Q3 2021 Albertsons Companies Inc Earnings Call
Welcome to the Albertsons company's.
Third quarter 2021 earnings conference call and thank you for standing by.
All participants will be in a listen only mode until the Q&A session.
This call is being recorded.
I would like to hand, the call over to Melissa play sounds senior Vice President Investor Relations Treasury and risk management. Please go ahead.
Good morning, and thank you for joining us for the Albertsons Company's third quarter 2021 earnings Conference call with me today from the company over that Schenker in our CEO and Sharon Mccollam, our president and CFO .
Today's vivek will share insights into our third quarter results as well as review our progress against our strategic priorities.
Sharon will then go into the financial details of our third quarter as well as updated full year 2021 outlook before handing it back over to Vivek for some closing remarks.
After the prepared remarks, 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 that 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 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 8-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.
Certain non-GAAP measures and the historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA and with that I'll hand, the call over to Vivek.
Thank you Melissa good morning, everyone and thanks for joining us today.
Before we begin we want to thank all of retail distribution center and manufacturing teams for their commitment to safety and passion for serving our customers even as COVID-19 cases continued to rise once again.
We also want to thank our pharmacy teams, who are administered 11 million COVID-19, vaccines, including approximately $3 million in quarter three.
Sharon will talk more later about our updated expectations in light of COVID-19 developments.
Continued inflationary pressures and momentum in our business, but before she does let me share with you some details from our third quarter.
In Q3, 21 O D sales increased five 2% and 17, 5% on a two year stack.
We also gained unit and dollar market share in food and new low on both a one and two year basis.
In addition, we delivered adjusted EBITDA dollars of 1.05 billion.
Adjusted EPS of <unk> 79 per share well ahead of our expectations.
Also during the quarter, we continued to see the benefits from our digital and Omnichannel investments, including the ongoing expansion of drive up and go.
Opening of our first Midwest micro fulfillment center.
Q3, 'twenty, one digital sales increased 9% year over year.
234% on a two year stack basis.
Omnichannel household decreased by four times versus Q2 thousand 19.
Sales retention remains strong.
As long as the channels household spend three times more than in store only shoppers. We've continued to increase our investments in digital omnichannel and loyalty, which drove increased identified households, and higher customer engagement and retention.
Is it just for your loyalty program.
Benefit enhancements continue to accelerate membership growth, which increased 17% year over year to 28 million members and actively engaged members continued to increase.
Actively engaged members defined as those that are redeeming fuel or grocery rewards and on average spend four times more than non members.
In addition, the retention rate of actively engaged members continues to be over 93%.
Collectively these results demonstrate the momentum being driven by our transformation strategy.
Benefits of our strong consumer backdrop.
I will now update you on our progress within the four key elements of the strategy.
Driving in store excellence.
Accelerating our digital and Omnichannel capabilities.
Increasing productivity.
And strengthening our talent and culture.
Driving in store excellence anchors everything else we do.
And our commitment to enhancing our customers' experience continues to drive innovation and transformation.
This year that's.
Customers can choose more meals at home.
Elevating our fresh offerings, and introducing new technologies, where a top priority.
To this end, we had been automating production planning and simplifying tasks in our fresh departments, resulting in better quality higher in stocks and more time for customer interactions.
These actions are continuing to drive better than expected results in fresh.
And during the third quarter.
Fresh IV sales outpaced center store by 500 basis points year over year.
And over 400 basis points versus two years ago.
We're also providing mobile tablets the store management to review daily sales kinetics orders and provide associate training.
This will all store management to spend more time on the sales floor assisting customers.
Ensuring improve store conditions and interacting with and training employees.
In addition, we also are continuing to invest in our stores completing 146, remodels and opening nine new stores through the end of the third quarter.
It all brands the introduction of new products as well as the rollout into Albertsons legacy divisions continues to drive strong growth and improved margins.
Q3 sales penetration increased 15 basis points year over year to 25, 1%.
The strongest performance in the floral deli and foodservice departments.
Year to date, we have launched 540, new products, including 143 in the third quarter and are on track to launch over 800 this year.
Our next priority is the acceleration of our digital and omni channel capabilities.
This digital transformation is designed to fuel our growth as we aim to drive increasing customer engagement customer satisfaction and customer retention through an area of convenient shopping experiences.
For example.
And loyalty, our new unified mobile App consolidates, the customer's entire digital experience into one place where they can shop download deals request pharmacy services and utilized gasoline grocery awards.
Since the launch we are seeing increasing downloads io traffic and deeper customer engagement.
And drive up and go we expanded our store count in Q3, and now cover 96% of our households, with first party pick up offerings.
We also rolled out faster pick up options.
Going into the fourth quarter over 80% of our households are now able to receive that rather than go orders in two hours.
And online delivery, we have established several third party partnerships to meet the different needs of our customers.
