Albertsons Companies, Inc.: Form 10-Q for the period ended Jun 14, 2025

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:

• changes in macroeconomic conditions such as rates of food price inflation or deflation, fuel and commodity prices and uncertainty in international trade including current and potential future tariffs;
• changes in consumer behavior and spending patterns resulting from macroeconomic conditions, including shifts in state and federal assistance programs;
• changes in wage rates and our ability to negotiate acceptable contracts with labor unions, including the outcome of pending union negotiations;
• changes in price of goods sold in our stores and cost of goods used in our food products due to changes in various state and federal government regulations;
• uncertainty regarding the geopolitical environment;
• our inability to execute on our standalone business and value-creating strategies following the termination of the merger agreement with Kroger due to prolonged uncertainties and restrictions on our business during the pendency of the merger;
• litigation in connection with the previously pending merger and the termination of the merger agreement, resulting in ongoing costs 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, and negative reactions from the financial markets and our suppliers, customers, and associates as a result of the litigation;
• our ability to recruit and retain qualified associates who are critical to the success of our Customers for Life strategy;
• 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;
• 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 outstanding at the end of the period. 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.

FIRST QUARTER OF FISCAL 2025 OVERVIEW

We are one of the largest food retailers in the United States, with 2,264 stores across 35 states and the District of Columbia as of June 14, 2025. We operate 22 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 June 14, 2025, who serve on average 36.8 million customers each week. Additionally, as of June 14, 2025, we operated 1,725 pharmacies, 1,313 in-store branded coffee shops, 408 associated fuel centers, 22 dedicated distribution centers, 19 manufacturing facilities and various digital platforms.

During the first quarter of fiscal 2025, 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 ("The Collective"). We continue to invest significantly in The Collective, building industry-leading, integrated solutions 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 2.8% during the first quarter of fiscal 2025. 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 first quarter of fiscal 2025, digital sales, which include Drive Up & Go curbside pickup and home delivery, increased 25% compared to the first quarter of fiscal 2024, as our focus on delivering an exceptional service experience is fueling new customer acquisition and strengthening existing customer retention. We continue to enhance our digital shopping experience, introducing emerging technologies and interactive features that deliver both ease and convenience. Loyalty members increased 14% to 47.3 million in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

To improve our customer value proposition, we intentionally invested in value, in both loyalty and promotional offerings, as well as by partnering with strategic vendors to 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 offering products at an attractive price point. During the first quarter of fiscal 2025, we expanded the assortment in our recently introduced Overjoyed brand, and launched our newest brand, Chef's Counter, an innovative, chef-inspired meal solution.

We endeavor to use technology in everything we do and over the last few years we have invested strategically to build a best-in-class technology platform, with our core infrastructure in the Cloud and a modernized scalable network. This advanced technology platform, on which we are continuing to innovate, powers our eCommerce, store, pharmacy, supply chain, merchandising and media collective operations, and is allowing us to leverage emerging technologies to accelerate our operational transformation going forward.

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 $585 million during the first quarter of fiscal 2025, primarily including the completion of 36 remodels, the opening of three new stores and continued investment in our digital and technology platforms. Capital returns to shareholders during the first quarter of fiscal 2025 included $85.7 million of common stock dividends ($0.15 per common share) and the repurchase of 14.2 million shares of common stock for a total of $314.8 million.

First quarter of fiscal 2025 highlights

In summary, our financial and operating highlights for the first quarter of fiscal 2025 include:

• Identical sales increased 2.8%
• Digital sales increased 25%
• Loyalty members increased 14% to 47.3 million
• Net income of $236 million, or $0.41 per Class A common share
• Adjusted net income of $319 million, or $0.55 per Class A common share
• Adjusted EBITDA of $1,111 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 First Quarter of Fiscal 2025 to the First Quarter of Fiscal 2024.

The following tables and related discussion set forth certain information and comparisons regarding the components of our Condensed Consolidated Statements of Operations for the 16 weeks ended June 14, 2025 ("first quarter of fiscal 2025") and 16 weeks ended June 15, 2024 ("first quarter of fiscal 2024") (dollars in millions, except per share data).

