Albertsons reported an 11% year-over-year increase in digital sales in its fiscal second quarter, which ended Sept. 12. The growth came as overall revenue slipped and the grocery retailer announced a comprehensive business review to accelerate its turnaround.
In Q2, Albertsons’ net sales and other revenue totaled $18.89 billion. That was down 0.1% from $18.92 billion a year earlier. Identical sales, which include sales from stores operating in both periods as well as ecommerce channels, fell 0.8%.
Although Q2 results met Albertsons’ revised outlook, executives said the business was not delivering the sales and earnings growth they expected.
Inflation and elevated fuel prices continue to weigh on shoppers, particularly lower-income consumers. Many are trading down to less expensive products and buying more private-label goods, CEO Susan Morris said during the retailer’s earnings call.
To improve performance, Albertsons plans to accelerate cost cuts, reinvest savings in lower prices and exit underperforming operations. Morris also signaled that further workforce reductions could be ahead.
“There is significant potential in our business, but our performance has not reflected that potential,” Morris said. “Our responsibility now is to close that gap and to close it fast.”
Albertsons, which operates more than 20 grocery banners, including its namesake chain, Safeway, Vons and Jewel-Osco, ranks No. 17 in the Top 1000 Database. The market research tool ranks North America’s largest online retailers by their annual ecommerce sales.
Albertsons’ ecommerce growth comes with higher fulfillment costs
Q2 marked Albertsons’ 18th consecutive quarter of double-digit ecommerce growth. Digital sales accounted for 10.5% of total sales, interim chief financial officer Cody Perdue told analysts, unchanged from the previous quarter.
However, fulfilling the grocer’s growing ecommerce business placed pressure on margins. During Q2, Albertsons’ gross margin narrowed to 26.8% from 27.0% a year earlier. This was mainly due to higher digital delivery and handling costs, as well as increased inventory losses, according to the company’s earnings release.
Perdue said the inventory losses were primarily associated with the cyclospora outbreak, which also hurt produce sales. Separately, the Inflation Reduction Act’s impact on pharmacy sales, a continued shift toward generic prescriptions and declining egg prices weighed on identical sales.
Even with those pressures, loyalty membership continued to grow. Customers actively engaged with Albertsons’ platforms and rewards programs spend three to four times as much as those who are not, Morris said.
Pharmacy also remained a strength, with identical sales growth and improved profitability. Morris said pharmacy customers have larger baskets and greater lifetime value.
Albertsons plans deeper cost cuts and targeted price reductions
The review builds on Albertsons’ existing turnaround efforts, which Morris said have not improved sales and market share quickly enough. She acknowledged that too many initiatives had added complexity and slowed the business.
“Going forward, our focus will be much narrower,” she said.
Central to that effort is ACI Edge, an operating model realignment announced in July. It consolidated Albertsons’ 11 divisions into four regions and brought center-store merchandising under one team. Albertsons plans to accelerate those changes while reducing purchasing costs and inventory losses and improving store execution.
Negotiations with its largest suppliers are already underway. Morris said Albertsons will use purchasing savings and other cost cuts to fund more competitive prices and promotions. The retailer is also expanding its emphasis on own-brand products.
Those price cuts will target specific markets and product categories. Morris described the approach as “methodical, data-driven.”
“Our goal is not to be the cheapest guy in town, but rather to have the right balanced value proposition that resonates with the customers that we serve uniquely by market,” she said
Albertsons reviews underperforming businesses
Alongside the operating changes, Albertsons is reviewing its stores, markets and other businesses to determine where to invest and where to exit. Morris said the company will direct more investment toward “the markets where we’re very strong.”
Administrative costs are another target.
“We did some work last year and saw a substantial reduction in headcount,” Morris said, “but quite frankly, there’s more to be had, and you’ll see us taking aggressive action there in the next 12 to 18 months as well.”
The broader aim is to sharpen store execution and customer value following years of investment in ecommerce, loyalty and other businesses.
“Those are important investments that have increased the value to our customers,” Morris said. “Now, we must double down on the basics.”
Albertsons has withdrawn its fiscal 2026 financial outlook while it completes the review. By its fourth-quarter earnings call, the retailer expects to present a detailed turnaround plan and updated financial outlook, including an expanded cost reduction program and a framework for pricing improvements, Perdue said.
How Albertsons is using AI to improve operations
Artificial intelligence (AI) is also part of the retailer’s push to improve execution and reduce costs. Morris said Albertsons’ AI investments support its turnaround priorities. These include faster decisions about product assortment, pricing and promotions through what it calls “merch intelligence.”
Other priorities include improving store labor productivity and demand forecasting. Better forecasts could help Albertsons keep products in stock while optimizing inventory, she said.
“AI is absolutely essential, complementary, and we’re not waiting,” Morris said. “Some of it will come later, but some of it’s helping us right now.”
That work extends to Albertsons’ recently expanded partnership with OpenAI. The partnership includes ChatGPT Enterprise for employee workflows, along with custom AI-powered customer experiences, data-driven recommendations and promotional insights built using OpenAI technology.
In August, Albertsons also launched a ChatGPT plugin for its Safeway banner.
On the customer side, Albertsons has reported higher spending and engagement among shoppers using its AI-powered conversational search and planning tools. On the first-quarter earnings call, Morris said retention trends were also improving as adoption increased.
Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s article on Albertsons digital sales.
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