Albertsons Companies, Inc.: Form 10-Q for the period ended Nov 30, 2024

FORWARD-LOOKING STATEMENTS AND FACTORS THAT IMPACT OUR OPERATING RESULTS AND TRENDS

This Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws. The "forward-looking statements" include our current expectations, assumptions, estimates and projections about our business and our industry. They include statements relating to our future operating or financial performance which the Company believes to be reasonable at this time. You can identify forward-looking statements by the use of words such as "outlook," "may," "should," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future" and "intends" and similar expressions which are intended to identify forward-looking statements.

These statements are not guarantees of future performance and are subject to numerous risks and uncertainties which are beyond our control and difficult to predict and could cause actual results to differ materially from the results expressed or implied by the statements. Risks and uncertainties that could cause actual results to differ materially from such statements and may adversely impact our financial condition and results of operations include:

• the termination of the Merger Agreement and our inability to successfully optimize our value-creating initiatives following the termination of the Merger Agreement;
• litigation in connection with the previously pending Merger and the termination of the Merger Agreement, resulting in:
• ongoing costs, including damages that we may be required to pay in connection with the lawsuit against Kroger or our inability to collect the $600 million termination fee from Kroger, all of which could be substantial; and
• negative reactions from the financial markets and our suppliers, customers, and associates;
• significant transaction costs related to the previously pending Merger;
• our inability to execute on our standalone business strategies following the termination of the Merger Agreement due to prolonged uncertainties and restrictions on our business during the pendency of the Merger;
• our ability to recruit and retain qualified associates who are critical to the success of our Customers for Life strategy;
• changes in macroeconomic conditions such as rates of food price inflation or deflation, fuel and commodity prices and expiration of student loan payment deferments;
• changes in price of goods sold in our stores and cost of goods used in our food products due to change in government regulations such as tariffs;
• changes in consumer behavior and spending due to the impact of macroeconomic factors;
• failure to achieve productivity initiatives, unexpected changes in our objectives and plans, inability to implement our strategies, plans, programs and initiatives, or enter into strategic transactions, investments or partnerships in the future on terms acceptable to us, or at all;
• changes in wage rates and ability to negotiate acceptable contracts with labor unions;
• challenges with our supply chain;
• operational and financial effects resulting from cyber incidents at the Company or at a third party, including outages in the cloud environment and the effectiveness of business continuity plans during a ransomware or other cyber incident; and
• changes in tax rates, tax laws, and regulations that directly impact our business or our customers.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements and risk factors. Forward-looking statements contained in this Form 10-Q reflect our view only as of the date of this Form 10-Q. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In evaluating our financial results and forward-looking statements, you should carefully consider the risks and uncertainties more fully described in the "Risk Factors" section or other sections in our reports filed with the SEC including the most recent annual report on Form 10-K and any subsequent periodic reports on Form 10-Q and current reports on Form 8-K.

As used in this Form 10-Q, unless the context otherwise requires, references to "Albertsons," the "Company," "we," "us" and "our" refer to Albertsons Companies, Inc. and, where appropriate, its subsidiaries.

NON-GAAP FINANCIAL MEASURES

We define EBITDA as GAAP earnings (net loss) before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as earnings (net loss) before interest, income taxes, depreciation and amortization, further adjusted to eliminate the effects of items management does not consider in assessing our ongoing core performance. We define Adjusted net income as GAAP Net income adjusted to eliminate the effects of items management does not consider in assessing our ongoing core performance. We define Adjusted net income per Class A common share as Adjusted net income divided by the weighted average diluted Class A common shares outstanding, as adjusted to reflect all RSUs and RSAs outstanding at the end of the period, as well as the conversion of Convertible Preferred Stock when it is antidilutive for GAAP. See "Results of Operations" for further discussion and a reconciliation of Adjusted EBITDA, Adjusted net income and Adjusted net income per Class A common share.

EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per Class A common share (collectively, the "Non-GAAP Measures") are performance measures that provide supplemental information we believe is useful to analysts and investors to evaluate our ongoing results of operations, when considered alongside other GAAP measures such as net income, operating income, gross margin and net income per Class A common share. These Non-GAAP Measures exclude the financial impact of items management does not consider in assessing our ongoing core operating performance, and thereby provide useful measures to analysts and investors of our operating performance on a period-to-period basis. Other companies may have different definitions of Non-GAAP Measures and provide for different adjustments, and comparability to our results of operations may be impacted by such differences. We also use Adjusted EBITDA for board of director and bank compliance reporting. Our presentation of Non-GAAP Measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Non-GAAP Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Non-GAAP Measures only for supplemental purposes.

THIRD QUARTER OF FISCAL 2024 OVERVIEW

We are one of the largest food retailers in the United States, with 2,273 stores across 34 states and the District of Columbia as of November 30, 2024. We operate more than 20 well known banners including Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw's, Star Market, United Supermarkets, Market Street, Haggen, Kings Food Markets and Balducci's Food Lovers Market, with approximately 285,000 talented and dedicated employees, as of November 30, 2024, who serve on average 35.9 million customers each week. Additionally, as of November 30, 2024, we operated 1,732 pharmacies, 1,337 in-store branded coffee shops, 405 associated fuel centers, 22 dedicated distribution centers, 19 manufacturing facilities and various digital platforms.

During the third quarter of fiscal 2024, we continued to execute on our Customers for Life strategy, which is centered around driving customer growth and engagement through digital connection, enhancing the customer value proposition, modernizing capabilities through technology and driving productivity. We continue to invest in growth through our four digital platforms of eCommerce, Loyalty, Pharmacy & Health and the use of our mobile app in our stores. Collectively, these digital platforms generate growth opportunities for the Albertsons Media Collective ("AMC"). We continue to invest significantly in AMC, building industry-leading technologies to expand the reach of our brand and fuel one of the largest opportunities for reinvestment into our core business.

Identical sales, excluding fuel, increased 2.0% during the third quarter of fiscal 2024. We continued to invest in new merchandising initiatives and our loyalty offerings and we also deepened digital connection and engagement with our customers. During the third quarter of fiscal 2024, digital sales, which include home delivery and Drive Up & Go curbside pickup, increased 23% compared to the third quarter of fiscal 2023, as the expansion of our services and continued innovation in digital offerings resonated with customers. Loyalty members increased 15% to 44.3 million in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.

Customer needs for value have evolved due to inflationary pressure and so are our strategies to address those needs as we work with our vendor partners to strategically invest in price in certain categories and markets. In Own Brands, we continue to focus on providing our customers with products they trust through innovation and providing a better value, given a more price conscious customer. During the third quarter of fiscal 2024, we launched 82 new items, primarily in our new brand Overjoyed, which was created to enhance celebrations.

We endeavor to use technology in everything we do and over the last few years we have invested strategically to have technology be the key enabler to all major growth and productivity initiatives. These investments have included migrating to the Cloud; launch of end-to-end eCommerce capabilities; enabling self-checkout; digitization of pharmacy and health; implementing productivity tools to manage store operation functions such as replenishment, shrink and labor; and embed automation across our supply chain network.

Our capital allocation strategy balances investing for the future, strengthening our balance sheet and returns to shareholders through a combination of dividends and opportunistic share repurchases. Capital expenditures were approximately $1,447 million during the first 40 weeks of fiscal 2024, primarily including the completion of 84 remodels, the opening of nine new stores and continued investment in our digital and technology platforms. Capital returns to shareholders during the first 40 weeks of fiscal 2024 included $208.5 million of common stock dividends ($0.36 per common share). On December 11, 2024, we increased the quarterly cash dividend from $0.12 per common share to $0.15 per common share.

Termination of the Merger Agreement

As previously disclosed, on October 13, 2022, the Company, The Kroger Co. ("Kroger") and Kettle Merger Sub, Inc., a wholly owned subsidiary of Kroger ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub would have been merged with and into the Company (the "Merger"), with the Company surviving the Merger as the surviving corporation and a direct, wholly owned subsidiary of Kroger. On December 10, 2024, subsequent to the end of the third quarter of fiscal 2024, the United States District Court for the District of Oregon issued a preliminary injunction in the case Federal Trade Commission et al. v. The Kroger Company and Albertsons Companies, Inc. (Case No.: 3:24-cv-00347-AN), whereby the court enjoined the consummation of the Merger. In light of the preliminary injunction, and in accordance with Section 8.1(e) of the Merger Agreement, the Company exercised its right to terminate the Merger Agreement and sent a notice to Kroger on December 10, 2024 terminating the Merger Agreement. Also on December 10, 2024, the King County Superior Court for the State of Washington issued a permanent injunction in the case State of Washington v. Kroger Co. et al (Case No.: 24-2-00977-9 SEA) whereby it enjoined the consummation of the Merger. For additional information about the termination of the Merger Agreement, see Note 2 - Termination of the Merger Agreement in the unaudited interim Condensed Consolidated Financial Statements located elsewhere in this Form 10-Q.