Through these partnerships, we're able to accelerate the speed of delivery.
Reducing delivery cost per order and allow customers to combine our delivery within additional celebrate from another retailer or restaurant in one trip through double dash.
We're also testing other new experimental pilots and concepts for last mile delivery.
In parallel to the rollout of our digital and Omnichannel capabilities. We're also building a digital marketing platform that.
That will allow our customers to engage with the food and brands They love.
In November we announced the launch of the Albertsons media collective.
Retail media network type of local business partners.
So marketing platform and omni channel solutions to reach our extensive customer network.
To offset the cost of inflation and fund future investments.
Our next priority is to continue to identify and drive productivity across all disciplines in our business.
During the quarter.
Continued to benefit from the retail and supply chain operations merchandising and procurement initiatives that we have previously laid out and we continue to expect to achieve the targeted $1 billion.
Annual gross savings by the end of fiscal year 'twenty to 'twenty two.
Our fourth priority is strengthening our talent and culture and supporting the communities we serve.
To find ways to enhance culture, our senior leadership recently conducted listening tours in all stores to personally connect with our frontline associates.
In addition, we conducted another associate experience survey across the organization.
Together, what we are doing well and what we can do to create an even better work environment and culture and are taking actions based on that feedback.
Our pharmacy team also continues to serve our communities with an area of services, including the cold and flu vaccines.
To date, the pharmacy team, that's administered 11 million Covid vaccine doses.
To enable the delivery of 37 million healthy breakfast to those in need.
Collected $9 million, thanks to the generosity of our customers and the Thanksgiving and another 100000 meals provided to those in need with the help of one of our third party delivery partners.
Due to all that puts an old brands for the fourth consecutive year. We were awarded the E. P. A safer choice partner award for achievements in the design manufacture selection and use of products with safer chemicals.
We also earned recognition and transportation is a top green fleet in 2021 from heavy duty trucking for 100% zero emissions refrigerated grocery delivery trucks.
We're also continuing to install energy efficiency and refrigeration upgrades and have installed these in over 700 stores through Q3 'twenty one.
We also continued to take actions related to ESG and sustainability.
Focused on a comprehensive set of goals in areas, including climate action.
Reduction in circularity community stewardship, and diversity equity and inclusion.
And now I will turn to Sharon to provide remarks and cover the details of our third quarter fiscal results and outlook.
Thank you Vivek and happy new year everyone.
Great to be here today.
I'll now share with you the details of our strong third quarter results and provide an update on our fiscal 'twenty. One outlook. After that said earlier, we delivered Q3 2021 identical sales growth of five 2% and 17% on a two year stack basis.
Retail price inflation and incremental COVID-19 vaccine revenues contributed to these increases.
Well as unit and dollar and market share gains in both food and Mueller.
That's 19 made with 28, 9% in Q3, 2021 compared to 29, 3% in Q3, 'twenty 'twenty and 28, 3% in Q3 2019.
The impact of fuel our gross margin rate increased 10 basis points compared to Q3, 'twenty 'twenty, primarily due to productivity initiatives.
Pharmacy margins related to Covid, 19, vaccine and favorable product mix, including in fresh where sales outpaced center store by 500 basis points.
These increases were largely offset however by lower gross margin rate due to the rate impact of increased product costs, driven by the current inflationary environment as well as higher supply chain costs.
Compared to Q3 19 gross margin rate increased 60 basis points from 28, 3% to 28, 9%.
Excluding the impact of fuel gross margin rate increased by approximately 40 basis points, primarily driven by sales leverage productivity initiatives and improved pharmacy margins related to COVID-19 vaccine.
Partially offset by investments related to our growth in digital sales and an increase in product and supply chain costs driven by the current in place scenario environments.
Selling and administrative expenses as a percentage of sales were 25, 4% in Q3, 2021 versus 28% in Q3, 'twenty 'twenty and 27% in Q2 2019.
Scrutiny fuel and at $286 million pension withdrawal charge in Q3, 'twenty 'twenty seven.
Selling and administrative expenses decreased 20 basis points versus Q3 2020.
This decrease was primarily driven by lower COVID-19 related expenses and the benefit of productivity initiatives.
These decreases were partially offset by higher employee cost depreciation and other expenses related to the acceleration of our digital and omni channel capabilities and other strategic priorities.
The increase in employee costs was primarily driven by market driven wage rate increases and incremental labor to support the increase in fresh sales.
On a two year basis, selling and administrative expenses decreased to 160 basis points from 27% to 25, 4% and excluding fuel decreased 100.
70 basis points.
This decrease was primarily driven by sales leverage and the benefit of productivity initiatives.
Partially offset by higher employee costs expenses related to the acceleration of our digital and omni channel capability another strategic priority.
Higher equity based compensation and incremental COVID-19 expenses.
