Q1 2021 Albertsons Companies Inc Earnings Call
[music].
Thank you for standing by welcome to the Albertsons company's first quarter 2021earnings conference call. All participants will be in listen only mode until the Q&A session. This call is being recorded.
After the presentation there'll be an opportunity to ask questions I would now like to hand.
Hello virtue of Melissa place on G. P P Treasurer and Investor Relations. Please go ahead.
Good morning, and thank you for joining us for Albertsons Company's first quarter 2021 earnings conference call with me today from the company are Vivek Schenker in our president and CEO and Bob Diamond our CFO.
The F O today, Vivek will share insights into our first quarter results as well as review our progress against our strategic priorities. Bob will then provide the financial details of our first quarter as well as updated full year 2021 outlook before handing it back over to Vivek for some closing remarks.
After management's comments, we will conduct a Q&A session.
I would like to remind you that management may make statements. During this call that are or could include forward looking statements within the meaning of the federal securities laws.
Forward looking statements are not limited to historical facts, but contain information about future operating or financial performance forward looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated these risks and.
Auntie's include those related to the COVID-19 pandemic additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements are and will be contained from time to time in our SEC filings, including on forms 10-Q, 10-K and <unk>.
K 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 as a result of new information future events or otherwise.
Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures and the historical financial information includes a reconciliation of net income 2 adjusted net income and adjusted EBITDA and with that I will hand, the call over to the back.
Good morning, everyone and thanks for joining us today.
Really uncharted territory in Q1 with comparisons to last year's stock up period from the.
Gradually opening will be reached geography's cause vaccination groups eczema rooted cobra diluted restrictions were lifted.
This dynamic environment.
We remained focused on executing our strategy.
Further growth deepening relationships with our customers and leveraging technology to run a business more efficiently.
<unk>.
I am pleased to report that our results for the quarter exceeded our in total plaza across all key metrics, increasing the confidence of the balance with this year.
RB sales grew 16.5% on the 2 year basis, and we continued to gain market share and food on a 1 year basis do new low which includes most food drug mass club dollar and military on the 2 year basis.
Vision, we achieved EBITDA of adjusted EBITDA of 1.3 billion and adjusted EPS of 89 cents a share ahead of our expectations.
Against the backdrop of growth exceeding 200% in every quarter and fiscal 20 or digital initiatives continued to resonate with our customers and we have retained the sales levels. We achieved last year with digital sales virtually flat year over year in Q1, and a 2 year stacked Ivy sales.
Growth of 276%.
With all the options we have in place we've achieved 95% customer coverage with ecommerce and retention has been strong.
At the same time, we have seen a pick up.
In store transactions versus Q1, 20, and many of those incremental install shopping trips are focused on fresh.
At the end of Q1.21, we had 3.6 times the number of Omnichannel households, then we had 2 years ago and 19.
We have seen is that his customers move into omnichannel. They also increase their spending our stores with a net growth of 17% per household spend in the quarter at a total spend root of 2 times that of an exclusively in store shopper.
In fact in Q1 with identified households, an average in store and was sharper sales were down while the omnichannel customer sales were up year over year.
We've grown are identified households by 8% year over year for the last week to 2 weeks.
Allowing us to better understand the needs. So we can personalize our offerings for them and drive record and incremental spent.
Membership and not just for your loyalty program continued to accelerate and was up over 18% year over year in Q1, 21 to $26.7 million members.
We also increase the number of actively engage customers by almost 13% and we have a 94% retention rate with engage software new households.
Remember that actively engaged customers spend 4 times more with us.
In summary, our strategy building lasting relationships with customers through a combination of digital moving store engagement is driving our top line.
Overall Ah strategies focused on full priorities.
In store excellence.
Accelerating a digital and omnichannel capabilities.
Driving productivity.
And strengthening our talent and culture.
In store excellent as demonstrated to the 1 stop shopping experience. We continue to provide for our customers supported by the quality variety and depth of our fresh and on brands offerings that give us a competitive advantage.
And fresh which has always been a strategic focus for us we continue to see stickiness, giving us confidence that our strategy working.
Refresh department sales growth outpaced centers store, approximately 200 basis points on the 2 year basis.
Which each of our fresh categories ahead of Prepandemic levels as customers continue to consume more meals in total.
As our markets have opened up we've seen customers shopping in our stores more often and continue to see fresh as a key driver for growth.
Our own brands portfolio also continues to appeal to our customers with strong sales driven by the introduction of new innovative products.
As well as our focus on Albertsons legacy divisions that were historically underpenetrated.
R Q1 sales penetration was 25.2% up over 100 basis points from Q1.20, when supply issues impacted sales.
We continue to innovate launching 318, new items in Q1.21.
Many of which was signature farms bulk items, including trail mix of spheres nuts, and dried fruits open nature, almond butter and signature select premium beef patties.
We continue to expect to launch over 800 items this year.
We're also proud of our own brand scheme that was named the store brand magazine 2021 game changer as a private brand that revitalized the industry.
We also continue to capitalize on demand for convenient and fresh meals as consumers come to us for food beyond the purchase of ingredients. We have begun the rollout of already meals ready to eat good you the heat and ready to Cook meals program and expect to be in approximately 500 stores by our fiscal year end.
Finally, we continued investing our stores reopened 5 new stores and completed thirty-three upgraded remodeled projects during Q1.21.
Our second priority is to exploration of a digital and omnichannel capabilities.
Digital is an important growth driver for us as we strive to provide an area of convenience shopping experiences for our customers.
We added a net 320, new Doug locations drive up and go locations in Q1.21, bringing our total to 1700.40 and dug sales grew 75% year over year.
We now expect to have dug in approximately 1900.50 locations, representing approximately 98% coverage by the end of the second quarter.
As part of our growth plans and digital we also remained focused on delivering the spirit customer experience as well as improving profitability. For example, we could do to achieve on time filling in delivery rates in excess of 95% demonstrating consistent on time delivery and dug pick ups.
