Albertsons Companies, Inc. 2027 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining us.

Before we get started, I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in this morning's earnings release. Now, let me hand the call over to Susan Morris, the chief executive officer of Albertsons.

Susan? Thanks, Cody, and good morning.

Thank you all for joining us. Today's call is going to be a little different. Before Cody and I review the quarter and tell you about the big steps we're taking to accelerate Albertsons' progress, I've asked our new executive chair, Meg Whitman, to provide you with some of her thoughts and observations. Having access to Meg has allowed me to draw on the perspective of a veteran CEO who has grown companies, unlocked shareholder value, and managed an enormous array of challenges. Her insights are helping us refine our efforts. I want you to hear Meg's early impressions about the company. After Meg speaks, I'll provide a recap of our second quarter results and an assessment of our performance, discussing the actions we're taking to improve the business. Finally, Cody will cover our financial results in some more detail.

Meg, please take it away.

Thank you, Susan, and good morning, everyone. I want to spend a few minutes this morning sharing my perspective as I begin my role as Executive Chair. Over the past several weeks, I've spent some time with management, directors, associates, and customers and have been getting to know the business. While it's still early days, here are some observations. First, Albertsons has significant strengths. We operate strong local banners in many prime locations, serve millions of customers every week, generate substantial cash flow, and have talented associates who care deeply about serving their communities. Our pharmacy business is robust and a crucial part of our customers' lives. We've built a strong e-commerce platform and see AI as critical to our success. We have a proud history, and we want to win. That all said, our performance has fallen short. Sales and earnings growth have not met our expectations.

Market share trends have lagged, and despite many individual successes across the business, we're not delivering results consistent with the quality of our assets. We must turn things around. The first step is to take a hard look at the business, challenge assumptions, and decide what actions create the greatest value for customers and shareholders. That includes looking at opportunities to run the core business much better by improving the operational model and decision-making. It also includes improving the cost structure, reducing price for customers, and resetting priorities for improved capital allocation. We must also take a close look at our portfolio of banners, markets, assets, and businesses as well as at potential strategic actions we can take to enhance shareholder value. Susan and I agree that everything should be on the table as we figure out how Albertsons should be structured to better compete in the years ahead.

As I've worked with Susan and her leadership team, one thing has become increasingly clear. We must move faster to reduce costs, reinvest much of those savings into lower prices, improve the store experience for customers, grow traffic and share in core markets, drive ID sales and revenue, and improve returns for shareholders. Albertsons must become a simpler, more focused company that gets the basics right every day. I joined Albertsons because I believe the company has greater potential than its results have reflected. But dramatic improvement is needed now. Albertsons must move faster to change the trajectory of the business. What I have seen in Susan and her team is a renewed commitment to create long-term, sustainable shareholder value, all while staying focused on Albertsons customers and communities. I believe we will turn the corner. So with that, let me turn it back over to Susan.

Thanks, Meg. Before discussing where we're headed, I'd like to briefly address the quarter's results. Identical sales declined 0.8%. Adjusted EBITDA was $784 million, and adjusted EPS was $0.36 per share. On the top line, ID sales in our core grocery business sequentially improved versus the first quarter by approximately 20 basis points. At the same time, pharmacy script count growth remained strong despite increasing sales headwinds related to the Inflation Reduction Act and an ongoing shift from branded to generic prescriptions. E-commerce continued to deliver double-digit growth of 11% during the quarter. Let me characterize the quarter by saying we saw some early signs of improvement. Some of our cost takeout and in-store execution began to yield results in the quarter. Those gains, however, need to be accelerated to offset continued pressure in our core retail operation.

The reality right now is that the economy is tough for many of our customers. Fuel prices are elevated, and inflation remains stubbornly high for our customers and in our P&L. Traffic and units are below where they need to be, and our overall performance does not reflect the quality of our assets or the capabilities of our team. Simply put, we're not satisfied with the results and the current trajectory of our business. Over time, we launched a number of initiatives for good reasons and with the right intentions. Upon reflection, however, too many initiatives, processes, and layers of complexity have built up, slowing the organization and increasing the cost of running our business. I take responsibility for some of that complexity. We recognize the need to simplify how we work, sharpen accountability, and move with greater speed and discipline to deliver better results.

Going forward, our focus will be much narrower. Our resources will be concentrated on the right projects that most accelerate our results, and our expectations and accountability for results will be significantly higher. We must deliver more consistently for our customers. Price matters. Promotions matter. Freshness matters. Convenience, selection, and customer service matter. Our job going forward is to deliver all of those things better than we do today. Over the last several years, we've invested in e-commerce capabilities, loyalty, pharmacy, retail media, own brands, and fresh differentiation. Those are important investments that have increased the value to our customers. Now, we must double down on the basics. Our stores must provide the products our customers want at prices they want to see in the places and formats they love.

Going forward, we're evaluating every customer-facing investment against three outcomes: a stronger customer value proposition, improved traffic in units, and sustainable market share gains. Those outcomes will increasingly guide how we allocate resources and measure success. Earlier this year, we increased our cost savings program from 1.5 billion to $2 billion over the next three years. I believe there's more room to run there and at a faster pace. Last quarter, we also announced ACI Edge. ACI Edge began with two major structural changes, moving from 11 divisions to four regions and centralizing Center Store merchandising. We will accelerate ACI Edge to improve buying and find savings we can pass back to customers more aggressively. As we evaluate opportunities to accelerate cost savings and productivity, two areas stand out early.

The first is third-party spend or goods for resale and goods not for resale, where we believe there are meaningful opportunities to simplify, consolidate, and reduce costs across the organization. The second is store execution. We will improve inventory discipline, we will reduce shrink, and we will recommit to running our stores at the highest standards, which includes providing the best training to our associates. These steps and more, taken together, will improve the customer experience and ultimately our business results. Finally, we're taking a disciplined look at our portfolio. Albertsons has strong businesses, strong banners, and valuable assets, but not all assets create the same value. Going forward, we'll be more focused. We'll invest where we have a clear path to win. We'll exit areas that are underperforming. Before I hand it over to Cody, let me leave you with this thought.