Q3, 'twenty one adjusted EBITDA dollars were 1.15 billion compared to 968 million in the prior year.
This increase was primarily driven by the five 2% increase and I do fail.
Q3, 'twenty one adjusted net income with 457 million or 79 cents per fully diluted share compared to $387 million or 66 cents per fully diluted share in Q3 'twenty 'twenty.
I'd now like to discuss free cash flow and capital allocation.
During the third quarter and year to date, we have generated significant free cash flow driven by strong operating results and lower working capital.
From an investment perspective capital expenditures through the third quarter were $1 2 billion as we continued to invest in our digital and technology platform completed 146 store Remodels and opened nine stores.
Regarding debt reduction during the quarter. We retired 330 million of outstanding notes, reducing annual interest expense by approximately $18 million.
And finally during the quarter, we returned 56 million or 12 cents per share in cash dividends to our common shareholders, bringing our year to date total to 149 million.
I will now turn to our updated outlook.
Given our outperformance in Q3 and recent trends, we are raising our guidance for fiscal 'twenty one.
We now expect full year sales in the range of negative 0.8 to negative one 2% compared to previous guidance of negative two 5% to negative three 5% representing an updated two year stacked I D range of 15.7.
The 16, 1% compared to prior guidance of $13, 4% to 14.4%.
We expect adjusted EBITDA dollars and the range of four to five to $4 3 billion compared to previous guidance of $3 95 to 4.05 billion.
And adjusted EPS in the range of $2 90 to $2 95 per share compared to previous guidance of $2 50 to $2 60 per share.
We expect our tax rate to be in the range of 22.5% to 23.5% compares to a range of 23% to 24% previously.
And finally, we expect our capital expenditures to now be in the range of 1.8 1.9 billion slightly lower than our previous range of one nine to 2 billion due to supply related constraints.
I'll now turn the call back over to the back for some closing remarks.
Thank you Sharon.
In closing I would like to reinforce a few messages.
First our stores continue to be the foundation of our business and now allow us to serve our customers both in store and online.
Our excellent locations near where people live provider.
Provide us with a competitive advantage of new technology is allowing us to take the customer experience to new levels.
Our digital initiatives continued to drive engagement and growth.
And we remain focused on elevating service quality speed of delivery and the value of our loyalty offerings.
We continue to gain market share in units and dollars.
And did so in both food and new low this quarter.
Our productivity initiatives our deliberate.
And there is more to come to help offset inflation and fund our growth.
And finally, they're navigating challenges like inflation product supply and labor shortages with the agility and creativity.
Our strong performance year to date and the continuing positive trends give us the confidence to raise the fiscal 2021 outlook for IV sales adjusted EBITDA and EPS. The churn just provided but none of this would be possible without the dedication and commitment of our 290000.
<unk> well take care of our customers and the communities we serve every day.
We will now open the call for questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys in the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of John Hind Buckle with Guggenheim. Please proceed with your question.
Hey, guys, let me start with.
The market share on the mobile side right. So that's a shift.
Relatively recently so.
When did that occur how broad based is that.
What do you think is driving that is that is that share gains from restaurants that have accelerated.
Because the Cobra or for any other reason.
Hey, John Vivek. Your so on the market share you are right. We saw unit share going up and dollar share going up of a new low in Q3, and it's a trend that it will be the first most negative in Q1 bedroom in Q2, and then positive in Q3 and on a year on year basis. Because first is if you think about the laps the labs.
We're much more difficult in Q1, and Q2 and what I'd point to in Q3 that I'm. Most excited about is our retention rates of customers. They are growing steadily up overall from Q2 Q1 to Q2 to Q3 and as we go through as we told you guys before it's something we've put a lot of energy into the increasing the loyalty.
Our base that we have connecting them more with the pharmacy and connecting them more with E Commerce, and we're seeing that retention and I think the fresh portfolio is also playing to our advantage because youre seeing people eating at home and a fresh is growing faster than the rest of stool.
Okay.
And maybe secondly, why if you think about I don't know what work you've been able to do around wallet share.
In your you know I don't know if your top decile.
Sort of the lowest one but where do you think your wallet share is even with your best customers and Where's the biggest opportunity in 'twenty two.
You know among your cohorts.
John the wallet shares highest with a top tier of our loyal group right. So and we find that once they engage in our loyalty program you see that the second thing that's very promising for us as we gained massive wallet share when people engage with us in Omnichannel and we can see that because there's no reason for a household suddenly stopped spending three forex with us.
Than they did before they engaged in omni channel and so we still think that that's the upside what is keep pushing people up on the loyalty ladder, which we're doing because of the retention and second continuing to engage people in omnichannel and both of those as you know we've got plenty of headroom.
Okay. Thank you.
Thanks, John .
Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley . Please proceed with your question.