We began to roll out of our integrated loyalty and e-commerce app offerings of connected customer experience through a single interface.
We launched the new San Jose various MFC.
And that plans for an additional 6 mfc's before the end of our fiscal year brings your total to 9 mfc's.
We sped up delivery times, while reducing delivery cost per order by expanding our third party delivery still network, but also adding door dash 1 hour delivery to R e-commerce options.
Which has been rolled out to 9 division so far.
We also implemented are enhanced speaking software at all dug locations to help optimize standardized picking processes, increasing fixed per hour and enhancing auto prioritization.
And we improved customer service by migrating all support to 1 platform.
Our third strategic priority is driving productivity to support green investment as a business and help offset inflation.
We're making progress against our productivity agenda and.
And we exceeded our internal expectations in Q1.
During the quarter, we've made significant progress in labor efficiency shrink promotions optimization and indirect expense.
We continue to expect to achieve $1.5 billion and growth savings by the end of fiscal 2002.
A fourth priority is strengthening our talent and culture and supporting the communities we serve.
We continue to add talent throughout the company at both the carpet and division level, including the recent appointment of Genesis Jennifer assigns.
New Chief merchandising officer.
And are very proud of our store level team, so adapting well to a changing environment.
Ah Pharmacy team also continues to come through for our communities 2 day, they have administered 6 million COVID-19 vaccine doses.
In addition, during Q1 or.
Noticing neighbors fundraising drive raised approximately $9 million from a generous customers that are checks tense, which was matched by the Albertsons companies Foundation, resulting in $18 million in funds to feed children and families. This song.
As part of our ongoing focus on ESG, We recently announced that we're the first company in America to introduce a 100% zero emission refrigerated grocery delivery truck.
And we had been enhancing our supplier diversity program.
True new partnerships and an improved database and tracking tool.
And in conjunction with our recently completed new Materiality assessment, we're focused on quantifying a carbon reduction opportunities based learning our food waste plastic in packaging footprints in further developing goals and targets would be eni and community stewardship.
We expect to share a key focus here is an commitments later this year.
And now I would like to us Bob to cover the details for our first quarter financial results and outlook.
Thanks, Bye Beck and Hello, everyone I.
I am pleased to provide details on our strong first quarter results as well as an update to our fiscal 2021 outlook.
In many cases I will make comparisons back to our first quarter.
A fiscal 2019 period to demonstrate the period that performance versus our prepandemic levels.
For the first quarter total sales were $21.3 billion up approximately 14% or $2.5 billion compared to the first quarter of fiscal 2019.
Which is primarily driven by our 16.5% 2 year stacked identical sales results.
Our gross profit margin came in at 29, 1% during the first quarter of 2021 <unk>.
Compared to 29.8% in Q1, 2020, and 28% in Q1.2019.
Excluding the impact of fuel or gross profit margin was up 10 basis points compared to cute.
2020 incur.
Increased and increased over 90 basis points compared to Q1.2019.
The increase compared to Q1.2019 is primarily driven by improvements in shrink expense, our productivity initiatives sales leverage unimproved pharmacy margins relating to administering COVID-19, vaccinations, partially offset by investments relate.
To our growth in digital sales.
Our SG&A as a percentage of sales excluding fuel increased 115 basis points year over year as we saw sales deleverage versus the period of significant heightened demand and the first quarter of last year.
But importantly on a 2 year basis, we decreased SG&A as a percentage of sales by 75 basis points.
COVID-19 related expenses during the quarter totaled approximately $130 million similar.
Some of this was 1 time in nature, including the right off of some COVID-19 related inventory and supplies should we expect these cost and future quarters will be lower.
Interest expense was $153 million compared to $181 million in the first quarter a year ago.
The reduction in interest expense is primarily driven by lower average interest rates due to our successful refinancing transactions during fiscal 2020, and our continued deleveraging.
Adjusted EBITDA was $1.3 billion in the first quarter of 2021.
Representing compound annual growth of approximately 22% versus the first quarter of 2019.
The growth and adjusted EBITDA versus the first quarter of 2019 represents strong flow through of approximately 17%.
Adjusted net income was $518 million or 89.
For fully diluted share representing compound annual growth of over 70% compared to Q1.2019.
We ended Q1 with $2.2 billion in cash on the balance sheet and are pleased that this gives us flexibility to continue to invest in growth opportunities.
Capital expenditures, where approximately $513 million during the first quarter as we opened 5 stores close drive completed 33, Remodels and invested in our digital and technology platforms.
We continue to expect.
<unk> spent to be approximately 1.9 billion to $2 billion.
During fiscal 2021.
During Q1, we also received upgrades from our debt rating agencies as Moody's upgraded us to be a stable.
And S&P upgraded to double be stable.
We ended the quarter with our net debt to adjusted EBITDA ratio at what 1.5 times on an LTM basis consistent with the levels, we exited the fourth quarter of fiscal 2020.
Turning now to our updated outlook for fiscal year 2021.
Given the outperformance in Q1 and recent trends, we have updated our guidance for fiscal 21.
Some of the outperformance in Q1 is related to Covid vaccine revenue that was ahead of expectations and this revenue source has begun to taper off as the pace of vaccinations slows.
Nonetheless are competitive advantages and the underlying stickiness of the business gained during the pandemic as well as the ability to pass along modest inflation.
And the continued consumer demand for premium items.
Gives us confidence in the strength of the business for the balance of the year.
We now expect identical sales on a 2 year stack basis to be in the range of approximately 11% to 12%.
Compared to prior guidance of 9.5% to 11%.
We expect adjusted EPS in the range of $2.20 to $2.30 per share, which represents 2 year combat pounded annual growth of 47% at the midpoint of the range up.
Up 25 cents.
From our prior guidance range.
We expect adjusted EBITDA in the range of 3.7 billion to $3.8 billion.
Up $200 million from.
Our previous guidance range, and representing 2 year compound annual growth of approximately 16% at the midpoint of a range.