Third quarter of fiscal 2024 highlights

In summary, our financial and operating highlights for the third quarter of fiscal 2024 include:

• Identical sales increased 2.0%
• Digital sales increased 23%
• Loyalty members increased 15% to 44.3 million
• Net income of $401 million, or $0.69 per Class A common share
• Adjusted net income of $420 million, or $0.71 per Class A common share
• Adjusted EBITDA of $1,065 million

Stores

The following table shows stores operating, opened and closed during the periods presented:

The following table summarizes our stores by size:

(1) In millions, reflects total square footage of retail stores operating at the end of the period.

RESULTS OF OPERATIONS

Comparison of the Third Quarter of Fiscal 2024 and the First 40 weeks of Fiscal 2024 to the Third Quarter of Fiscal 2023 and the First 40 weeks of Fiscal 2023.

The following tables and related discussion set forth certain information and comparisons regarding the components of our Condensed Consolidated Statements of Operations for the 12 and 40 weeks ended November 30, 2024 ("third quarter of fiscal 2024" and "first 40 weeks of fiscal 2024") and 12 and 40 weeks ended December 2, 2023 ("third quarter of fiscal 2023" and "first 40 weeks of fiscal 2023") (dollars in millions, except per share data).

Net Sales and Other Revenue

Net sales and other revenue increased 1.2% to $18,774.5 million for the third quarter of fiscal 2024 from $18,557.3 million for the third quarter of fiscal 2023. The increase in Net sales and other revenue was driven by our 2.0% increase in identical sales, with strong growth in pharmacy sales being the primary driver of the identical sales increase. We also continued to grow our digital sales during the third quarter of fiscal 2024. The increase in Net sales and other revenue was partially offset by lower fuel sales.

Net sales and other revenue increased 1.1% to $61,591.4 million for the first 40 weeks of fiscal 2024 from $60,898.2 million for the first 40 weeks of fiscal 2023. The increase in Net sales and other revenue was primarily driven by our 1.9% increase in identical sales, with strong growth in pharmacy sales being the primary driver of the identical sales increase. We also continued to grow our digital sales during the first 40 weeks of fiscal 2024. The increase in Net sales and other revenue was partially offset by lower fuel sales.

Identical Sales, Excluding Fuel

Identical sales include stores operating during the same period in both the current year and the prior year, comparing sales on a daily basis. Direct to consumer digital sales are included in identical sales, and fuel sales are excluded from identical sales. Acquired stores become identical on the one-year anniversary date of the acquisition. Identical sales for the 12 and 40 weeks ended November 30, 2024 and the 12 and 40 weeks ended December 2, 2023, respectively, were:

The following table represents Net sales and other revenue by product type (dollars in millions):

(1) Digital related sales are included in the categories to which the revenue pertains.

(2) Consists primarily of general merchandise, grocery, dairy and frozen foods.

(3) Consists primarily of produce, meat, deli and prepared foods, bakery, floral and seafood.

(4) Consists primarily of wholesale revenue to third parties, commissions, rental income and other miscellaneous revenue.

Gross Margin

Gross margin represents the portion of Net sales and other revenue remaining after deducting Cost of sales during the period, including purchase and distribution costs. These costs include, among other things, purchasing and sourcing costs, inbound freight costs, product quality testing costs, warehouse and distribution costs, Own Brands program costs and digital-related delivery and handling costs. Advertising, promotional expenses and vendor allowances are also components of Cost of sales.