Hey, good morning, everyone and nice quarter. My question is on inflation can you give us some color around volume.
And in price and then can you talk about.
The dynamic that's changing I think Sharon mentioned, a little more inflationary cost pressure is it that the rate of product cost inflation is just overwhelming and you can't pass it through or are you resisting to pass through because of market dynamics are changing.
Hey, Simeon good morning.
Here's how I'd, let me just provide some context on inflation plus the cost increases are real right. We're seeing it in our supply base I think they are seeing it in ingredients packaging transportation labor and we're seeing it in our own business. So when you think about even our own brands program and such so the cost inflation, that's absolutely real.
When we think about what we what we Pat what way of passing through the net net you know are we have pass through the inflation with pass through was less than the inflation we've been cook.
And the way we do that is to make sure that we are judicious about the categories, where we pass it through we don't pass through as much on the essential categories that customers need every day and we try to balance that out now and when it comes to unit volume or unit volume or unit share suddenly has gone up but that's.
Inflation goes up you don't see the same degree of unit growth, but its stable I'd characterize what we've seen over the last several weeks is very stable in terms of total consumption.
And we would just talk that as as this as the yoga goes through right as the calendar year goes through its inflation remains at this level stabilizes and then hopefully we get something better in the second half.
Fair enough when they blow up separate Oh, sorry, once actually I didn't go into that.
Yeah, I would just add one thing to that we also Sydney and are competing with a very broad set of competitors every day in the market.
Where we compete we've got the grocery stores. We've got that's merchants, we've got dollar stores discounters online players you name it so.
Because of that we have to stay competitive every day to win and retain our customers. So when we think about pass through we also have to be very focused on the competitive environment.
Thank you my follow up is on a separate topic just the labor inflation can you just give us a sense of just paint the paint the picture does the supermarket with wages because of unionization does that lag where the overall market.
Are you ahead of the curve as far as reacting to state local and minimum wages.
Yeah, Simeon I think the way to think of it is.
We we incur we are incurring more overtime right. The way, we manage it swings more overtime because of shortages in labor and then in markets, where we don't have necessarily a in certain markets. We just have to raise the price to get people in because different markets.
A different from a competitiveness standpoint, but in general what Youll find is that we are paying a higher wage levels than than than the over the market and therefore, it gives us a bit of a cushion.
To what extent it lags it depends on when the contracts and others come up but we've gone through a few contracts and we've got some very good settlement so quite recently with the Union.
Thank you.
Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Hi, good morning, everybody.
I wanted to just just start by following up on the inflation topic can you just maybe talk a little bit about what youre seeing from a customer reception.
Currently and then if we were to look out from here.
We are hearing more vendors talk about.
Additional price increases from here you can see you know PPI is well ahead of C. P I still.
But yet on the consumer front right. We do have a government stimulus rolling off child tax credit stop in January .
Stop payments are coming down, but just curious as to how you are thinking about consumer reaction to price increases from here does it remain price takers.
How does this dynamic play out and are you concerned at all from a margin standpoint incrementally.
Let me let me provide what we know I mean this is the big question right.
The consumer react going forward.
As of now what we are seeing trends. Even recently is that we have a strong consumer.
And we haven't seen a dramatic change in their pattern of consumption still engaging on fresh product and still still engaging overall in the store.
Now what we don't know is if inflation continues to go up does that behavioral change as we go through the calendar 2022 we don't know that but if the consumer remains strong we just because they're eating more at home, we think they'll continue to engage with us.
What we also don't know is what the reaction would be in the case of a reduction in snap. We don't know those so the things that we are doing is doing what we can control things we control, which is in tunnel right. One is driving retention of <unk> customers and we are continuing to do that and improving at that and two is doing all those things ive always.
Call It margin tailwind, whether it's mixed management shrink management. The Cogs program that we started in late last December of last year in.
In December 2020, the supply chain initiatives, you've got a lot of different initiatives that are all gross margin tailwind that continue to provide that cushion.
In case, we need to compete differently for the customer. So that's how we play it and there's things we control that where there'd be focused down focus on pretty hard.
Okay, and then just one quick follow up.
Your Capex. This year is coming in I guess, just you know slightly below where you initially guided for the year, but can you help us.
Or how you're thinking about you know next year and beyond you know Sharon you've talked about investment what levels of Capex do you think that we may end up seeing here and maybe refresh us on the priorities on that.
Absolutely.
In 2022 my expectation is that what we were not able to receive it this year because it's constrained we will carry that over into 2022, so that $100 million that we had to wiggle on the.
Guidance for 2021 will carry into 2022, and then we'll look at 2022 I would expect that the capex is going to be in the low 2 billion range, we're not giving guidance on 2022 I'm not giving an outlook for 2022, but I know that they do.