And Q2 to date, we are seeing our core business sales on an average weekly dollar basis and market share gains continuing at similar levels to Q1.
As a result of seasonality and drop off and the pace of COVID-19 vaccinations administered we believe the current consensus expectation for Q2 EBITDA margin is still appropriate.
We continue to believe that our productivity initiatives and seasonality will drive stronger EBITDA margins in the back half of the year compared to Q too as we noted on the year and call.
And now for that will provide some closing remarks.
Thank you Bob.
Before we turn to Q&A allowed to share a few closing remarks.
While it's hard to predict the impacts of COVID-19 on demand over the long term.
We believe there are a few trends that will stick with us.
We believe digital engagement with consumers in our sector will continue to increase.
This provides us with an opportunity to gather more data and deliver a better more personalized shopping experience with our customers.
Second even though we saw a step change in 2020.
We believe consumers will increase the use of e-commerce solutions, especially pick up in store and rapid delivery.
Particularly in our industry consumers value speed and delivery and we're committed to continuing to enhance speed by leveraging our great store locations.
Lastly, we believe more remote remote work is here to stay.
This means more meals at home, which will continue to benefit our business, particularly the demand for fresh ingredients and meals.
Albertsons companies as well positioned to capitalize on the strengths given all unique competitive advantages and as we go forward will remain focused on investing in technology to amplify strength and become a faster and more efficient business to better serve our customers and drive EBITDA flow through.
And our P&L.
With this as a backdrop, let me also share some insights on recent trends in our performance.
Despite business reopening and people resuming travel a sales momentum continues with growth in market share and we're very focused on continuing these trends on market share.
We're looking at our average weekly sales dollars sales and Q2.
Continuing at the same levels as in Q1.
We are seeing continued strength and sales of items that were elevated throughout the pandemic such as meat seafood produce and high end wines, providing evidence that some important food and beverage categories remained shifted to put at home.
While we are seeing higher cost inflation in some categories, we saw modest inflation during Q1.
And we were generally successful in passing it through as the competitive environment has remained rational.
And we could do to see households, upgrading to more quality in premium products, indicating that the consumer is still strong.
Overall, we're confident in our ability to continue to produce strong results I wanted to extend my thanks to our entire team of approximately 290000 associates, but continuing to take care of our customers and communities this quarter as well as throughout the pandemic, we will now take your questions.
Thank you.
I will now begin the question and answer session.
Yeah.
In the interest as Si hearing from as many color if that's possible.
Ask that you limit yourself to 1 question.
To join the question Kenyan a price tag in line on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speaker phone. Please pick up your handset price.
<unk>.
Withdraw your question please press guidance Chin.
Once again anyone in the class call permission to ask a question. Please press died from the line.
The first question from John.
John Hi, embarking from Guggenheim partner. Please go ahead.
I am going to I'm going to do 2 quick ones here, 1 now that you've got another 20 weeks under your belt this year.
What's your thoughts regarding the secular algo right and how that may have changed because of the COVID-19.
And then secondly, with all the capital right extra cash in free cash flow you've got what.
What would you like to investing strategically and I'm not talking about.
Dividended or stuff like that but more.
The organic or M&A that you think would be added it to the business is there anything like that out there.
[noise], hi, mainly seem to be having technical issues with the speakers line.
I believe that they are speaking now that we're not hearing them I'm going to pause for a moment and try to reconnect in line.
1 moment please.
Uh-huh.
Okay. We have the speakers again. Please proceed.
Hey, John and everybody sorry about these glitches.
Sorry about that guys.
John Let me answer your question first on a secular trend basis.
Point to a few things 1 a very healthy consumer.
Still seeing no trade down.
They're still buying many many discretionary items in our store trading traded up Amit lines et cetera.
Second it's clear to us that they are eating a lot more at home.
Fresh sales are higher than the rest of the store.
So that continues.
I.
I think partly driven by the fact that people are still working from home and I've always maintained a point of view that that will continue into the future and also partly that people are more comfortable cooking at home.
E Commerce continues to be strong, but if I were to dissect that a little bit you'll see that our e-commerce transactions.
Students are still higher over last year, but the baskets are small as you would expect because people bought everything and anything that could last year on e-commerce, but what's very interesting is there's people are coming back to the store the transcend the traffic to the store has gone up significantly and it went up week over week over week through the last quarter.
Joe I mean, those are few things I'll say and just a lot more digital engagement, which we love John because now we can get more data and we can personalize and do the right things for them on cash our priorities will still be the statements about growth.
And we will first focus on our organic growth will continue to invest in our fleet.
I think it's clear to us that stores still matter and we'll continue to do that and we're going to put a lot of energy into digital growth.
And that is both the software side on the hardware side were going to rollout more mfc's. This year and we see a lot of promise then we'll continue to do that and we'll be opportunistic on M&A.
And the stronger we.
We are the better the returns will be on M&A as it's turning out for us and things about duties.
Thank you.
The next question from.
Combination of Citibank. Please go ahead.
Thanks, guys.
Towards the end of your prepared remarks, I think get a couple of comments about inflation. Just wondering if you could dig in a little bit.
Deeper in terms of what Youre seeing on the cost of good side of that inflation equation.
And how do you see that trending over the balance of the year and then.
And to that how does it change the way you think about pricing on national brands versus <unk>.
What you might do with your private label product pricing. Thanks.
Do you want to touch on inflation, Bob and I'll do the pricing piece you bet.
Paul what we saw in.
Related cost inflation was.
Somewhat modest 1 point.
<unk> 5 to 1.7% during the quarter.
So we saw that that was increasing slightly as the quarter continued but still within a reasonable range.
Yeah.
Our outlook.
Product line that is that I think it might be slightly higher towards the back half of the year, Paul but I've always maintained that if it continues to be in the 3% to 4% range. It's actually good for the business, especially.
Especially with a strong consumer like I've indicated.
This is something we can pass through and we get a lot of leverage when it gets you into that range.
