Ahead of its long-proposed merger with Kroger
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Albertsons bucked market predictions as its adjusted earnings per share (EPS) were eroded by less than expected for its second quarter, ending September 9.
It reported adjusted net income of $367.7 million, or $0.63 per share, down 12% from $418.3 million, $0.72 per share, above consensus expectations.
Net sales and other revenue reached $18.3 billion for the second quarter of fiscal 2023, up 2% from $17.9 billion during the prior-year period, with a 19% increase in digital sales and retail price inflation across most categories the primary contributors, according to Albertsons.
However, gross margin rate decreased to 27.6% during the second quarter of fiscal 2023 compared to 27.9% during the second quarter of fiscal 2022, reflecting in part tough trading conditions and the consumer squeeze.
In connection with the merger with Kroger, announced in October last year, on September 8, 2023, Alberrtsons and Kroger confirmed that they had entered into a definitive agreement with rival C&S Wholesale Grocers for the sale of a collection of stores, banners, distribution centers, offices and private label brands.
However, analyst Morningstar pointed to the proposed divestment of 413-650 Albertsons stores to C&S and said that it was still still concerned about regulatory uncertainty as “C&S stands to have 600-750 units, while the combined Kroger/Albertsons would have a meaningfully larger 4,600-unit footprint.”
Kroger To Sell SpinCo
Also on September 8, Kroger notified Albertsons that, in accordance with the merger agreement, Kroger intends to sell the SpinCo business to C&S. As a result, the spin-off previously contemplated (to help navigate competition concerns) is no longer a requirement under the deal.
Morningstar added: “We see Albertsons as a step behind narrow-moat Kroger in key areas like digital fulfillment, private-label, and data analytics (loyalty membership was up 17% to 37.4 million), yet management has made progress in narrowing the gap.
“Ultimately though, the company is hamstrung by its smaller size relative to its potential acquirer (Kroger’s full-year revenue of $148 billion is nearly double Albertsons’ $78 billion), but we believe it remains in a better position than smaller rivals that do not possess its ability to leverage costs.”
Albertsons Sees Headwinds
“During the second quarter, we continued to execute against our ‘Customers for Life’ transformation strategy and drive solid operating results, despite increasing macro-economic headwinds,” said Vivek Sankaran, CEO, Albertsons. “We are also mindful of a more challenging economic backdrop, including declining federal and state government assistance and higher interest rates, and their effects on consumer spending and our business.”
“We also expect slowing food inflation, ongoing labor investment, broad inflationary cost increases and significant declines in Covid-19 vaccination and test kit revenue. We continue to partially offset these headwinds with the benefits of our productivity initiatives,” he added.
As of Sept. 9, 2023, Boise, Idaho-based Albertsons Companies Inc. operated 2,272 retail food and drug stores with 1,726 pharmacies, 401 fuel centers, 22 distribution centers and 19 manufacturing facilities.
The company operates stores across 34 states and D.C., trading under 24 banners including Albertsons, Safeway
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