Dive Brief:
- Albertsons reported identical sales growth of 2.7% for the third quarter of fiscal 2019, according to a company release, with strong e-commerce and private label sales contributing to the top line. This was the eighth straight quarter of identical sales growth for the chain.
- Online sales, including home delivery and click-and-collect, grew 34% during the quarter. Adjusted EBITDA totaled $634 million, ahead of company expectations, while net sales for the quarter grew 1.9%, to $14.1 billion.
- Albertsons has reduced its debt by $1.8 billion so far this year, bringing it net debt to EBITDA ratio to 3.0x compared to 3.9x a year ago. This puts it "in the right zone" for a possible initial public offering, CEO Vivek Sankaran said during Tuesday’s earnings call.
Dive Insight:
Albertsons has long sought an IPO under the ownership of Cerberus Capital Management, which tied up with the grocery chain more than 13 years ago. The company experienced a setback in 2018 when investors pulled away from a proposed merger with Rite Aid, but another push could be on the horizon as the grocer’s debt shrinks and sales grow.
Albertsons has tightened its belt operationally and has also turned to sale leasebacks of stores and distribution centers to pay down its debt. Bob Dimond, Albertsons’ chief financial officer, said the company is also benefiting from lower interest rates. Reflecting on the company’s net debt to EBITDA ratio, he said investment banking groups the company has spoken with are "feeling very comfortable" with Albertsons standing, noting its lower debt level "creates a lot of financial flexibility, whether it be an IPO or what other types of things that we may want to do."
In addition to debt reduction, Albertsons has pushed forward with digital initiatives, store remodels and other measures to improve sales. Private label now makes up more than a quarter of its total sales, and sign-ups for its Just for U personalized loyalty program increased 25% over last year. Just for U Members spend on average $8 to $10 a week more at Albertsons.
Drive Up & Go, the company’s click-and-collect program, currently runs out of 548 stores and will scale up to around 1,400 locations over the next two years, Sankaran noted. He said he sees a runway for growth to as many as 2,000 locations.
Albertsons also offers delivery chainwide, and said it sees shoppers who buy both in-store and online spending 28% more with the company.
The Boise, Idaho-based grocer is currently testing two micro-fulfillment facilities (MFC) in the San Francisco Bay Area that are picking orders four times faster than traditional in-store fulfillment, Sankaran said. The facilities, built in partnership with Takeoff Technologies, hold 25,000 fast-moving nonperishable products, with perishable items fulfilled from the attached store.
Sankaran said those results are promising but declined to outline expansion plans for additional micro-fulfillment facilities. Last month, Albertsons and Takeoff announced they had formed a strategic partnership aimed at further developing MFC technology.
"Our early learnings indicate improved picking efficiency, better inventory management as well as improved on-time delivery," Sankaran said.
Across fiscal 2019, Albertsons plans to remodel between 230 and 240 stores. Sankaran said a store update typically lifts identical sales two to three points. He also said Albertsons’ store updates are becoming more effective, and that the company is getting better at identifying which stores need a facelift.