Now when it comes to pricing non owned brands look we are we have our own brand penetration is up that's a good sign it's helps us on gross margins. We were all worried you overall what were the owned brands are going to decline, but it's coming back nicely our own branch pricing will always be you'll have 2 things 1 is pricing to.
To make it an opening price point and pricing on cash on some of our products, which are destination products, where it will be a little more aggressive because we can compete well with the national brands and we'll just packet with what's happening in the national brands.
Thank you.
Thanks, Paul.
Our next question is from Karen short with Barclays.
Go ahead.
Hi, Thanks very much.
Just wanted to clarify a couple of things that you said.
So what you had said is that you were comfortable with the EBITDA margin for TQ or consensus margin was appropriate for <unk>.
So I just wanted to looking at that that.
Yeah.
Consensus from what I can tell is a 5% EBITDA margin. So is that the right way to think about the delta between <unk> and <unk>, There's obviously.
Some deleverage, but the delta on that that changed sequentially is what the contribution.
Contribution of the vaccines were too.
<unk>, mostly to <unk> gross margins I'm, just trying to understand the magnitude of the vaccine components.
On <unk> Gregg, Yes, great question, Karen you've got part of it right. There certainly the vaccine income was a portion but actually.
The larger portion if you go back 5 years kind of throughout 2020 out you'll find there is a.
Seasonality.
Adjustment, if you will or a difference from Q2 in Q2 going down.
60 to 70 basis points that happens every year and then.
Pops back up as you get into Q3 and Q4, so the bigger piece of that is just normal seasonality.
Bid on.
Pharmacy and other items and we are accelerating Doug rollout, we're pulling it further up into Q2, because we think we can go faster and should grow faster and so it's a combination of things that Karen that's right.
Okay. Thanks, and then thanks for the clarification and then I wanted to actually just go switching gears to the centralization of the supply chain I guess I wanted to ask just broadly how you weigh the risks risks and rewards of that effort because I guess in kind of the history of centralization, it's always kind.
Kind of been a short term benefit but longer term. It hasnt always worked so I'm wondering if you could give a little color on that and then.
Is the vast majority of that $500 million.
Assuming it is all a gross margin benefit to the extent that that centralization is executed the way you hope.
Yes, there are 2 there are 2 topics.
Topics 2 different initiatives that help with gross margins in and if you think about the second half of the year. Karen we've always maintained that more of a productivity is coming in the second half. It's because of these 2 new initiatives. The first 1 is around supply chain, which is optimization of our distribution centers rethinking.
Thinking how the network of distribution centers and so on the second 1 is by pooling our spend on major categories and buying it as 1 net national company, rather than buying these big CPG products as different divisions, now youre, 100% right and centralization.
The news.
Pure centralization has been short lived and you always get into the other side, where people stop listening to what happens in the field. We've spent 1 we've done 2 things 1 we've pursued the dollars and we are continuing to pursue the dollars and think of that as 1 set of initiatives, we've spent equal or more time on thinking about how we do.
It how do we make sure we are able to leverage the local knowledge that people have we've maintained the core of those themes in our market. So that they can provide local knowledge and insight and we've added teams at the centers. So that they can start getting the leverage where we need to right and so and we've worked through every detail there and we're very conscious of it there are people on my.
My team who have been through the other side and so we know what we don't want to do.
And so we're being cautious but your caution is a good 1 carrier but.
To me I'd, rather do this and work. It then be afraid to do it and that's why we're going down this path.
Okay. That's helpful. Thanks very much.
Your next question is from Scott Mutchkin with RFID capital. Please go ahead.
Scott.
Mr. <unk> your line is open.
Okay got it.
Well move on line.
Yeah.
The next caller is Edward Kelly with Wells Fargo. Please go ahead.
Hello, Ed.
Hi, guys good morning.
I wanted to go back to the gross margin your performance on a 2 year basis.
90 basis points is obviously.
Strong can you provide a bit more color in terms of like unpacking that.
And the drivers of that and then as we think about Q2.
Should we expect a similar trend I mean, the comparison similar you've started off the same way.
From an idea perspective, it seems like and then just bigger picture if we were to take a step.
Net back.
How do we think about the sustainability of this gross margin sort of post pandemic versus pre pandemic and how.
How much of this do you think ultimately do you think ultimately fades.
Okay I'll take the first half of it here.
As far as the.
Indeed, 90 basis point improvement relative to 19.
<unk>.
It's really made up of several things here.
Have.
<unk> had tremendous shrink improvement in addition to that.
We've also had several productivity initiatives that being 1 of them, but in addition to that we've had some.
From promotions.
Efficiency improvements that have helped us out as well as we've talked a little bit already on the call about owned brands our own brands mix has rebounded back up and as you know that has.
A higher gross margin to it our fresh mix that also has been growing.
Growing.
As well and so all of those things.
Kind of work together.
To support that that 90 basis points now.
As far as going forward.
<unk> guided in our last conference call as you might remember is we said that.
We.
That we would be directionally flat to the 2020.
Fiscal year overall gross margin.
<unk>.
Implies that will be up roughly 65 basis points that we were up in 2020 versus 2019 for the full year, it's not going to necessarily be.
A flat amount per quarter, because last year was kind of a strange year and there were there were some some quarters are higher than others. So I would kind of.
If you were to pattern it off if anything I'd patterned off of adding that to 2019.
And Ed.
A lot of what Bob.
Bob mentioned were operational things shrink et cetera.
Said earlier about supply chain and cost of goods also continues to support gross margin.
We are always always seeking tailwind for gross margin okay.
<unk> program when done right in the store is accretive to gross margin.
And so we keep sneaking that now, but I will tell you that.
Our intent will never be to keep expanding at the gross margin as the means to the bottom line right because once it gives us is it gives us a chance to surgically keep investing in price and other things that we can do to drive growth.
And get more volume through the P&L.
Which is always which clearly in our business gives us tremendous flow through so that's how we played you will always find us seeking more ideas.