It is a very important question, especially in light of my joining the company. So that's where we're thinking about it at this point at this point and we'll of course give you a bigger update later, but remember we will carry it carry over into 2022 on top of the 2022 plants on.
The areas that we will be continuing to invest in are the areas you would expect.
Acceleration of digital and Omni channel is a top priority investment in the digital support for our loyalty program that spoke earlier about the R&D and the Albertsons media collective will be investing behind that in 2022.
Of course in the supply chain that will be another area that we will continue to be working on various forms of acceleration.
<unk> in that space will also be investing in additional productivity initiatives.
I know the question will come up today, and I'll just speak to it here at.
Just to preview it.
On productivity.
But I mentioned in his comments, we're making great progress on the productivity initiatives that we announced we have started a full court press on the next generation of productivity initiatives that we'll be working on in 'twenty 'twenty, starting in 2022 and moving that into.
2023 and 2024.
And that's shaping up very nicely and I'll give you more color to that but feeling very strong about the possibility of any additional productivity to offset some of the headwinds in 2023, and 2024 and remember we still have the productivity and used.
It is coming in under the billion and a half dollar program, but we'll definitely be announcing something above and beyond that.
Great. Thank you.
Yeah.
Thank you. Our next question comes from the line of her past break with Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking my question. So my first question has to do with the trends. If you can maybe provide color in terms of the monthly trends during the quarter and then any color on quarter to date trends as well.
Yeah.
They're repay shake morning.
Customer still stronger trends remain strong I'm very good start to the quarter rubbish is what I can tell you and and now more recently with the Omicron I think youre seeing people eating more at home again, and and where all.
The trends remain very positive from a top line.
Okay, Great and my follow up question is as we look towards 2022, I know you guys can't provide any.
Any specific guidance today, but is there any general thoughts on your ability to lap over this higher base next year.
Yeah that the initiatives, we have rolling I mean, the let me let me frame. It this way it would pay shoot when we were talking let's say the imagine to the January call of 'twenty. 'twenty. You know we had an E. Commerce business that was I think Doug wasn't like 150, or 200 stores something like that okay.
And so if you and we were just launching so many of our different initiatives. If you look at US today, you know we have a base we have a base business in E. Commerce, that's covering and like we said you know a 96% is covered with Doug 80% with two hour, Doug we have a new app in place we have an integrated app.
And with the loyalty program and everything in place we have 28 million members in our loyalty program. So we just feel we've got a great Foundation now to accelerate those things that are about relationship building and stickiness. That's what we're focusing on and Tobin Sharron mentioned earlier investments in digital and such now it's about driving scale.
Because we've got a great Foundation. In addition, we've got programs like the meals program that will rollout in 2022 more broadly across our network that gives us additional growth as people stay at home. So look at us to accelerate the foundation that we built across many different fronts over the last few years.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.
Hi, Thanks, so much.
To ask a quick follow up to Ed Kelly's question. He had mentioned snap you had talked about.
Some uncertainty or at least you don't really know what the reaction would be from the consumer.
Are there any early learnings that you have there are some states.
Where snap I.
I guess benefits to the consumer the dollars received by the consumer have pulled back from the peak I don't know if you've done any analysis on that or if there's anything you can tell us on that I know, it's very early so maybe not but anything you can see early on that might you know enlighten us on what the trends might be.
Actually we haven't seen it right and that's the so the if you look at if you you should have expected some changes in December we've not seen that we still see a strong consumer we still see but theres noise right December is also had omicron and and so I wish I could give you an indication, but nothing yet in the numbers for us.
Okay. Thank you for that.
And then I wanted to ask you know we're starting to see this is very anecdotal, but some out of stocks.
Across a lot of different categories and supermarkets.
How much how much is that starting to hurt you as you don't necessarily get full truckloads truckloads as maybe some of your labor isn't quite as available.
It's something probably short term, but are they need departments that youre seeing that and I just wanted to get a little bit better color on you know what might be or might not be an out of stock situations.
So let's talk about out of stocks right. So we have been you know we've been.
<unk> had a sustained several months of out of stocks in several categories and I think as a business. We've all learned to manage it with all learned to make sure that the stores are still very presentable give the consumers as much choice as we can get and and and we we were expecting that supply issues to get better more resolved as we go into.
This period right now.
Omicron has put a bit of a dent on that so are there are more supply challenges and we would expect more supply challenges over the next four to six weeks, but that said, we don't have supply issues that are constraining our business any differently than we did before.
Before right I think we're managing it.
Here's the other side of the coin the debate we've all been in the past, we'd all said with this degree of supply constraint. There is untapped growth and we believe that still we still believe that when supply comes back there clearly is more growth while on the one hand, you could argue that the customer was probably settled in with a certain pattern of consumption, but it's not zero.
It's not zero unmet potential and so we were hoping that a lot of 2022 that supply comes back. We'll also see growth in some of the categories, especially ones that are more expandable consumption.