Net Sales and Other Revenue

Net sales and other revenue increased 2.5% to $24,880.8 million for the first quarter of fiscal 2025 from $24,265.4 million for the first quarter of fiscal 2024. This increase in Net sales and other revenue was primarily driven by a 2.8% 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 quarter of fiscal 2025. These increases in Net sales and other revenue were 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 16 weeks ended June 14, 2025 and the 16 weeks ended June 15, 2024, respectively, were:

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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, media advertising revenue and other miscellaneous revenue.

Gross Margin

Gross margin rate decreased to 27.1% during the first quarter of fiscal 2025 compared to 27.8% during the first quarter of fiscal 2024. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 85 basis points compared to the first quarter of fiscal 2024. This decrease in gross margin rate was primarily driven by incremental investments in our customer value proposition, strong growth in pharmacy sales, which carries an overall lower gross margin rate, and increases in delivery and handling costs related to the continued growth in our digital sales, partially offset by the benefits from our productivity initiatives, which included reductions in shrink expense.

Selling and Administrative Expenses

Selling and administrative expenses decreased to 25.4% of Net sales and other revenue during the first quarter of fiscal 2025 compared to 25.9% of Net sales and other revenue for the first quarter of fiscal 2024. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue decreased 63 basis points compared to the first quarter of fiscal 2024. This decrease in Selling and administrative expenses as a percentage of Net sales and other revenue was primarily attributable to lower Merger-related costs, the leveraging of employee costs and operating expenses related to the continued development of our digital platforms and modernization of our technology, partially offset by increases in legal, professional and outside services as well as business transformation costs. The benefits from our productivity initiatives continue to help offset increasing wage rates and other inflationary pressures on our operating expenses.

(Gain) Loss on Property Dispositions and Impairment Losses, Net

For the first quarter of fiscal 2025, net gain on property dispositions and impairment losses was $31.9 million, primarily driven by $45.5 million of net gains primarily from the sale of real estate assets, partially offset by $11.4 million from the impairment and disposal of certain technology assets and $2.2 million of retail store impairment losses. For the first quarter of fiscal 2024, net loss on property dispositions and impairment losses was $5.3 million, primarily driven by the impairment of certain technology assets.

Interest Expense, Net

Interest expense, net was $141.8 million during the first quarter of fiscal 2025 compared to $145.7 million during the first quarter of fiscal 2024. This decrease in interest expense, net was primarily attributable to lower average outstanding borrowings. The weighted average interest rate during both the first quarter of fiscal 2025 and first quarter of fiscal 2024 was 5.6%, excluding amortization and write-off of deferred financing costs and original issue discount.

Other (Income) Expense, Net

For the first quarter of fiscal 2025, other income, net was $3.9 million compared to other expense, net of $4.0 million for the first quarter of fiscal 2024. Other income, net during the first quarter of fiscal 2025 was primarily driven by non-service cost components of net pension and post-retirement expense, partially offset by unrealized losses from non-operating investments. Other expense, net during the first quarter of fiscal 2024 was primarily driven by unrealized losses from non-operating investments, partially offset by non-service cost components of net pension and post-retirement expense.

Income Taxes

Income tax expense was $75.0 million during the first quarter of fiscal 2025, representing a 24.1% effective tax rate. Income tax expense was $69.2 million during the first quarter of fiscal 2024, representing a 22.3% effective tax rate. This increase in the effective income tax rate was primarily driven by the reduction of a reserve for an uncertain tax position due to the expiration of a state statute in the first quarter of fiscal 2024.

Net Income and Adjusted Net Income

Net income was $236.4 million, or $0.41 per Class A common share, during the first quarter of fiscal 2025 compared to $240.7 million, or $0.41 per Class A common share, during the first quarter of fiscal 2024. Adjusted net income was $318.9 million, or $0.55 per Class A common share, during the first quarter of fiscal 2025 compared to $391.6 million, or $0.66 per Class A common share, during the first quarter of fiscal 2024.

Adjusted EBITDA

For the first quarter of fiscal 2025, Adjusted EBITDA was $1,111.0 million, or 4.5% of Net sales and other revenue, compared to $1,183.9 million, or 4.9% of Net sales and other revenue, for the first quarter of fiscal 2024.