Gross margin rate decreased to 27.9% during the third quarter of fiscal 2024 compared to 28.0% during the third quarter of fiscal 2023. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 27 basis points compared to the third quarter of fiscal 2023. The strong growth in pharmacy sales, which carries an overall lower gross margin rate, and increases in picking and delivery costs related to the continued growth in our digital sales were the primary drivers of the decrease, partially offset by the benefits from our productivity initiatives.

Gross margin rate was unchanged at 27.8% during both the first 40 weeks of fiscal 2024 and the first 40 weeks of fiscal 2023. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 30 basis points compared to the first 40 weeks of fiscal 2023. The strong growth in pharmacy sales, which carries an overall lower gross margin rate, and increases in picking and delivery costs related to the continued growth in our digital sales were the primary drivers of the decrease, partially offset by the benefits from our productivity initiatives.

Selling and Administrative Expenses

Selling and administrative expenses consist primarily of store level costs, including wages, employee benefits, rent, depreciation and utilities, in addition to certain back-office expenses related to our corporate and division offices.

Selling and administrative expenses increased to 25.1% of Net sales and other revenue during the third quarter of fiscal 2024 compared to 24.8% during the third quarter of fiscal 2023. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue increased six basis points. The increase in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to Merger-related costs and an increase in occupancy costs including third-party store security services, partially offset by the leveraging of employee costs and benefits from our productivity initiatives.

Selling and administrative expenses increased to 25.6% of Net sales and other revenue during the first 40 weeks of fiscal 2024 compared to 25.0% of Net sales and other revenue for the first 40 weeks of fiscal 2023. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue increased 45 basis points during the first 40 weeks of fiscal 2024 compared to the first 40 weeks of fiscal 2023. The increase in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to an increase in operating expenses related to the ongoing development of our digital and omnichannel capabilities, Merger-related costs, higher employee costs and increased store occupancy costs including additional third-party store security services, partially offset by the benefits from our productivity initiatives.

Loss on Property Dispositions and Impairment Losses, Net

For the third quarter of fiscal 2024, net loss on property dispositions and impairment losses was $10.2 million, primarily driven by $6.0 million of retail store impairment losses and $4.2 million of net losses from the sale of real estate assets and equipment disposals. For the third quarter of fiscal 2023, net loss on property dispositions and impairment losses was $23.9 million, primarily driven by the write-off of certain technology assets, partially offset by net gains from the sale of real estate assets.

For the first 40 weeks of fiscal 2024, net loss on property dispositions and impairment losses was $59.4 million, primarily driven by $62.7 million of asset impairments including impairment losses of $39.8 million primarily related to equipment from the closing of our micro-fulfillment centers, $19.5 million of retail store impairment losses and $3.5 million related to certain technology assets, partially offset by $3.3 million of net gains from the sale of real estate assets. For the first 40 weeks of fiscal 2023, net loss on property dispositions and impairment losses was $43.1 million, primarily driven by the write-off of certain technology assets, partially offset by net gains from the sale of real estate assets.

Interest Expense, Net

Interest expense, net was $109.0 million during the third quarter of fiscal 2024 compared to $116.3 million during the third quarter of fiscal 2023. The decrease in interest expense, net was primarily attributable to lower average outstanding borrowings. The weighted average interest rate during both the third quarter of fiscal 2024 and third quarter of fiscal 2023 was 5.6%, excluding amortization and write-off of deferred financing costs and original issue discount.

Interest expense, net was $358.3 million during the first 40 weeks of fiscal 2024 compared to $383.1 million during the first 40 weeks of fiscal 2023. The decrease in interest expense, net was primarily attributable to lower average outstanding borrowings. The weighted average interest rate during both the first 40 weeks of fiscal 2024 and first 40 weeks of fiscal 2023 was 5.6%, excluding amortization and write-off of deferred financing costs and original issue discount.

Other (Income) Expense, Net

For the third quarter of fiscal 2024, other income, net was $5.6 million compared to other income, net of $6.7 million for the third quarter of fiscal 2023. Other income, net during the third quarter of fiscal 2024 was primarily driven by unrealized gains from non-operating investments and non-service cost components of net pension and post-retirement expense. Other income, net during the third quarter of fiscal 2023 was primarily driven by realized and unrealized gains from non-operating investments and non-service cost components of net pension and post-retirement income, partially offset by unrealized losses from non-operating investments.

