Albertsons Exceeds Expectations, but Sees Drop in Gross Margins

by Warren Seah

Albertsons Companies Inc. (ACI) faced a slight dip of 0.7% in its premarket trading on Tuesday, following the release of its fiscal third-quarter results. While the grocery-store chain reported profits and sales that surpassed expectations, it experienced a decline in gross margins.

Strong Financial Performance

Despite the margin setback, Albertsons managed to impress investors with its robust financial performance. The company disclosed a net income of $361.4 million, or 62 cents a share, for the quarter ending December 2. This was an improvement from last year’s profit of $375.5 million, or 20 cents a share. Even after adjusting for nonrecurring items, the adjusted earnings per share stood at 79 cents, exceeding the FactSet consensus of 65 cents.

Sales Growth and Impressive Same-Store Sales

The supermarket giant also revealed a growth of 2.2% in its sales, which amounted to $18.56 billion during the quarter. This surpassed the FactSet consensus estimate of $18.36 billion. Moreover, the company’s same-store sales, referring to sales from stores open for at least a year, also performed exceptionally well. With a growth rate of 2.9%, beating expectations of 2.5% growth, Albertsons credited this success to its “strong” pharmacy sales and a remarkable 21% surge in its digital business.

Factors Impacting Gross Margins

Although Albertsons enjoyed widespread success, it did experience a decrease of 0.64 percentage points in its gross margin (excluding fuel and LIFO expense). The company cited the substantial growth in its pharmacy operations, which operate at lower margin rates, as well as increases in shrink as contributing factors.

Stock Performance

Looking at the stock performance, Albertsons’ shares only showed a slight decline of less than 0.1% over the past three months until Monday. In comparison, Kroger shares demonstrated a growth of 3%, while the S&P 500 index rallied by an impressive 9.9%.

Overall, Albertsons delivered an outstanding financial performance in its fiscal third quarter, surpassing profit and sales expectations. However, it did encounter challenges with its gross margins due to specific operational factors. Despite this setback, the company’s stock has remained relatively steady, showcasing its resilience amidst market fluctuations.

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