Albertsons (ACI): Undervalued Grocer Positioned for Margin Expansion and Market Share Gains Through Pharmacy and Digital Synergy

In the evolving U.S. grocery landscape, where margin pressures and consumer fragmentation dominate, Albertsons Companies (ACI) stands out as a rare example of strategic reinvention. With a trailing twelve-month operating margin of 1.39% as of August 2025, the company appears undervalued relative to its transformative initiatives in pharmacy and digital commerce. These two pillars—pharmacy cross-selling and digital personalization—are not just driving revenue growth but also creating a compounding effect on margins, positioning Albertsons to outperform peers in a sector where net margins hover near 2%.

Pharmacy as a Profit Engine: Cross-Shopping and GLP-1 Synergy

Albertsons' pharmacy business has become a linchpin of its margin strategy. The segment delivered 15 consecutive quarters of double-digit sales growth in 2025, contributing 20% year-over-year growth in pharmacy and health services. This success stems from a unique dynamic: pharmacy customers visit four times more frequently than non-pharmacy shoppers, creating a captive audience for high-margin categories like supplements, lean proteins, and wellness products.

A critical edge lies in Albertsons' focus on GLP-1 weight-loss drug users. While these customers initially exhibit smaller basket sizes, they transition to higher-margin purchases over time. UBS estimates that every 100 basis points of pharmacy-driven cross-shopping could generate $0.50 of incremental earnings per share—a factor largely overlooked in current valuations. By 2026, this cross-selling could add 40 basis points to same-store sales growth, outpacing industry consensus.

Digital Transformation: Data-Driven Personalization and E-Commerce Scalability

Albertsons' digital strategy is equally compelling. E-commerce sales surged 25% year-over-year in 2025, reaching 9% of total grocery revenue—a figure that outpaces Kroger's 7% and is closing the gap with Walmart's 12%. The company's digital platform integrates four core touchpoints: e-commerce, loyalty, pharmacy, and mobile app. This ecosystem generates a feedback loop of customer data, enabling dynamic pricing, inventory optimization, and hyper-personalized promotions.

The financial implications are significant. UBS projects that e-commerce growth could drive $0.30 of incremental earnings per share by 2026, assuming digital sales reach 12% of total revenue. Albertsons' private-label penetration, now at 25.5%, further amplifies margins. Each 100 basis points of private-label growth adds 10 basis points to gross margins—a tailwind in a sector where net margins are stagnant.

Competitive Differentiation: Retail Media and Cross-Platform Attribution

Albertsons' partnership with The Trade Desk to measure incremental sales from in-store and digital ad placements is a game-changer. Unlike competitors like Kroger and Ahold Delhaize, Albertsons employs a cross-platform attribution model that links pharmacy, grocery, and digital interactions. This allows brands to allocate budgets more effectively, creating a new revenue stream for Albertsons. UBS estimates this initiative could contribute $0.15 of incremental earnings per share by 2026.

Margin Expansion and Valuation Case

Despite these strengths, Albertsons' stock trades at a discount to its intrinsic value. The company's operating margin has declined from 2.61% in Q2 2025 to 1.39% as of August 2025, masking the long-term margin tailwinds from pharmacy and digital initiatives. With gross margins at 27.47% TTM and private-label growth on track to hit 30% by 2026, Albertsons is poised to outperform peers in a sector where gross margins typically hover around 25%.

Investment Thesis

Albertsons is a compelling long-term play for investors seeking margin expansion in a fragmented retail sector. The company's pharmacy-driven cross-selling, digital personalization, and retail media innovations create a virtuous cycle of customer retention and margin uplift. While near-term operating margins may remain pressured due to inflationary costs and strategic investments, the compounding effects of these initiatives will become evident by 2026.

For risk-averse investors, a core position in ACI is warranted, given its defensive grocery business and high-conviction growth drivers. Aggressive investors may consider adding to positions on pullbacks, particularly if the stock underperforms due to short-term margin volatility. With a projected $0.95 of incremental earnings per share from pharmacy, digital, and retail media by 2026, Albertsons is undervalued at current levels.

In a market where margin expansion is elusive, Albertsons has found a formula that works—and it's time for investors to take notice.