For the first 40 weeks of fiscal 2024, other expense, net was $0.3 million compared to other income, net of $14.6 million for the first 40 weeks of fiscal 2023. Other expense, net during the first 40 weeks of fiscal 2024 was primarily driven by non-service cost components of net pension and post-retirement expense and unrealized gains and losses from non-operating investments. Other income, net during the first 40 weeks of fiscal 2023 was primarily driven by non-service cost components of net pension and post-retirement income, realized and unrealized gains from non-operating investments and income related to our equity interest and gain on sale of El Rancho in the first quarter of fiscal 2023, partially offset by realized and unrealized losses from non-operating investments.

Income Taxes

Income tax expense was $14.5 million, representing a 3.5% effective tax rate, for the third quarter of fiscal 2024. Income tax expense was $95.1 million, representing a 20.8% effective tax rate, for the third quarter of fiscal 2023. The decrease in the effective income tax rate in the third quarter of fiscal 2024 was primarily driven by the recognition of $81.0 million of discrete state income tax benefits related to the settlement of audits.

Income tax expense was $124.7 million, representing a 13.7% effective tax rate, for the first 40 weeks of fiscal 2024. Income tax expense was $228.7 million, representing a 17.9% effective tax rate, for the first 40 weeks of fiscal 2023. The decrease in the effective income tax rate was primarily driven by the recognition of $81.0 million of discrete state income tax benefits related to audit settlements, compared to a reduction of a reserve of $49.7 million for an uncertain tax position due to the expiration of a foreign statute during the first quarter of fiscal 2023.

Net Income and Adjusted Net Income

Net income was $400.6 million, or $0.69 per Class A common share, during the third quarter of fiscal 2024 compared to $361.4 million, or $0.62 per Class A common share, during the third quarter of fiscal 2023. The third quarter of fiscal 2024 included the $81.0 million or $0.14 per share benefit related to certain discrete state income tax benefits related to the settlement of audits. Adjusted net income was $420.3 million, or $0.71 per Class A common share, during the third quarter of fiscal 2024 compared to $462.3 million, or $0.79 per Class A common share, during the third quarter of fiscal 2023.

Net income was $786.8 million, or $1.35 per Class A common share, during the first 40 weeks of fiscal 2024 compared to $1,045.5, or $1.80 per Class A common share, during the first 40 weeks of fiscal 2023. The first 40 weeks of fiscal 2024 included the $81.0 million or $0.14 per share benefit related to certain discrete state income tax benefits related to the settlement of audits, and the first 40 weeks of fiscal 2023 included the $49.7 million or $0.09 per share benefit related to the reduction in the reserve for an uncertain tax position. Adjusted net income was $1,112.9 million, or $1.88 per Class A common share, during the first 40 weeks of fiscal 2024 compared to $1,375.7 million, or $2.34 per Class A common share (which includes the $49.7 million tax benefit discussed above), during the first 40 weeks of fiscal 2023.

Adjusted EBITDA

For the third quarter of fiscal 2024, Adjusted EBITDA was $1,065.1 million, or 5.7% of Net sales and other revenue, compared to $1,106.5 million, or 6.0% of Net sales and other revenue, for the third quarter of fiscal 2023. For the first 40 weeks of fiscal 2024, Adjusted EBITDA was $3,149.6 million, or 5.1% of Net sales and other revenue, compared to $3,401.9 million, or 5.6% of Net sales and other revenue for the first 40 weeks of fiscal 2023.

Reconciliation of Non-GAAP Measures

The following table reconciles Net income to Adjusted net income and Adjusted EBITDA (in millions):

30

The following tables reconcile diluted net income per Class A common share to Adjusted net income per Class A common share (in millions, except per share data):

(1) Includes costs associated with third-party consulting fees related to our Customers for Life strategy and associated business transformation initiatives.

(2) Primarily relates to third-party legal and advisor fees and retention program expense related to the Merger.

(3) Miscellaneous adjustments include the following (see table below):

(i) Primarily includes adjustments for pension settlement loss, unconsolidated equity investments and other costs not considered in our core performance.

(4) See reconciliation of Net income to Adjusted net income above for further details.

(5) Represents the conversion of convertible preferred stock to the fully outstanding as-converted Class A common shares as of the end of each respective period, for periods in which the convertible preferred stock is antidilutive under GAAP.

