Dive Brief:

• Albertsons reported its sixth straight quarter of identical sales growth with a 1.5% increase for the first quarter ending June 15, the company announced in its earnings release. Gross profit margin increased to 28%, while selling and administrative expenses dropped to 26.2%.
• Digital and e-commerce sales grew 33%, a slowdown from the 52% growth it saw in Q4. Sales penetration of the company’s Own Brands reached 25.3%.
• The company’s adjusted EBITDA increased 7.5% to $876.8 million in Q1, compared to $815.8 million the year prior. The adjustment is attributed to higher fuel margins, increased sales and cost reduction efforts. Albertsons’ net debt leverage reduced to 3.3x at the end of Q1.

Dive Insight:

CEO Vivek Sankaran gave a rosy outlook to investors on the company's earnings call Wednesday morning, saying Albertsons has momentum in sales and a decreasing debt load, giving it more financial flexibility. As the company’s position improves, an IPO could still be in the company's future, CFO Bob Dimond said. 

Since being appointed CEO in April, Sankaran has visited stores and facilities and spoken with customers, associates, bankers and analysts to better understand Albertsons' business. 

"I’ve come away very encouraged about our prospects to serve our customers even better in-store and online and elevate our performance going forward," Sankaran said on the call.  

Technology is going to be a driving force for Albertsons, Sankaran said. The company plans to accelerate its e-commerce growth through a focus on fresh and local assortment, enhanced websites and mobile apps and improved communication with customers. 

Albertsons has expanded its Drive-Up and Go pickup service to more than 300 stores, and plans to add 300 more by the end of fiscal year 2019. The company will continue to partner with Instacart for grocery delivery, which is currently available at all 13 divisions in 2,000 stores.

Sankaran noted plans to build a more economical and scalable e-commerce model using micro-fulfillment centers. He also highlighted the company’s deployment of more self-checkout systems and plans to use enhanced demand forecasting systems for labor and inventory management. 

"The acceleration of these investments in fiscal 2019 is part of a concerted effort to better utilize technology, automation and AI across all elements of our business," he said.  

Digital marketing and loyalty programs also saw continued growth in Q1. Registration for Albertsons' customer loyalty program grew 24% year over year, and the company completed the rollout of its Just 4 U loyalty program to Jewel, Acme and Shaws, so customers can now participate in the program at all banners. 

While e-commerce and technology are integral to Albertsons' growth, its brick-and-mortar footprint remains essential, too. The company is accelerating its remodels, with plans to complete 280 to 300 updates and open 15 to 17 new stores this year. In Q1, Albertsons opened six new stores and remodeled 28. 

Private label continues to grow, too. In Q1, the company launched 234 new items, with plans to add more than 600 new items in total this year. Albertsons' O Organics and Open Nature brands grew 11.5% over last year, and now represent nearly 22.6% of natural and organic sales at Albertsons banners. 

During a question-and-answer session on the earnings call, Albertsons was asked about the threat of a workers' strike in Southern California. Sankaran said about two-thirds of Albertsons' labor force is unionized, and negotiations take place annually. Current negotiations are proceeding well, he said. A question was also posed about proposed cuts to the Supplemental Nutrition Assistance Program. Dimond said that SNAP sales only represent 3% of total sales for Albertsons, and any changes would have a minor impact on the company's identical sales.