And just 1 quick follow up from you on the $2 billion plus cash balance that you've got you've talked about investment, but you've also been.
P&L from a positive company right like you haven't you.
<unk> been more than covering that.
That need.
How do we think about you know the real sort of like Optionality around this cash balance versus whether it's debt reduction whether it's here or a sponsored it still owns a lot of stock if there was something to do opportunistically there.
Cash issue you have bought stock in the past so just kind of curious as to how we really think about this $2 billion and what happens with it.
Yes.
Ed.
Good question, but we really do have.
Our focus on investing it back in the business to drive sales.
That's really.
They do.
We had planned to pay down just a little bit of that this year. So we'll use a little bit of that as 1 of our bonds comes to a little bit later on.
We keep our eyes open for M&A opportunities, but.
That would be our priority and we will remain opportunistic.
We are good where we.
Good at buying emerging companies and as those opportunities come we will do it but primarily now we're focused on driving the organic growth. We think that's a lot more potential.
And the transformation, we're doing right now.
Great. Thank you.
And the next question is from Scott <unk> with <unk> capital. Please go ahead.
Just try to do this again hopefully you guys can hear me this time.
Didn't hear you Scott.
Okay perfect.
Maybe it's my phone I don't know anyway, I wanted to ask a longer term question around omni channel digital.
And just really understanding 2 things number 1 it seems like you guys are trying to pursue a much more asset light.
Model compared to some of your competitors and I want to make sure my interpretation is correct there.
Other thing I want to talk about or maybe you could ask answers kind of keeping the store environment sharper pull I mean, obviously in a Walmart yesterday down in Houston I think there was just.
Tightening fighting in the shelves from with the pickers is difficult. So those are the kind of 2 questions that I had a follow up.
Yeah, Let me, let me start with the second question first right because our ecommerce business I would say I don't characterize it as asset light I think it begins with saying.
<unk> greatest assets is the store full stop right and so we are like a duck paddling pretty hard every day smooth on the top but we're paddling very hard to run great stores and it's simple for us. It's gotta before it's got to be clean the fresh has to be really fresh they've got off with a variety and we better have good.
In August and by the way better manage the labor properly and there is a group of assets, who are maniacal about doing that when you've had that it gives you a great base to build an e-commerce business and our ecommerce business is built on those stores.
And the reason I don't see it's asset light Scott is that I do believe that there is room for MFC and MFC growth.
Good <unk>, the nice thing about the MFC eases.
It is assets more assets, but it gives you optionality you can go out a certain pace, you're not making any single bet, you're making many many pets and with every passing year youre getting more new technology on the bet, you're making so we like that that's the approach that we're taking.
On the Delaware side of it yes, we are going we were asset heavy and we are going asset light right because I don't believe the model of the milk runs with the truck is a good idea for grocery and so we are using much more of a point to point deliveries. So that's how we think about it but everything everything rests on running great stores, which is always our number.
Number 1 priority.
That's great. Thanks, and then my follow up is actually a little bit.
Maybe ed what's going on there.
This question is that your stock sitting here with my math, just under 5 times EBITDA 2022.
That's really low.
Almost kind of almost getting to distressed levels.
Is there anything from a management perspective that you think you guys can do to try to get more attention to what youre doing to kind of get that valuation up do you guys even think about it. Thanks.
Thank you Scott.
<unk>.
There is about $11 billion.
Pre pandemic.
Real estate value also embedded in this so.
We think we agree with you we agree with you.
And hopefully continue to continuing to put up quarters like this will make a difference.
Alright, guys, thanks, very much nice quarter.
The next question is from Ken Goldman with Jpmorgan. Please go ahead.
Hi, Thank you.
You mentioned that you were successful in passing along inflation.
You're still well below that 3% to 4% range. You said is still good for the business.
The packaged food companies.
We cover though they're facing more inflation than they expected, even though a couple of months ago. Now some of them are talking about seeking second rounds of pricing with customers. So I'm curious what is your appetite for letting second rounds through in a general sense historically, there's been a lot of pushback to that.
But right now of elasticity.
It's not that powerful drivers, so maybe youre thinking about letting more through the unusual I just kind of wanted to get your sense for how you're dealing with some of your vendors coming back asking for more.
Yes, Ken.
Good morning, yes.
Let me put it this way of course, it's always on a case by case basis, Okay and.
I know I know that some of our CPG companies are facing challenges in labor challenges in transportation et cetera.
We have a large 1 because their own brands business and because of that we get tremendous transparency also into wanting to what's happening to costs. So we end up having.
Good and constructive negotiations with our with our supplier partners.
And where it is where it is warranted and legitimate we will pass it through.
And then I'd say, the 3% to 4% recognize that yes, we may have several cpg's, who where there is a legitimate cost increase and requiring a price increase and we will do that.
At rallies that our entire portfolio goes up 3% to 4% you know you're always something that is going down, especially when you have such a high fresh component.
And that's what happens that's why you end up with this 3% to 4%. Despite you're hearing the noise about inflation in many of the CPG companies coming together, but all that said I do expect it to be a little.
Little higher in the back half of this year. There's no question about it I do expect it to be higher.
But in the range that we feel comfortable passing through.
Okay.
Okay. That's helpful and 1 quick follow up.
And any signs that any of your major competitors are planning on stepping up discounting in the back half of the year.
Are you pushing any of your major vendors to start spending back more in the stores I know some of that is counterintuitive with the pricing that's going on but just trying to get a sense of the environment, you're seeing right now and what Youre looking for there.
It's remarkably about the same as it was for the last I looked at it just recently you index promotions and stuff it's about there's been.
<unk> for the last several quarters last 2 or 3 quarters. Ken I think you have 2.1 is you talked about the elasticity. The other thing to keep in mind is supply.
The types of things that you would tend to promote.
And football like like soda or beer or gateway.
And other things I mean things are entitled supply. So, it's just going to be.
Harder for us to do anything like that so I think youre seeing the discipline in the marketplace.
Thank you.
Yeah.