(6) Represents incremental unvested RSUs and unvested RSAs to adjust the diluted weighted average Class A common shares outstanding during each respective period to the fully outstanding RSUs and RSAs as of the end of each respective period.

(7) Reflects the per share impact of Non-GAAP adjustments for each period. See the reconciliation of Net income to Adjusted net income above for further details.

Non-GAAP adjustment classifications within the Condensed Consolidated Statements of Operations:

(a) Cost of sales

(b) Selling and administrative expenses

(c) Interest expense, net

(d) (Gain) loss on energy hedges, net:

(e) Depreciation and amortization:

(f) Miscellaneous adjustments:

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth the major sources and uses of cash and cash equivalents and restricted cash for each period (in millions):

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $1,922.1 million for the first 40 weeks of fiscal 2024 compared to $1,730.8 million for the first 40 weeks of fiscal 2023. The increase in cash flow from operations compared to the first 40 weeks of fiscal 2023 was due to changes in working capital, primarily related to lower inventory, as well as less cash paid for taxes, legal settlements, multiemployer pension withdrawal liabilities and interest, partially offset by a decrease in Adjusted EBITDA, higher Merger-related costs and an increase in contributions to our defined benefit pension plans during the first 40 weeks of fiscal 2024.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1,416.5 million for the first 40 weeks of fiscal 2024 compared to $1,328.8 million for the first 40 weeks of fiscal 2023.

For the first 40 weeks of fiscal 2024, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $1,446.7 million, partially offset by proceeds from the sale of assets of $24.1 million, primarily related to real estate. Payments for property, equipment and intangibles in the first 40 weeks of fiscal 2024 included the completion of 84 remodels, the opening of nine new stores and continued investment in our digital and technology platforms. For the first 40 weeks of fiscal 2023, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $1,535.0 million, partially offset by proceeds from the sale of assets of $201.3 million, primarily related to the sale of our equity interest in El Rancho during the first quarter of fiscal 2023. Payments for property, equipment and intangibles in the first 40 weeks of fiscal 2023 included the completion of 115 remodels, the opening of five new stores and continued investment in our digital and technology platforms.

Net Cash Used in Financing Activities

Net cash used in financing activities was $492.3 million during the first 40 weeks of fiscal 2024 compared to net cash used in financing activities of $638.6 million during the first 40 weeks of fiscal 2023.

Net cash used in financing activities during the first 40 weeks of fiscal 2024 consisted primarily of the $250.0 million repayment of the ABL Facility, dividends paid on our Class A common stock, payments of obligations under finance leases and tax withholding payments on vesting of RSUs, partially offset by $50.0 million of proceeds from the issuance of long-term debt under the ABL Facility. Net cash used in financing activities during the first 40 weeks of fiscal 2023 consisted primarily of the $500.0 million partial repayment of the ABL Facility, dividends paid on our Class A common stock, payments of obligations under finance leases and tax withholding payments on vesting of RSUs, partially offset by $150.0 million of proceeds from the issuance of long-term debt under the ABL Facility.

Dividends

We have established a dividend policy pursuant to which we intend to pay a quarterly dividend on our Class A common stock. Cash dividends paid on our Class A common stock were $208.5 million ($0.36 per common share) and $207.1 million ($0.36 per common share) during the first 40 weeks of fiscal 2024 and first 40 weeks of fiscal 2023, respectively. On December 11, 2024, subsequent to the end of the third quarter of fiscal 2024, we announced that the Board of Directors (the "Board") increased the quarterly cash dividend 25% from $0.12 per common share to $0.15 per common share. On January 8, 2025, we announced the next quarterly dividend payment of $0.15 per share of Class A common stock to be paid on February 7, 2025 to stockholders of record as of the close of business on January 24, 2025.

Common Stock Repurchase Program

On December 11, 2024, subsequent to the end of the third quarter of fiscal 2024, we announced that the Board has authorized a share repurchase program of up to $2.0 billion of our common stock, inclusive of the existing authorization. The share repurchase program could include open market repurchases, accelerated share repurchase programs, tender offers, block trades, potential privately negotiated transactions, or trading plans in compliance with the federal securities laws.

