Grocery chain operator Albertsons Cos. Inc reported online sales grew about 243% year over year during its second fiscal quarter ended Sept. 12.
Total revenue rose 11.2% to $15.76 billion for the quarter, compared with $14.18 billion during the comparable quarter last year. Albertsons says a 13.8% increase in identical sales drove the revenue increase. Lower fuel sales partially offset the increase. Identical sales also benefited from the growth in digital orders and an increase in sales in stores.
In an Oct. 20 conference call with analysts, Albertsons CEO Vivek Sankaran said the retailer has gained market share and benefited from ramping up its omnichannel capacity since the pandemic-related shutdowns started in March. He said many shoppers using options like home delivery and curbside pickup—which Albertsons calls Drive Up and Go—have increased their spending with Albertsons but did not offer specific numbers.
“Importantly, all income segments have increased their spend with us. We watched the impact of the recession closely, and we are increasing our traction even with lower-income shoppers, who generally come a bit more often and spend less per trip,” Sankaran said during the call, according to a transcript from Seeking Alpha.
Sankaran said the rapid acceleration of its digital and ecommerce offerings is a strategic priority for the retailer. “We continue to make exceptional progress in ecommerce both pickup and delivery,” he said. “Digital sales grew 243% year over year in Q2, driven by new customer acquisition facilitated in part by the addition of over 200 Drive Up and Go stores.”
Albertsons now has 950 curbside pickup locations. It’s on track to have Drive Up and Go available at 1,400 stores at the end of this fiscal year and at least 1,800 locations by the end of fiscal 2021, Sankaran said during the call.
Changing algorithms
In an Oct. 21 webinar hosted by the National Retail Federation, Sankaran said the coronavirus pandemic caused the company to throw out old assumptions and respond day to day to a dramatically different marketplace.
Among the changes in consumer behavior, customers are shopping less frequently but buying more on each trip, Sankaran says. Also, he said the mix of in-demand products shows consumers are cooking at home more often than before the COVID-19 crisis. That second change is particularly noticeable in the baking aisle, he says. ”We can’t keep it full,” he said.
Before the pandemic, the retailer planned to increase its digital sales by about 30% per year. That changed with the COVID-19 lockdowns. “In March, we just couldn’t keep up with the demand,” Sankaran said. That required Albertsons to hire new staff quickly and adapt its planning to match the new reality.
“We had to change the algorithms… because the algorithms are learning algorithms, they learn from the past,” Sankaran said, referring to the predictive computer programs the retailer uses to plan inventory and personal needs and other aspects of its operation. “But when tomorrow is so dramatically different from today, there’s no learning in that algorithm, so you have to change everything.”
More than ever, consumers want an omnichannel experience, Sankaran said. Drive Up and Go is Albertsons’ fastest-growing omnichannel service, he said.
Albertsons also reported gross profit margin increased to 29.0% during the second quarter of fiscal 2020 compared with 27.8% during the second quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 85 basis points than the second quarter of fiscal 2019. Continued improvements in shrink expenses and sales leverage on advertising and supply chain costs were the primary drivers of the increased gross profit margin, the retailer says. Gross profit margin also benefited from changes in the mix of items the retailer sold, Albertsons reported.
As of Sept. 12, Albertsons operated 2,252 retail food and drug stores with 1,725 pharmacies, 398 associated fuel centers, 22 dedicated distribution centers and 20 manufacturing facilities. The retailer 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.
For the 12 weeks ended Sept. 12, Albertsons reported:
- Identical sales growth of 13.8%.
- Revenue of $15.76 billion for the quarter, up 11.2% compared with $14.18 billion in the comparable quarter in 2019.
- Digital sales growth of 243% compared with the year-ago quarter.
- Net income of $284.5 million, down 3.5% from $294.8 million in Q2 2019. Net income for Q2 2019 included the benefit of gains related to sale-leaseback transactions. In such transactions, a company sells an asset (such as real estate) to raise capital, then lease that asset from the purchaser.
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $948.4 million increased 67% compared with $567.6 million in Q2 2019.
- Debt refinancing and paydown transactions to deliver approximately $52 million in annualized interest savings.
For the 28 weeks ended Sept. 12, Albertsons reported:
- Revenue of $38.51 billion, up 17.0% from $32.92 billion for the comparable period in 2019.
- Net income of $870.7 million, up 153.3% from $343.8 million in the year-ago period.
- Gross profit margin increased to 29.5% during the first 28 weeks of fiscal 2020 compared with 27.9% during the first 28 weeks of fiscal 2019.
- Adjusted EBITDA of $2.634 billion, up 82.9%, compared with $1.44 billion, during the first 28 weeks of fiscal 2019.
Albertsons also provided updated guidance for fiscal 2020. It expects:
- Identical sales in fiscal 2020 of at least 15.5%.
- Adjusted earnings per share in the range of $2.75 to $2.85.
- Adjusted EBITDA in the range of $4.15 billion to $4.25 billion.
- An effective tax rate of about 25%, excluding discrete items.
- Capital expenditures of approximately $1.9 billion.
Percentage changes may not align exactly with dollar figures due to rounding.
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