Albertsons Companies: Reports Q3 Fiscal 2022 Results

Boise / ID. (abc) Albertsons Companies reported results for the third quarter of fiscal 2022, which ended December 03, 2022. Highlights:

• Identical sales increased 7.9 percent
• Digital sales increased 33 percent
• Loyalty members increased 16 percent to 33 million
• Net income of USD 376 million, or USD 0.20 per share
• Adjusted net income of USD 505 million, or USD 0.87 per share
• Adjusted Ebitda of USD 1,158 million

«Our team continues to deliver strong performance as we execute against our Customers for Life strategy and bring people together around the joys of food and inspire well-being,» said Vivek Sankaran, CEO. «Our investments in digital transformation, differentiation in Own Brands and Fresh offerings, and the modernization of our operational capabilities contributed to these results. I want to thank all of our teams for their commitment to serving our customers and living our values every day.

«As we look ahead to the balance of the year and into fiscal 2023, we believe that all of these initiatives position us well to continue to drive top-line growth and deepen our customer and community engagement both online and in-store. At the same time, our ongoing productivity engine is expected to continue to support our investments and partially offset anticipated inflationary cost increases, declines in Covid-19 vaccination and at-home test kit revenue, and macro-consumer headwinds.»

Third Quarter of Fiscal 2022 Results

Net sales and other revenue was USD 18.2 billion during the 12 weeks ended December 03, 2022 (Q3-2022) compared to USD 16.7 billion during the 12 weeks ended December 4, 2021 (Q3-2021). The increase was driven by the Company’s 7.9 percent increase in identical sales and higher fuel sales, with retail price inflation as the primary driver of the identical sales increase.

Gross margin rate decreased to 28.2 percent during the third quarter of fiscal 2022 compared to 28.9 percent during the third quarter of fiscal 2021. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 47 basis points compared to the third quarter of fiscal 2021. The decrease was primarily driven by increases in product, shrink and supply chain costs, a decline in Covid-related revenue due to administering fewer vaccines, partially offset by increased Covid at-home test kit revenue, and increases in picking and delivery costs related to the growth in digital sales, partially offset by the benefits of ongoing productivity initiatives.

Selling and administrative expenses decreased to 25.0 percent of Net sales and other revenue during the third quarter of fiscal 2022 compared to 25.4 percent during the third quarter of fiscal 2021. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 29 basis points. The decrease in Selling and administrative expenses was primarily attributable to the benefit of ongoing productivity initiatives and sales leverage, partially offset by market-driven wage rate increases, investments related to the acceleration of our digital and omnichannel capabilities and merger-related costs.

Net loss on property dispositions and impairment losses was USD 7.3 million during the third quarter of fiscal 2022 compared to net gain of USD 13.4 million during the third quarter of fiscal 2021.

Interest expense, net was USD 84.3 million during the third quarter of fiscal 2022 compared to USD 111.3 million during the third quarter of fiscal 2021.

Other expense, net was USD 1.7 million during the third quarter of fiscal 2022 compared to other income, net of USD 38.3 million during the third quarter of fiscal 2021.

Income tax expense was USD 120.9 million, representing a 24.4 percent effective tax rate, during the third quarter of fiscal 2022 compared to USD 98.4 million, representing a 18.8 percent effective tax rate, during the third quarter of fiscal 2021. The favorability in the effective income tax rate in the third quarter of fiscal 2021 was primarily driven by incremental discrete state income tax benefits related to expired statutes and audit settlements.

Net income was USD 375.5 million, or USD 0.20 per share, during the third quarter of fiscal 2022 compared to USD 424.5 million, or USD 0.74 per share, during the third quarter of fiscal 2021. Net income per share during the third quarter of fiscal 2022 includes a USD 0.45 per share reduction related to the Special Dividend that is attributable to holders of convertible preferred stock on an as-converted basis.

Adjusted net income was USD 505.1 million, or USD 0.87 per share, during the third quarter of fiscal 2022 compared to USD 457.2 million, or USD 0.79 per share, during the third quarter of fiscal 2021.

Adjusted Ebitda was USD 1,158.0 million, or 6.4 percent of Net sales and other revenue, during the third quarter of fiscal 2022 compared to USD 1,051.2 million, or 6.3 percent of Net sales and other revenue, during the third quarter of fiscal 2021.

Merger Agreement

On October 13, 2022, the Company 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 and convertible preferred stock (on an as-converted basis) for total consideration of USD 34.10 per share, subject to certain reductions including the Special Dividend (as defined below). Details regarding the Merger Agreement and the transactions contemplated by the Merger Agreement can be found in the Form 8-K filed on October 14, 2022 and the joint press release issued by the Company and Kroger on October 14, 2022.

Special Dividend

Separate from the Merger Agreement, on October 13, 2022, the Company declared a special cash dividend of USD 6.85 per share, payable to stockholders of record, including holders of convertible preferred stock on an as-converted basis, as of the close of business on October 24, 2022. The Special Dividend was to be paid on November 07, 2022. On November 01, 2022, the Attorney General for the State of Washington filed a motion for a temporary restraining order to prevent the payment of the Special Dividend. On November 03, 2022, a commissioner for the Superior Court of King County issued a temporary restraining order against the payment of the Special Dividend. On December 09, 2022, the Superior Court ruled in favor of the Company and denied the Washington Attorney General’s request for a preliminary injunction, but extended the temporary restraining order in order for the Washington Attorney General to seek review from the Washington Supreme Court. That same day, on December 09, 2022, the Washington Attorney General sought review from the Washington Supreme Court, asking that Court to review the denial of the preliminary injunction. On December 19, 2022, the commissioner of the Washington Supreme Court announced that the Court will, sitting en banc, consider the Washington Attorney General’s application for review. The commissioner’s order also extended the temporary restraining order against the payment of the Special Dividend. On December 28, 2022, the Court scheduled the en banc conference to take place on January 17, 2023. The Special Dividend of USD 3,921.3 million is recorded in Special dividend payable on the Condensed Consolidated Balance Sheets.