The next question is from Kate Mcshane with Goldman Sachs. Please go ahead.
Okay.
Sure.
Yes.
Kate we can't hear you.
Okay.
Kate Mcshane your line is open.
Kate why don't you dial back in we'll pick you up let's go to the next caller.
Definitely.
The next caller.
Simeon Gutman with Morgan Stanley. Please go ahead.
Hey, everyone. Good morning, I Hope you can hear me nice quarter, Yes, we can hear you.
Great.
From my first question I want to talk about the top line in the quarter. So the stacks looked like they are accelerating the industry certainly.
So you're certainly taking share can you talk about how you look at the business it looks like it's accelerating versus.
It accelerated in Q1 can you break apart units and pricing and take out fuel and adjusted for seasonality and is that fair is it accelerating is it about the same versus the prior quarter and Vivek you had this hypothesis.
Non it's pretty early on that some of the habits during COVID-19 would hold it looks like that's true so far why should that continue even as we moderate as we go back post COVID-19 like why should that hypothesis still hold going forward are you seeing things that gives you confidence in that now.
Yes, Simeon let me answer the second 1 Bob can.
Can you then come back to the first 1.
So let's go into what is driving.
The assessment of that behavior.
I always believe that the bigger impact of the lasting more lasting impact of the pandemic is the work from home right and so you are finding more and more companies going to a model where.
<unk> 3 days to the office so 2 days to the office, but that really means 2 days at all but 1 day at home and that's a substantial number so I think youre going to see as long as that continues and we all get into a different motor working youre going to see more in home consumption, especially breakfast and lunch and Thats thats substantial.
Secondly.
So I think we're seeing this 1 I don't know how long it'll hold okay, which is people cooking more at home and.
And I'm seeing that only because you're seeing a lot more fresh sales than that in 2019, and it's higher on a relative basis to the rest of the store.
I don't know how long it will last but I can.
Secondly that pattern going forward at least a year.
The real test will be what happens when schools open what happens when colleges open the fall what happens when people stopped traveling more and so on which is why in our outlook you've seen that our our sales our adjusted a little down for the second half but.
I can say I'm seeing now are pretty positive.
And then on the first item Simeon.
You really can't look at the rates very well, especially in the first quarter constraints are really crazy a year ago as you know, but when we track. It we obviously track things on our average dollar basis.
The trends equal basis, and we saw some very.
Solid strength and momentum.
Throughout the quarter, so consistent right that's right.
As we said in our prepared remarks, we continue to see that into the second quarter.
At the same level.
As we saw in the first quarter. So we're very optimistic.
<unk> sales are growing.
Thank you.
Okay.
Next caller is Kate Mcshane from Goldman Sachs. Please go ahead.
Hi, Good morning can you hear me.
Yes.
Sorry about the technical stuff, but we can hear you well.
Okay.
No problem at all I, just wanted to follow up on the.
Digital delivery team to third party fulfillment.
Just wondering ultimately what that looks like in terms of how many partners do.
But we have when it when it comes to third party fulfillment.
And what does that mean for profitability and finally, just the last question related to that as.
What does it mean when it comes to data.
Data and.
Using these other third party fulfillment marketplaces.
Yes, Okay, let me spell.
Into 2 buckets, 1 is recognize that.
Fastest growing business for US is drive up and go and we're really excited about that it is growing on top of last year, and it's growing faster than the expansion rate of our drive or drive up stations and in the drive up and go.
Have everything right.
Flip that we do.
The entire entire.
The service there.
The second part of the business, where customers are ordering through us and we are using a third party to do the last mile.
That's purely more than anything.
Additionally play because it allows for speeds you can get it done.
The 2 hour delivery and we believe in the notion of speed and E Commerce right. So that's the second part then the third part of the businesses, where we have a third party who's getting the customer order and picking in the store and delivering it and so that's and that's part of the business. We are using we are using multiple partners.
And really our philosophy, there is that we're going to meet the customer where they want right and really.
And many of our customers most of our customers are shopping both the best customers are shopping both online and in store and our stores are in great locations. So I think it works for everybody, including the third party when we are.
Shopping proximal to where the customers living.
So that works for us and what we're doing is with.
Engaging more and more in the transparency around the data and loyalty programs. So that we continue to maintain that relationship and have the knowledge of what that customer is buying.
So we'd look at it in 3 parts and.
I just think at the end of the day, we will focus on reaching that customer in many many different ways.
Thank you.
The next question is from Michael on County with Evercore. Please go ahead.
Hey, good morning, Thanks for taking the question just wanted to.
Ask if I could on the 10% sales decline and then 16 and a half 2 year. If you all could share what the traffic and ticket split was it did sound like traffic is positive.
I thought that's an important point to tease up and then just a follow up.
Yes.
First of all.
<unk>.
Customer count.
Or transactions.
It is up although the basket is down a little bit of course, so we're seeing some of that but we see that as a real positive thing people are coming back to the stores more than where they were a year ago certainly.
And we're seeing.
Strong.
Sales and volumes as well, yes, Michael.
What's been interesting is.
The traffic comp transaction count is up both online and in store.
Over last quarter right.
And you would expect it in the store, but it's nice to see.
Our online transactions are also over last quarter. So.
And it's really a matter of baskets, dropping which also you would expect given how much of stock up there was last year.
Okay that makes sense and then just a follow up I had was you've seen some good traction.
That thinking multi channel and I just wanted to get a handle on any color you can share with respect to kind of the flow through rates as that business continues to grow and how it would compare to kind of the core brick and mortar flow through is there a pathway to get it equal or above when you think about that vivek and.
Bob ill start here certainly.
Our biggest growth has been a Doug and our drive up and go and.
Our drive up and go on an incremental basis is.
As improvement as we as we move along as we are getting more and more volume into that and we can see a day.
And I think that probably will be indifferent.
As far as.
Delivery.
Note that we can see that that's ever going to be.
Something that is going to be as profitable as drive up and go or or or.