Thank you very much makes sense.
Thank you. Our next question comes from the line of Michael <unk> with Evercore ISI. Please proceed with your question Hi.
Michael.
Hey, good morning, congrats on the quarter.
So just had two areas I wanted to hit on quickly one was just from a food inflation.
Relation perspective, if we see kind of food at home roughly 5% to 6% in the quarter is that kind of the way to think about that and I'm wondering if you could share any.
Rough estimates of how much the vaccine and booster shots might have contributed to our to the comp as well.
Yeah, Michael I think that Youre right. The inflation I think CPI inflation was 5.4 or something else. So it's just a tad higher than that no. We expect that inflation number to be slightly higher going into the next quarter right January February March we expect the inflation to take a bit.
And then at least in our assumptions that the inflation will continue until it laps itself and then we will.
Hopefully it gets to a more moderate type of inflation, the normal kind of inflation going forward.
That's how we've thought about it and Michael what does your second question again.
No no no.
Just related to to the vaccines that you all haven't been administering because you had mentioned in the press release that there was obviously a tailwind to Ids sales from you know both inflation, but then also the vaccine and booster shots yeah, Yeah, Michael we had a we had let we've dispensed 11 million vaccines. So to date you know.
I'm, probably one of the highest on a per store basis are in the from a pharmacy standpoint 3 million in the quarter.
And so that definitely contributes to I D sales and gross profit and that's another consideration we should all be thinking about and we are modeling as we think about the future.
Okay and then.
Switching gears, a little bit just to the margin front just wanted to check in for that can still see that things are rational in your view if that's still the case and also on the central procurement, if you could give us a feeling for.
That initiative in particular is evolving and how to think about the build there into the fourth quarter.
Yeah, Michael Let me talk about the promotion environment first and I think it is still the pricing environment is very rational.
He was what I believe will be dramatically different as the world goes back into promotions in the future and I don't know when that is but when we all go back into it. We're all more technology enabled we have more data we have more analytics, we have more precision we can be more surgical and youre going to see the sector coming back that way in my opinion.
Focusing on quality rather than quantity of promotions.
So so that's that's how I see that from the initiatives that we talked about which we had launched to consolidate our buying it's going extremely well.
The biggest reason being it just makes things simpler for our supplier right and we are we act as one entity and and that program is going really well both from a monetary standpoint, but also from an organizational and cultural standpoint.
And Michael remember that we are introducing that program on a category by category basis.
So we are seeing benefits, we saw them in the third quarter, we will see benefit again in the fourth quarter, but that we're rolling it by category. So we this will also be a tailwind into 2022 in a substantial way.
Great. Thank you for the update and good luck.
Michael Thank you.
Thank you. Our next question comes from the line of Paul Lajoie with Citi. Please proceed with your question.
Hey, everyone. This Brandon Cheatham on for Paul wanted to follow up on Michael's question around the Covid vaccines just wanted to see if you wanted to quantify the benefit there on both sales and gross margin and then what is baked into your <unk> guidance from.
Vaccine.
On the we have not quantified the amount of revenue coming from the COVID-19 vaccine and we won't be quantifying that of course, that's very competitive.
But from a Q4 perspective, we do anticipate our revenues being in line with where they were in Q3 and of course, it's hard to know.
What will happen with boosters going into 2022, I think we're going to get a lot more visibility to that certainly the boosters are proving.
To be very good for the population it for people. So we'll see how that plays out going into 2022, and we'll know a lot more I think during the fourth quarter.
Got it thank you.
No. It's early days on the retail media initiatives I was just wondering if you could share any learnings there from.
November .
Follow up to that what percentage of purchases are completed with the loyalty card and how has that changed over time. Thank you.
Yeah, Bryan one on the retail media initiatives, we're launching it officially at the end of February So we'll share more with you as we get into the next call and we're excited about it because we have built at ground. The ground up so that it will appeal to the the chief marketing officer of our company right. So that's the spirit of that and we'll come back to you on that.
Can you just Brian what was your second question again.
The percentage of purchases that are compounded with a loyalty card substantial but it's a substantial portion of it is completed on our loyalty program remember that the take up our business in two ways. One is sales we can identify with an identifier which is the majority.
If our business and then sales that are in our loyalty card card.
So it's a substantial portion of the business.
And that's the way this would as that increases we get even more through into it.
Got it.
Thank you Mike.
Thank you. Our next question comes from the line of Robbie <unk> with Bank of America. Please proceed with your question.
Hey, good morning, guys, great great quarter, and thanks for taking my question just two to.
Two quick follow ups.
First I think the guidance implies around like a 2% for the fourth quarter would be.
The D cell is that whats in that D cell. It sounds like you think inflation is going to be.
B as high if not higher for you guys in the fourth quarter versus <unk>.
