Albertsons Raises Profit Guidance After Dropping Kroger Deal

Albertsons Companies (ACI) has raised its profit guidance for fiscal 2024 following the termination of its proposed merger with Kroger (KR). The grocery chain reported mixed fiscal 2024 third-quarter earnings on Wednesday, January 8, with revenue of $18.77 billion, up 1.2% but just missing the consensus analyst estimate of $18.82 billion. However, adjusted earnings per share (EPS) of $0.71 came in ahead of FactSet consensus estimates for $0.66. Overall, Albertsons' quarter was marked by minimal sales growth and solid efforts to maintain profitability.

MetricQ3 2024Q3 2023Change (YOY)Adjusted EPS$0.71$0.79(10.1%)Net income$400.6 million$361.4 million10.8%Revenue$18.77 billion$18.56 billion1.2%Adjusted EBITDA$1.07 billion$1.11 billion(3.7%)Source: Albertsons. Note: YOY = Year over year. EBITDA - Earnings before interest, taxes, depreciation, and amortization.

Albertsons operates as a major food and drug retailer in the U.S., with stores in 34 states and the District of Columbia. It holds a No. 1 or No. 2 market position in 70% of the metropolitan statistical areas it serves. The company has been focusing heavily on its omnichannel strategy, integrating in-store experiences with digital and delivery services. This approach aims to meet customer demand for flexibility and convenience.

Critical success factors for Albertsons include maintaining its market position, expanding its omnichannel capabilities, and managing its Own Brands portfolio. The company has reported significant progress in digital engagement and customer loyalty programs, acknowledging these as key areas for future growth and differentiation from competitors.

Quarterly Performance Insights

Albertsons' 1.2% net sales growth in the quarter was driven by a 2% increase in identical sales. Digital sales also contributed, spiking by 23% and reflecting effective customer engagement via digital platforms. These sales figures underscore the success of Albertsons' focus on omnichannel retailing.

Net income rose by 10.8% to $400.6 million from $361.4 million the previous year. However, Albertsons' adjusted net income fell to $420 million, suggesting ongoing margin challenges. Adjusted EBITDA also declined from $1.11 billion to $1.07 billion, indicating pressure on profitability, partly due to increased costs in areas like digital sales fulfillment and pharmacy sales.

Gross margin dipped slightly to 27.9% from 28% in the previous year. Selling and administrative expenses increased to 25.1% of net sales. The rise in expenses was linked to merger-related costs from its terminated effort to merge with Kroger (KR) and higher store occupancy costs, impacting overall profitability for the quarter.

Notably, Albertsons reported a 15% increase in its loyalty program membership, reaching 44.3 million. This growth aligns with its strategic focus on enhancing customer engagement under the Customers for Life initiative. The company also announced a 25% hike in its quarterly dividend to $0.15 per share, which demonstrates its commitment to returning value to shareholders despite the challenges.

Looking Ahead

Looking forward, Albertsons updated its fiscal 2024 guidance, anticipating identical sales growth between 1.8% and 2.0% (down from a prior estimated range of 1.8% to 2.2%) and adjusted EBITDA in the range of $3.95 to $3.99 billion (previously $3.90 billion to $3.98 billion). To bolster growth, the company is emphasizing digital transformation and omnichannel capabilities as part of its strategic focus.

Albertsons faces ongoing challenges, including inflationary pressures and the legal fallout from a court-enforced injunction against its merger with Kroger. These issues pose both financial and reputational risks. Investors should watch how Albertsons manages these hurdles while advancing its strategic initiatives in digital engagement and customer loyalty.




In conclusion, Albertsons' updated profit guidance reflects its confidence in its standalone business model, with a focus on digital transformation and omnichannel capabilities. Despite the termination of its merger with Kroger, the company remains committed to driving growth and profitability through strategic initiatives in digital engagement and customer loyalty. Investors should monitor Albertsons' progress in managing its challenges and executing its strategic plan.