Or the other that last mile that piece of it is always going to be an increment.
They were lost right then Michael Denmark, you do so if you.
Like later in the year towards end of this year, we are re launching non media platform.
So.
You'll find other sources of revenue and profit.
Costs are getting more and more digital engagement with that customer.
And that's what we're excited about so if you think about E. Commerce, Yes is a little more logistically intensive, but you get more digital engagement that opens up other avenues for you and Thats, how we see and then finally.
I think there is a scenario down the road, where the MFC stopped getting the Costco project pretty far down.
So.
From a model compared to maybe 2 years ago, we are feeling and seeing a lot more levers to make the e-commerce side of the business.
Indifferent, if I can call it that.
Really interesting stuff. Thank you for the color.
Okay.
So <unk> is from Robby <unk>.
With Banc of America Securities. Please go ahead.
Okay My first.
My first question is can you hear me.
Okay excellent excellent, hey, and I apologize I dialed in and I did Miss some of the call, but so I wanted to just follow up.
I think on <unk> question.
Yeah.
It does look like you gained market share this quarter.
Is that right from your perspective.
And if so do you think what was the biggest driver do you think vaccines played a role in that do you think you were doing things better within stocks.
Clearly things may be with relative pricing and where do you think the market share is coming from.
Yeah.
If you if you look at if you decompose it and how and where we are gaining market share we're gaining a lot of market share on food and food in the world of food.
Less so if you compare it to Mueller.
New low but on a 2 year basis. We're also holding market share in Europe that includes all of the other channels.
I think we're keeping the market share because 1.
We have we are seeing a greater index and our purchases on fresh are relative to the rest of the store. So I think I told you transactions are up the transactions up because.
People are coming back more often for fresh and that helps us with the market share so clearly.
It is a component of a component of it.
I'll tell you interestingly in the vaccines, we did the proud of what we did on that okay.
Punched above our weight on vaccines once again just sales are true.
Right.
So how flexible the team was all created the team was we got a lot of customers in who are not shopping with us and we kept some of them. So.
<unk> scheme of things Robbie it wasn't a vaccination traffic that drove our total food sales market share I think it's more fundamental operations and running great stores and having the Zika.
We are proud business beginning to home.
That's great congrats on the great quarter.
Thank you Ravi.
The next question is from Cristina <unk> with Deutsche Bank. Please go ahead.
Hi, guys, good morning, and congrats on a great quarter.
I guess thank you.
Again follow up on the market share that you continue to gain line really good results. There in the 2 year stack. So I was just curious how that has evolved throughout the first quarter compared to your expectations really as you started lapping some of those share gains from last year and you know us.
Follow up to that is.
E Commerce question on your promotional strategy as you know you talked a lot about being more surgical with promotion. So maybe if you could give us an update on the progress that you have made and I was curious to see if there's anything to share that's interesting on the behavior of some of these newer customers that you have acquired over the last 12 to 15 months.
Yes so.
The market share gains I think you know.
First we had to.
Last quarter quarter last year was 26% so we're lapping a very strong quarter.
And I have been pleasantly surprised that on top of that quarter, we are gaining market share and the market share gains have been steady I look.
Gonna be weak and it's been steady.
We frankly, we feel like we won both holidays in quarter, 1 okay, and so we feel good about that.
With regards to you had a question on.
Customer behaviors.
Customer behaviors, where with the new customers I think a lot of customers.
Customers, we brought in we brought in through E Commerce.
Some of the customers we brought in we brought in through the vaccinations.
A smaller portion.
And what we're seeing there is that the customers.
That we're most excited about who are coming through ecommerce and then engage also in our store they spend a lot more with us.
At at every lot more with us in.
And the customer behavior.
That's about that's.
That's the broad message I would give you on behaviors you had another question though.
To give 1 other.
Oh promotions.
Promotions, yes.
If you look around our markets you'll notice a couple.
Thanks Juan.
1 is that we have fewer promotions flyers are smaller so at least the physical side of what you see and Youll see that more of our promotions have gone digital and when you go digital youll see that more of our promotions are personalized to the individual.
And so that's from a broad reach perspective.
Couple of things underlying that we've talked about a promotion technology that we have which is now implemented fully.
That makes sure that we don't waste promotions and so this notion of being surgical and digital is only getting better.
Got it that's helpful. And then I had a follow up question on digital.
Digital sales so the 2 year stack was still very strong, but it did decelerate versus the fourth quarter. So my question is around your expectations for the balance of the year and if this kind of level in the 2 year stack basis is what youre expecting going forward and that was consumer zone increasingly coming back to the store.
I think let's.
Active and on the 2 year stack I just wanted to be sure that you take away from there a couple of components that are still growing drive up and go is growing grew 75% traffic and our E. Commerce business is still up even over 2020, so what youre seeing is relative to a very very significant basket uptick in Q1.2020.
You're seeing that come down which is why the numbers look that way. Okay. I suspect what will happen is if you keep the same traffic number the baskets got smaller as you went through the year and people ended up not panic buying like they did.
I think you'll see these numbers coming back up because the traffic is still staying positive.
Great. Thank you so much.
The next question is from Robert Moskow with Credit Suisse. Please go ahead.
Hi, Robert.
Hi, Thanks for the question.
I wanted to know did.
If you could share a little bit about what your learnings have been.
Far on Mfc's.
As an outsider it looks like your approach to this day.
Cautious you are kind of testing and learning.
What have you learned about.
The operational effectiveness I can give you and what are the challenges day post.
Yes.
So you are right where we.
We are cautious in the sense that part of the trick on the MFC is first learning how to operate it and connected to what's happening in the store recognize that what we're trying to do in an NFC of strength youre trying to pick as much as you can from the MFC.
So and then pick the tail from the stores. So that you don't lose the Specialness of what you can give the customer from a store a bouquet of flowers.
<unk>, a special kind of meat and so on but but really you've got to pick all of your core perhaps moving items from the middle of the store. So first how do you integrate it how do you integrate orders because.