Is it you.
Do you expect less vaccines or is it just maybe conservative given that you had a strong start and then maybe the second I don't know if because.
Sharon you can give a little more commentary on just what you think might happen with supply chain could use as you move through.
Calendar 2022, and could those in stock levels get back to normal for the industry you think thanks.
Yes, I will take that as a member to break it down. Your first question was as you look at the guidance for the fourth quarter and you back into the I D sales in the range it somewhere between on average three to four and a half rent per site.
Why is that.
Less than Q3, a five 2% and I would tell you that the question that was asked earlier about government support and all of these questions around what is the consumer going to do.
These programs start tailing off is one consideration that we put in there well we have not seen that and quarter to date, we're running better than that outlook, we are being thoughtful about the balance of the quarter at this point in time.
So that's how to think about that we do expect as I said earlier for our vaccinations to continue in our stores and quite frankly are doing everything we can.
To promote it.
We are trying to be there.
We have administered 11 million vaccines. When you look at other retailers, who have substantially more stores than we do they are not near those numbers. This is been a major initiative for us.
Not only from a business perspective, but also from a social perspective, and we are continuing to put note that in our stores and I want to point out.
That when we engage with customers in this way.
It deepens their engagement with the brand. This also sets us up into 2022 because as we have pharmacy customers that are coming into our stores and we are serving them in this way. It is definitely and we can measure improved engagement and higher.
Customer lifetime value.
Participating in this program is socially the right thing to do but it has also been very beneficial to the overall business.
And Robbie if I can address the supply chain question, so here's what.
At least we had imagined just having talked to the supply base. Many of them. If you think about what happened through 'twenty 2020 . One we are building up capacity and a lot of that capacity should be coming on just about now right. It takes 12 to 18 months to build it up and so we were expecting a lot of that to come into the market, but I think with omicron you have.
The physical you had the the steel in the ground, but you don't have call offs on labor and I think that's creating this challenge and that's why what I, what I expect would happen is that as we get past omicron.
We were able to see more of that capacity coming into the market.
That's really helpful. Thanks, Thanks, so much.
Thank you. Our next question comes from the line of Scott My skin with <unk> capital. Please proceed with your question.
Hey, Thanks, guys. Thanks for taking my questions. So the first one is around.
Around the equity actually and I know management, sometimes hesitate on this but clearly the performance last year was strong.
But also when you look at the valuation gap to your largest competitor it's purely fairly substantial so I think as you look at as a management team and enhancing shareholder value.
Or how should we think about especially because you are sitting on a pretty big chunk of cash on the balance sheet and it's growing so what do you think you guys could do to enhance shareholder value further.
Okay.
Scott Thank you.
I believe that we need to continue to execute gained market share drive the business deliver on our productivity initiatives.
And that's the foundation right for creating value along.
Long term sustainable performance create value. The second now I will talk about the balance sheet.
We are carrying more cash than we've carried in the past as you know we have a lot of exciting initiatives that we are investing in right. Now we can start with accelerating digital and omni channel. We can talk about additional marketing platforms that we're investing in we can talk.
The technology the supply chain. So I mentioned that we will continue to.
To invest in the growth drivers of the business.
Yes.
As you know during the quarter we retired.
Some that will continue to also retire debt, where it makes sense or refinance debt, where it makes sense.
And then we are continuing of course to pay our dividend.
Put out over $50 million, a quarter up to a $149 million and we'll continue to look at it Scott we completely hear the question and we are constantly looking at returning cash and returning other things.
Things to our shareholders value to our shareholders. So.
More to come on that and we'll give you more of an outlook on that in 2022.
That's perfect. Thanks, Sharon so so vivek and I kind of have something similar last quarter.
But you'd always obviously, you've just having a blowout year this year, but as you guys think about your planning, which I'm sure you're doing for next year and the years to come is your expectation as a CEO that EBITDA should grow just naturally even if the year was good or kind of philosophically how do you approach the planning process.
What your expectations are for your management team.
Yeah, I mean, I'm, not not giving guidance Scott, but you know our philosophy is always finding tailwind for the gross margin, which we've talked about and we've talked about initiatives. There and then finding ways to drive more productivity below that gross margin line and Sharon told you that we are working on our next tranche.
To have productivity there so and then if you grow the topline and you do that those two things I just talked about by definition, you know you're getting leverage in the business. That's the principle with which we run this business and we'll come back to you guys with more on how do we think about 'twenty. Two later in the year.
Hey, perfect guys. Thank you for taking my questions.
Yeah.
Yeah.
Thank you. Our next question comes from the line of Karen short with Barclays. Please proceed with your question.
Yeah.
Hi, Thanks, very much maybe just following up on that a little bit you know I wanted to just talk if you could see if he could talk contextually about puts and takes a little bit to gross margin and SG&A in 2020 , two and I think maybe more focusing on gross margin because when you think about gross margin this year and and and.
