work and dedication have also allowed us to successfully navigate this extraordinary environment and we have accelerated our digital and eCommerce strategy to adapt to market conditions. We generated strong financial performance in the first quarter, including robust cash flow and enhanced liquidity, which support our continued investment to benefit our associates, customers, communities and stockholders.»

First Quarter of Fiscal 2020 Results

Sales and other revenue increased 21.4 percent to USD 22.8 billion during the 16 weeks ended June 20, 2020 («first quarter of fiscal 2020») compared to USD 18.7 billion during the 16 weeks ended June 15, 2019 («first quarter of fiscal 2019»). The increase was driven by the Company’s 26.5 percent increase in identical sales, partially offset by a reduction in sales related to store closures and lower fuel sales. Identical sales benefited from our 276 percent growth in digital sales and an increase in store sales, both largely driven by the Covid-19 pandemic.

Gross profit margin increased to 29.8 percent during the first quarter of fiscal 2020 compared to 28.0 percent during the first quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 80 basis points compared to the first quarter of fiscal 2019, primarily due to a reduction in shrink expense as a percent of sales. Gross profit margin also benefited from lower promotional activity during most of the first quarter of fiscal 2020 before promotional activity started to increase in the last week of May and throughout June.

Selling and administrative expenses decreased to 25.4 percent of sales during the first quarter of fiscal 2020 compared to 26.4 percent of sales for the first quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 190 basis points. The decrease in selling and administrative expenses was primarily attributable to sales leverage driven by significantly higher identical sales. The improved selling and administrative rate included the Company’s incremental Covid-19 investments, including more than USD 275 million in appreciation pay to front-line associates, and the Company’s USD 53 million contribution to hunger relief and other investments related to supporting and protecting our associates and customers. In addition, the Company incurred incremental expenses related to the civil disruption in certain of our markets in late May and June.

Interest expense was USD 180.6 million during the first quarter of fiscal 2020 compared to USD 225.2 million during the first 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 first quarter of fiscal 2020 was 6.0 percent compared to 6.5 percent during the first quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.

Income tax expense was USD 201.9 million during the first quarter of fiscal 2020 compared to income tax expense of USD 15.7 million during the first quarter of fiscal 2019. The increase in income tax expense is the result of the increase in income before taxes.

Net income was USD 586.2 million during the first quarter of fiscal 2020 compared to net income of USD 49.0 million during the first quarter of fiscal 2019.

Adjusted Ebitda was USD 1,691.0 million, or 7.4 percent of sales, during the first quarter of fiscal 2020 compared to USD 876.8 million, or 4.7 percent of sales, during the first quarter of fiscal 2019. The increase in Adjusted Ebitda was primarily attributable to the Company’s 26.5 percent increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses.

Liquidity, Capital Expenditures and Strategic Transactions

Net cash provided by operating activities was USD 2,091.9 million during the first quarter of fiscal 2020 compared to USD 802.7 million during the first quarter of fiscal 2019. The increase in cash flow from operations compared to the first quarter last year was primarily due to improvements in operating performance and changes in working capital primarily related to inventory and accounts payable driven by the increase in sales volume during the first quarter of fiscal 2020.

During the first quarter of fiscal 2020, the Company spent approximately USD 402.3 million in capital expenditures, which included investments in strategic technology and accelerated investment in eCommerce and the completion of 46 remodel projects.

Private Placement of Convertible Preferred Stock and Initial Public Offering

On June 9, 2020, the Company completed the sale and issuance of USD 1.75 billion liquidation preference of convertible preferred stock to certain investors led by funds managed, advised or controlled by affiliates of Apollo Global Management, Inc. The aggregate proceeds received by the Company, net of original issue discount, was USD 1.68 billion. The Company used cash in an amount equal to the proceeds from the sale and issuance of the convertible preferred stock to repurchase shares of ACI common stock from its existing stockholders.

The Company’s common stock began trading on the New York Stock Exchange on June 26, 2020 under the symbol «ACI» and on June 30, 2020, certain selling stockholders completed the sale of a total of 50,000,000 shares of the Company’s common stock at an initial price to the public of USD 16.00 per share (resulting in aggregate gross proceeds of USD 800 million). The Company did not receive any proceeds from the sale of shares of common stock by the selling stockholders in the initial public offering.

Update on Covid-19

Since the beginning of fiscal 2020, the Company has experienced significant increases in product demand and overall basket size in stores and in our eCommerce business as customers responded to the circumstances around Covid-19. Due to these circumstances, the Company remains unable to predict the continuing impact of Covid-19 on its business for the balance of the year with reasonable certainty. The ongoing Covid-19 pandemic has dramatically changed the landscape of food-at-home consumption and the Company continues to prioritize the health and safety of our associates, customers and communities.