Liquidity

Based on current operating trends, we believe that we have significant sources of cash to meet our liquidity needs for the next 12 months and for the foreseeable future, including cash on hand, cash flows from operating activities and other sources of liquidity, including the ABL Facility. We estimate our liquidity needs over the next 12 months to be approximately $5.0 billion, which includes anticipated requirements for working capital, capital expenditures, pension obligations, interest payments, quarterly dividends on Class A common stock, operating leases and finance leases. In addition, we may enter into refinancing and sale leaseback transactions from time to time. We believe we have adequate cash flow to continue to maintain our current debt ratings and to respond effectively to competitive conditions.

As of November 30, 2024, we had no borrowings outstanding under our ABL Facility and total availability of $3,962.8 million (net of letter of credit usage).

CRITICAL ACCOUNTING POLICIES

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a fair and consistent manner. See the Critical Accounting Policies section included in our Annual Report on Form 10-K for the fiscal year ended February 24, 2024, filed with the SEC on April 22, 2024, for a discussion of our significant accounting policies.

RECENTLY ISSUED AND RECENTLY ADOPTED ACCOUNTING STANDARDS

See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of our unaudited interim Condensed Consolidated Financial Statements located elsewhere in this Form 10-Q.

There have been no material changes in our exposure to market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended February 24, 2024, filed with the SEC on April 22, 2024.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this Form 10-Q, our Principal Executive Officer and Principal Financial Officer concluded our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factors previously included in our Annual Report on Form 10-K for the fiscal year ended February 24, 2024, filed with the SEC on April 22, 2024, under the heading "Risk Factors" are updated by the following:

Risks Relating to the Terminated Merger with Kroger

Our inability to execute on our standalone business strategies following the termination of the Merger Agreement could have a material adverse effect on our business, results of operations, and financial condition.

The uncertainties and restrictions on our business during the pendency of the Merger limited us from pursuing business opportunities and taking actions during this period. If we are unable to successfully optimize the acceleration of our Customers for Life strategy and other value-creating initiatives, our business, operating results or financial condition could be materially adversely affected.

The termination of the Merger Agreement and the related legal proceedings may cause us to incur substantial costs and could otherwise adversely affect our business, financial results and operations.

As disclosed elsewhere in this Form 10-Q, the Company has filed a lawsuit against Kroger in the Delaware Court of Chancery, bringing claims for willful breach of contract and breach of the covenant of good faith and fair dealing arising from Kroger's failure to exercise "best efforts" and to take "any and all actions" to secure regulatory approval, as was required of Kroger under the terms of the Merger Agreement. Kroger also delivered a termination notice to the Company, alleging that the Company's termination notice was not effective, and that Kroger had no obligation to pay the $600 million termination fee because the Company allegedly failed to perform and comply in all material respects with its covenants under the Merger Agreement. In addition to our litigation with Kroger, we may face other lawsuits related to the terminated Merger. We intend to vigorously defend against these and any other legal proceedings arising from the terminated Merger Agreement, but due to the uncertainties inherent in any legal proceedings, we cannot predict an outcome. Also, legal proceedings are expensive and could result in significant costs to us, including any damages we may be required to pay in connection with the lawsuit against Kroger. Such significant damages and our inability to collect the termination fee of $600 million from Kroger could have a material adverse effect on our business, operating results, and financial condition.

We have incurred significant transaction costs in connection with the terminated Merger which we may not be able to recover, and which could adversely affect our business, financial results and operations.

We have incurred substantial costs in connection with the terminated Merger. Since the Merger Agreement has been terminated, we will have received little or no benefit in respect of such costs incurred. We may also experience negative reactions from the financial markets and our suppliers, customers, and employees with regard to legal proceedings related to the termination of the Merger Agreement. Any of these factors could have a material adverse effect on our business, operating results, and financial condition or on the trading price of our common stock.

If we cannot successfully recruit and retain qualified personnel our operating results and stock price may suffer.

We believe that our success is directly linked to the competent people in the Company, including our executive officers and other key personnel. Personnel turnover can be costly and could materially and adversely impact our operating results and potentially jeopardize the success of our Customers for Life strategy. Our business and stock price may be adversely impacted if we fail to retain and recruit key personnel.