Next year, you will have inflation pressures, you'll have supply chain pressures, you will likely be lapping some vaccine benefits depending on what happens with their stores, but I'm. So those would be your headwinds and then your productivity initiatives and I see them private label penetration would be a tailwind. So I guess I would ask a little more on the gross.
Margin front do you do you think you can expand gross margins ex fuel in 'twenty two.
Yeah.
Yeah, Karen we or not can I give an outlook for 2022 today.
I will just say that we do believe that there are going to be puts and takes exactly like you described them in 2022.
We do think that inflation is not.
It is not over in our estimation and based on what we're hearing from the suppliers. So we think theres going to be continued inflation flowing into 2022 at least probably through the first half.
And then obviously.
Obviously, we will be at some point lapping a vaccination assuming that this does not continue.
The great news for US is that as Doug mentioned earlier.
The winning model of the work that we're doing on the consolidation of procurement.
Is going extremely well and we are working very well with our vendors and I think that's one area, where we see tailwind coming into 2022.
You also have our other productivity initiatives that will be flowing in there as you pointed out we're making good progress now in own brands supply will be you know a little bit tricky, but.
But we are feeling very good about where we're going to known brands.
So those will be additional tailwind for 2022 and then the question is of course, what were the puts and takes happen on the top line.
We'll talk more about it at the end of Q4, but the ones that you summarized I absolutely agree with and those are the puts and takes were considering.
Okay. That's helpful. And then just on <unk>, obviously, Sharon you gave the actual comp in the quarter to date or the range for <unk> and you said you were running better than the 3% to 4% but.
Specific to snap.
Are you seeing have you clearly have seen reductions in snap.
Penetration already start I would assume so I guess, what I'm wondering is could you give what your actual penetration is and snap as a percent of sales and then how youre thinking about that in 2022 are currently and then into 'twenty two.
Yeah, Karen we haven't given that but there's a consideration that I think has to be put on the table. When you were talking about snap and it's something that we've learned.
In our analytics here is.
Is that when you have no customer.
When they have more snap.
That means they spend less of their own money.
But that doesn't mean necessarily in total that they will spend more.
So.
It's almost a mix shifts and tender.
And what we're very focused on right now is those analytics.
I'm trying to understand that customer I will also say that we have made it a top priority this entire year on retention of customers.
For U special promotions for all the new customers learning then finding what inspires them digitally talking to them. We can talk about I could give you you know personal advertising video social media and Influencer.
Influencer I mean, we have taken the gamut.
Engage with these customers.
And we are working very very hard where we again these customers to continue to keep them and so that said we are seeing some of the highest retention numbers we've seen.
And so that's when you think about it everyone talks about snap and it goes away and I think we also have to be discussing tender shift.
Right no I agree with that 100% I just was curious if you could also give a number but thanks for that that's helpful.
Youre welcome.
Thank you. Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, Thanks, two quick questions. One is I was hoping to get a little more clarity on on what you were saying about gross margin in the fourth quarter Vivek.
It sounded like you're expecting inflation to accelerate.
Your gross margins have been very steady throughout the year. So are you, saying that gross margins can remain steady in the fourth quarter or do you think theres a little more pressure and then secondarily on an owned brands.
Our Nielsen data shows that private label trailed overall grocery throughout 2021.
Do you need to take extra steps in 2022.
For your own brands to merchandise them more aggressively.
Or do you expect the consumer just to behave differently in 2022 with respect to owned brands how.
How do you think about it.
Sharon do you want a test gross margin yet.
Yes be happy to when you guys think about Q4 are within the range of the guidance I think you should think about it very much in context of Q3, we're expecting the quarter to look very similar.
And with that I'll, just turn it you don't take the young brand.
Rob first thing our own brand penetration if you look at it is back to where it used to be pre pandemic, which we like right and and so and to me that's been one a matter of getting stability and supply and then we continue to introduce a whole bunch of new products. So when we think about our own branch program, we see a lot.
Potential and the potential only be constrained by supply not consumer uptake not not the innovation not the merchandising not what we do on online because all of those are completely in our control and so my sense is when I talk about supply stabilizing earlier, it's not only going to stabilize I think for our branded products, but certainly.
For us too as we go forward.
Okay.
Are your own brand sales maybe you provided this are they growing as fast as your overall store or faster because you say that you know they are back to pre pandemic levels.
Penetration is back to pre pandemic levels right. So it's growing slightly faster to catch up with it over this year right. Okay. Thank you.
Thank you ladies and gentlemen, this concludes our time allowed for questions I'll turn the floor back to Mr. <unk> for any final comments.
Thank you all for participating in the call today we.
We will be talking with each of you over the course of the day to follow up Thank you take care.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.