Reconciliation of Non-GAAP Measures

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

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):

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(1) Includes costs associated with third-party consulting fees related to our Customers for Life strategy and employee termination costs, as follows (see table below):

(2) The first quarter of fiscal 2025 primarily relates to litigation costs and retention program expense related to the terminated merger. The first quarter of fiscal 2024 primarily includes third-party legal and advisor fees and retention program expense related to the Merger.

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

(i) Includes adjustments for the financial impact of other items not considered in our core performance.

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

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

(6) 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) Depreciation and amortization:

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(e) 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 $754.4 million for the first quarter of fiscal 2025 compared to $960.9 million for the first quarter of fiscal 2024. The decrease in cash flow from operating activities during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was due to a decrease in Adjusted EBITDA, cash paid for property taxes and self-insurance claims, changes in working capital, primarily related to inventory and accounts payable, and increases in business transformation costs and contributions to our defined benefit pension plans, partially offset by lower Merger-related costs.

Net Cash Used in Investing Activities

Net cash used in investing activities was $474.1 million for the first quarter of fiscal 2025 compared to $538.0 million for the first quarter of fiscal 2024.

For the first quarter of fiscal 2025, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $584.6 million, partially offset by proceeds from the sale of assets of $78.2 million, primarily related to real estate. Payments for property, equipment and intangibles in the first quarter of fiscal 2025 included the completion of 36 remodels, the opening of three new stores and continued investment in our digital and technology platforms. For the first quarter of fiscal 2024, cash used in investing activities consisted primarily of payments for property, equipment and intangibles of $543.0 million. Payments for property, equipment and intangibles in the first quarter of fiscal 2024 included the completion of 17 remodels, the opening of one new store and continued investment in our digital and technology platforms.

Net Cash Used in Financing Activities

Net cash used in financing activities was $422.9 million during the first quarter of fiscal 2025 compared to $320.8 million during the first quarter of fiscal 2024.

Net cash used in financing activities during the first quarter of fiscal 2025 consisted primarily of the repurchase of common stock, dividends paid on our Class A common stock and tax withholding payments on vesting of RSUs, partially offset by $25.0 million of proceeds from the ABL Facility. We also had a $600.0 million issuance and subsequent $600.0 million redemption of senior unsecured notes (as further discussed below under the caption Debt Management). Net cash used in financing activities during the first quarter of fiscal 2024 consisted primarily of the $200.0 million repayment of the ABL Facility, dividends paid on our Class A common stock and tax withholding payments on vesting of RSUs.

Debt Management

As of June 14, 2025, we had $25.0 million borrowings outstanding under our ABL Facility and total availability of $3,947.6 million (net of letter of credit usage).

On March 11, 2025, we completed the issuance of $600.0 million in aggregate principal amount of 6.250% senior unsecured notes due March 15, 2033 (the "2033 Notes"). Interest on the 2033 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, with the first payment commencing on September 15, 2025. On March 17, 2025, proceeds from the 2033 Notes, together with approximately $5.7 million of cash on hand, were used to (i) redeem in full the $600.0 million outstanding of our 7.500% senior unsecured notes due March 15, 2026 and (ii) pay fees and expenses related to the issuance of the 2033 Notes.

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 $85.7 million ($0.15 per common share) and $69.5 million ($0.12 per common share) during the first quarter of fiscal 2025 and first quarter of fiscal 2024, respectively. On July 15, 2025, we announced the next quarterly dividend payment of $0.15 per share of Class A common stock to be paid on August 8, 2025 to stockholders of record as of the close of business on July 25, 2025.

Common Stock Repurchase Program

The Board has authorized a multi-year share repurchase program of up to $2.0 billion of our common stock. 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. During the first quarter of fiscal 2025, we repurchased an aggregate of 14.2 million shares of common stock for a total of $314.8 million.

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 $5.5 billion, which includes anticipated requirements for incremental working capital, capital expenditures, pension obligations, interest payments, quarterly dividends on Class A common stock, common stock repurchases, 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.

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 22, 2025, filed with the SEC on April 21, 2025, 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 22, 2025, filed with the SEC on April 21, 2025.

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 first quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously included in our Annual Report on Form 10-K for the fiscal year ended February 22, 2025, filed with the SEC on April 21, 2025, under the heading "Risk Factors".