Albertsons Companies, Inc. Reports First Quarter Fiscal 2024 Results

Albertsons Companies, Inc. (NYSE: ACI) (the "Company") today reported results for the first quarter of fiscal 2024, which ended June 15, 2024.

First Quarter of Fiscal 2024 Highlights

• Identical sales increased 1.4%
• Digital sales increased 23%
• Loyalty members increased 15% to 41.4 million
• Net income of $241 million, or $0.41 per share
• Adjusted net income of $392 million, or $0.66 per share
• Adjusted EBITDA of $1,184 million

"In the first quarter of fiscal 2024, we continued to invest in our Customers for Life strategy and the digital and omnichannel capabilities necessary to support it," said Vivek Sankaran, CEO. "Our Customers for Life strategy is placing the customer at the center of everything we do, and we continued to drive strong year-over-year growth in loyalty members as we launched our new simplified 'for U' loyalty program. Amidst an evolving economic and industry backdrop, we continued to deliver outsized growth in our digital and pharmacy businesses."

Sankaran added, "We want to thank our teams for their ongoing commitment to serving our customers and supporting our communities."

Sankaran concluded, "As we look ahead to the balance of fiscal 2024, we expect to see continuing headwinds related to investments in associate wages and benefits, an increasing mix of our pharmacy and digital businesses which carry lower margins, and the cycling of prior year food inflation. We expect these headwinds to be partially offset by ongoing productivity initiatives."

First Quarter of Fiscal 2024 Results

Net sales and other revenue was $24.3 billion during the 16 weeks ended June 15, 2024 ("first quarter of fiscal 2024") compared to $24.1 billion during the 16 weeks ended June 17, 2023 ("first quarter of fiscal 2023"). The increase was driven by the Company's 1.4% increase in identical sales, with strong growth in pharmacy sales driving the identical sales increase. We also continued to grow our digital sales with a 23% increase during the first quarter of fiscal 2024. The increase in Net sales and other revenue was partially offset by lower fuel sales.

Gross margin rate increased to 27.8% during the first quarter of fiscal 2024 compared to 27.7% during the first quarter of fiscal 2023. Excluding the impact of fuel and LIFO expense, gross margin rate decreased 22 basis points compared to the first quarter of fiscal 2023. The strong growth in pharmacy sales, which carries an overall lower gross margin rate, increases in shrink, 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 our procurement and sourcing productivity initiatives.

Selling and administrative expenses increased to 25.9% of Net sales and other revenue during the first quarter of fiscal 2024 compared to 25.0% during the first quarter of fiscal 2023. Excluding the impact of fuel, Selling and administrative expenses as a percentage of Net sales and other revenue increased 79 basis points. 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, increased store occupancy costs and additional third-party store security services, partially offset by the benefit of productivity initiatives.

Net loss on property dispositions and impairment losses was $5.3 million during the first quarter of fiscal 2024 compared to $27.6 million during the first quarter of fiscal 2023.

Interest expense, net was $145.7 million during the first quarter of fiscal 2024 compared to $154.9 million during the first quarter of fiscal 2023. The decrease in interest expense, net was primarily attributable to lower average outstanding borrowings.

Other expense, net was $4.0 million during the first quarter of fiscal 2024 compared to other income, net of $16.0 million during the first quarter of fiscal 2023.

Income tax expense was $69.2 million, representing a 22.3% effective tax rate, during the first quarter of fiscal 2024 compared to $66.1 million, representing a 13.7% effective tax rate, during the first quarter of fiscal 2023. The increase in the effective income tax rate in the first quarter of fiscal 2024 was primarily due to the reduction of a reserve for an uncertain tax position due to the expiration of a statute during the first quarter of fiscal 2023.

Net income was $240.7 million, or $0.41 per share, during the first quarter of fiscal 2024. Net income was $417.2 million, or $0.72 per share, during the first quarter of fiscal 2023, which 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 $391.6 million, or $0.66 per share, during the first quarter of fiscal 2024 compared to $545.7 million, or $0.93 per share (which includes the tax benefit discussed above), during the first quarter of fiscal 2023.

Adjusted EBITDA was $1,183.9 million, or 4.9% of Net sales and other revenue, during the first quarter of fiscal 2024 compared to $1,318.5 million, or 5.5% of Net sales and other revenue, during the first quarter of fiscal 2023.

Capital Expenditures

During the first 16 weeks of fiscal 2024, capital expenditures were $543.0 million, which primarily included the completion of 17 remodels, the opening of one new store and continued investment in our digital and technology platforms.

Merger Agreement

As previously announced, on October 13, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Kroger Company and Kettle Merger Sub, Inc. Under the terms of the Merger Agreement, subject to regulatory approval, Kroger (through Kettle Merger Sub, Inc.) will acquire all of the outstanding shares of the Company's common stock (the "Merger"). Details regarding the Merger Agreement and the transactions contemplated by the Merger Agreement are available in our Quarterly Report on Form 10-Q for the first quarter of fiscal 2024 filed with the Securities and Exchange Commission ("SEC") on July 23, 2024.

About Albertsons Companies

Albertsons Companies is a leading food and drug retailer in the United States. As of June 15, 2024, the Company operated 2,269 retail food and drug stores with 1,725 pharmacies, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Company operates stores across 34 states and the District of Columbia under more than 20 well known banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market. The Company is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. In 2023, along with the Albertsons Companies Foundation, the Company contributed more than $350 million in food and financial support, including more than $35 million through our Nourishing Neighbors Program to ensure those living in our communities and those impacted by disasters have enough to eat.

Forward-Looking Statements and Factors That Impact Our Operating Results and Trends

This press release includes "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, our industry and the outcome of the Merger. 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 include:

• uncertainties related to the Merger, including our ability to close the transactions contemplated by the Merger Agreement, and the impact of the costs related to the Merger;
• erosion of consumer confidence in our business as a result of the Merger;
• restrictions on our ability to operate as a result of the Merger Agreement;
• challenges in retaining and motivating our associates until the closing of the Merger, particularly following the public announcement of the locations to be divested, with difficulties in attracting new employees during the pendency of the Merger;
• litigation related to the transactions contemplated by the Merger Agreement;
• 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 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, ability to attract and retain qualified associates and negotiate acceptable contracts with labor unions;
• availability and cost of goods used in our food products;
• 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 may adversely impact our financial condition and results of operations.

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 press release reflect our view only as of the date of this press release. 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.

Additional Information and Where to Find It

The Company has filed with the SEC a definitive information statement on Schedule 14C with respect to the approval of the Merger and has mailed the definitive information statement to the Company's stockholders. You may obtain copies of all documents filed by the Company with the SEC regarding this transaction, free of charge, at the SEC's website, www.sec.gov or from the Company's website at https://www.albertsonscompanies.com/investors/overview/.

Non-GAAP Measures and Identical Sales

Non-GAAP Measures. EBITDA, Adjusted EBITDA, Adjusted net income, Adjusted net income per Class A common share and Net debt ratio (collectively, the "Non-GAAP Measures") are performance measures that provide supplemental information the Company believes is useful to analysts and investors to evaluate its 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 the Company's ongoing core operating performance, and thereby provide useful measures to analysts and investors of its 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 the Company's results of operations may be impacted by such differences. The Company also uses Adjusted EBITDA and Net debt ratio for board of director and bank compliance reporting. The Company's presentation of Non-GAAP Measures should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.

Identical Sales. As used in this earnings release, the term "identical sales" includes stores operating during the same period in both the current fiscal year and the prior fiscal 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.

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