Because 1 stores now covering 67 stores, how do you think about the mix, especially if you're a curated by store. So there's a lot of learning on that.
Theres a lot of learning also on just the algorithm that continues to learn to optimize the inventory and the MFC. So you can increase the peak time, that's learning in that and so.
It's a lot of software.
But that has to connect to the rest of the system.
Operating system for the overall business and so on so we're learning a lot of those things. The second learning we're going through is how to configure. It. We've got 2 that are connected to our store we're going to open. Another 1 that's not so connected to a store.
We're exploring whether we should open a complete dock 1 right. So there are.
Software options in these different things fit in different markets and so we're going to test that to the rest of this year.
And then I think we have enough.
To have learned a few prototypes that we can start scaling quickly. So that's the journey, we're going to Robert.
And the nice thing about it is that.
I talked about the Optionality there is no need to punch out a 100 of these quickly because the business is still growing with the base of the store and by the time it gets to sufficient scale will have this figured out.
Got it and all exercised 1 more follow up here.
Yes.
You said that you wanted to be very active in M&A and that you're good at it.
What are you seeing in terms of deal flow coming across your desk.
These regional stores got a bit of a lifeline from Covid I'm sure their sales are good.
So does that mean that there's fewer.
Opportunities to.
The Dubai or is it different than that.
The deal flow is.
Yeah.
I think it was higher pre Covid, let me put it that way.
I think we are going to have to be patient and I think the opportunities will come.
And.
Actually thats good.
It gives us a tremendous opportunity to modernize every aspect of our business learn how to leverage our customer data.
How to apply technology everywhere.
Learn learn how to how.
How do we become personalized and extremely surgical.
And so so that we can get even more synergies.
Because of it so that's how we are.
We've been patient and we're going to continue to build our business.
Okay, great. Thanks for that question.
Okay, we have time for 2 more questions.
The next caller, Joe Feldman with Telsey Advisory Group. Please go ahead.
Hi, Joe.
Hey, guys. Thanks, Hi, how are you. Thanks for taking the question a lot of mine have been answered.
I wanted to ask can you talk a bit more weighted prepared meals.
And the it.
Remind us of the expansion and what you're seeing and I recall there were some changes that you did make to that to the prepared meals programs and some of the things in the stores.
Ours were you trying to package things more are you going to go back to the kind of.
I guess, the salad bar type of prepared meal plan or not.
Yes. Good question. So let me separate 2 things Okay, Joe 1 is <unk>.
Salad bars wing bars, and all of those things that we had.
Pre pandemic.
And the amazing thing about when you have these disruptions as you learn a lot.
And so we're bringing those back but we're bringing those back.
Good.
Kind of deliberately so if you go to some markets you'll see that we've brought back the wing box.
<unk>.
In that in those markets, we sell more when you put when you leave it in bulk and does that freshness component. There is the people believe you could if it is not believed to be quicker from the stores that they see all of that.
In some markets, we've opened a salad bars.
We're having good success with it so we're going to bring some other than some of those were not bringing back at all.
Because customers are just switched habits to having packaged pre packaged for them from.
This program is different the meals program, what we're trying to do is to give people the option of having meals that debt.
That product set but prepared installed taking at home and having a great deal in 15 minutes.
Right.
Right and that's working really well for us. It's you can't do that if you don't have a tremendous presence in fresh and if you don't have a butcher understood cut your meat.
It's done that morning for you and we're rolling that out with having great success with it.
What I am proud of the team as they are also learned how to manage the shrink with it which is the most difficult.
Out of that whole process.
That's really helpful. Thanks, and most of that is you're asking I'll pass it on thank you.
Okay last question.
Yes. Our last question is from Kelly Bania with BMO capital. Please go ahead.
Hey, Kelly Hey, good morning.
Hey, good morning, Thanks for fitting me in.
Just 1 quick follow up thanks.
1 clarification question and then another 1 on wages.
Just curious if you can.
Moving parts in the numbers right now.
I was curious if you can help us kind of breakdown that.
2 year stack of 16.
<unk> and half between volume price and mix and trade up if you can put any kind of numbers around that maybe on a 2 year stack basis.
So we can kind of understand the underlying components there.
And then also just on wages.
Curious, obviously a lot of noise in the market.
Announcements and increases in both wages and maybe benefits.
Just curious if you can help us understand what you're thinking for this year and next year and.
If you're making enough investment in that area for your employees. Thank you.
Yeah.
Yes, Kelly, let me tackle the weirdest piece and then Bob.
And 2 what we can share on the 2 year stack on the range of Sp's. Kelly, we are not seeing the same challenges that you might hear from restaurant operators and others. Okay.
Seeing some.
Pressure on labor in certain markets and then some of our distribution centers.
And so the way we.
We're seeing the pressure there is more from turnover in and the ability to fill jobs, but we are the place where we can still quite comfortably cover it with overtime and things like that so we feel good about that and recognize that with union wages. We are wages are typically higher than the market we offer.
Offer benefits.
And the increase that we will see you in wages as we go forward.
It will be part of the negotiated contracts and it typically ranges around 2% set of contracts come up and.
And it ranges from that so that's how we think about the planning horizon on wages.
Could you share because the union.
Significant on it yet.
You're exactly right I would say on the.
2 year stack the most significant part of the increase there certainly on units now if you try to.
Look at things from a customer versus basket basket perspective, what we will say.
I think we said this a little bit earlier.
We're pleased to see that.
Were favorable on customers versus a year ago.
Which was certainly down big time, a year ago, but I don't think we're quite back to the levels that we were in 2019, but we see it trending that way right.
Okay, well, thanks, everyone for participating we ran a little bit over given some of the glitches in this call. We appreciate your interest in Albertsons companies and Cody Purdue and I will be available the balance of the day for follow up calls. Thank you. Thank you all.
This concludes today's conference call you may disconnect.
Your line. Thank you.
You for participating and have a pleasant day.
Okay.
Okay.
Okay.
Hum.
Yes.
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