Q4 2021 Albertsons Companies Inc Earnings Call
[music].
Welcome to the Albertsons company's fourth quarter and fiscal year 2021 earnings conference call and thank you for standing by.
All participants will be in a listen only mode until the Q&A session.
Is being recorded.
I would like to hand, the call over to Melissa <unk> Senior Vice President of Investor Relations Treasury and risk management. Please go ahead.
Good morning, and thank you for joining us for the Albertsons company's fourth quarter and fiscal year 'twenty 'twenty. One earnings conference call with me today are <unk> <unk>, our CEO and Sharon Mccollam, our president and CFO today, Vivek will share insights into our fourth quarter results as well as review.
Our progress against our strategic priorities Sharon will then go into the financial details before Vivek and Sharon provide a discussion on our priorities and outlook for fiscal 2022, I would like to remind you that management may make statements. During this call that are or could include forward looking statements within the mean.
<unk> 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 additional.
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 forms 10-Q, 10-K, and 8-K 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 historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA.
And with that I will hand, the call over to Vivek.
Thanks, Melissa good morning, everyone and thanks for joining us today.
In the fourth quarter, our teams continued to drive top tier operating and financial performance.
I want to recognize and thank all of our retail distribution and manufacturing teams for their commitment to and care of our customers and their communities.
We are proud of the compassion humility and passion for excellence they have shown in an exceptionally challenging environment over the last two years.
Thank you for 'twenty one.
Sales increased seven 5% and 19, 3% on a two year stack. We also gained unit and dollar market share in food and meal no on both a one and two year basis and maintained our number one or number two position at 68% up 121, Msas in which we operate.
In addition, we delivered adjusted EBITDA of approximately $1 $1 billion and adjusted EPS of <unk> 75 per share well ahead of our expectations.
During the quarter, we continued to see a rebound in store traffic and the benefits from our digital and Omnichannel investments, including the expansion of drive up and go.
Additional micro fulfillment centers, bringing our total mfc's to seven.
Omnichannel households spent three times more than in store only shoppers and during Q4 Omnichannel households grew by nearly five times versus the fourth quarter of 2019.
In addition, as our investments drove increased customer engagement and retention Q4, 'twenty, one digital sales increased 5% year over year and 287% on a two year stack basis.
And the just for your loyalty program benefit enhancements continue to accelerated membership growth, which increased 18% year over year to nearly 30 million members and is up approximately 45% or over 9 million members since the fourth quarter of 2019.
Actively engaged members defined as those redeeming coupons furlough of grocery rewards also continued to increase and the retention rate of these members remained over 90% at the end of the year.
Remember that on average actively engaged members spent four times more than non actively engaged customers.
I will now recap our progress against the fourth key strategic priorities that drove our better than expected Q4 in 2021 results.
Driving in store excellence is the foundation that enables everything we do and our commitment to enhancing our customers' experience contributed meaningfully to the 18% year over year growth in adjustable your members and market share gains.
From an inventory and productivity perspective, we simplified tasks and automated production planning.
Fresh departments, resulting in higher in stock conditions and more time for customer interactions. For example in the Delhi, we installed auto slide certain sectors and implemented production planning tools that increase product availability, while reducing shrink and improved customer service.
These changes contributed to the better than expected results in fresh during.
During the fourth quarter fresh IV sales outpace center store by 280 basis points year over year and over 500 basis points versus two years ago.
In addition, we continue to invest and modernize our store fleet, including adding and upgrading self checkout, which is now available in over 800 stores that optimizing the layout is designed to improve the customer shopping experience. We completed 236, Remodels and opened 10 new stores.
In fiscal 2021.
And on brands, we introduced 837, new products and increased adoption in lower penetrated divisions, driving strong growth and improved margins.
Q4 sales penetration reached 25, 6% with the strongest performance in floral deli and meat.
During the year all brands was awarded for private label Manufacturing Association Awards, and one recognition from store brands magazine or innovation in private brand marketing.
Our next priority is the acceleration of our digital and omnichannel capabilities to fuel our growth and increase customer engagement satisfaction and retention.
In loyalty, we launched an upscale our new unified mobile App are you or me.
87% of our digital orders were being placed in the USA by the end of the fiscal year.
We also.
Are we planning to that offers recipes, including those that address dietary preferences, such as vegetarian or gluten free.
Customers can seamlessly at all let's be ingredients to their shopping list or immediately puts them in the USA.
And drive up and go we reached our goal of over 2000 stores, serving 99% of our households.
Online delivery, we expanded third party partnerships to offer more choices and accelerate the speed of delivery.
And in both drive up and go and online delivery reduces cost per order by adding five additional in FCS and three where rooms, reconfiguring, our picking software and staffing models and improving our forecasting algorithms.
In digital we are beginning to capitalize on our rich and proprietary data.
Recently, launching the Albertsons media collective for AMC.
AMC offers.
<unk> business partners for robust digital marketing platform that reaches our extensive customer network and leverages, our strong market share, especially in the 68% of markets, where we hold the number one or number two share position.
We expect the AMC to be a leading growth and profit driver over the next several years.
Increasing productivity our next priority.
Allowed us to continue to fund future growth and offset inflation.
In the second year of a three year, one 5 billion savings program, we enhanced our pricing and promotion capabilities.
The rationalized indirect spend and expanded our national buying initiatives.
We expect to achieve our targeted $1 $5 billion in savings by the end of fiscal year 2022.
And we will not stop there later on this call we will discuss the next phase of our perpetual productivity engine beyond fiscal year 'twenty two.
Our fourth priority is strengthening our talent and culture and supporting the communities yourself and <unk>.
2021, we continue to acquire or develop talent to transform the culture to harness local ownership leverage scale and support our new Omnichannel imperatives.
We also recognize the frontline teams for embracing this cultural transformation, while delivering exceptional service to our customers by awarding the discretionary. Thank you payment in the fourth quarter.
Our senior leadership team also focus on amplifying, our diversity equity and inclusion strategy.
We are continuing to make progress at the senior levels of the company and are benefiting from the experience and diversity of thought that each of these leaders is bringing to the table.
In pharmacy.
Teams worked tirelessly to provide COVID-19 vaccinations to the communities we serve to.
To date, we have administered over 12 million vaccinations.
ESG, we increased investment and further develop our goals in the areas of climate action waste reduction and circularity community stewardship and diversity equity and inclusion later this month in conjunction with Earth day, we will announce this comprehensive set of goals publicly.
We are very pleased with the progress we've made against all our strategic priorities.
And there remains significant headroom and a strong foundation to build on in 2022.
I will now turn the call over to Sharon to cover the details of our fourth quarter and fiscal year results.
Thank you Vivek and good morning, everyone. It's great to be here with you today.
Our fourth quarter 'twenty, one results were strong across all key metrics.
That nickel sales were up 75% and up 19, 3% on a two year stack basis.
With momentum continuing into Q1 'twenty two.
Retail price inflation as well as market share gains contributed to these results.
Gross margin rate was 28, 7% in Q4 2021, excluding fuel gross margin rate was flat compared to last year.
Road activity and post Covid related pharmacy margins and a favorable product mix were offset by the rate impact of increased product costs driven by the current inflationary environment.
Higher supply chain and LIFO expenses.
Selling and administrative expenses as a percentage of sales were 24, 9% Q4 2021.
Excluding fuel and a favorable pension adjustment SG&A decreased 30 basis points compared to last year. This decrease was primarily driven by lower COVID-19 related expenses and the benefit of productivity initiatives.
Decreases were partially offset by market driven wage rate increases.
That generic appreciation payment to our frontline associates.
Just related to the acceleration of our digital and omnichannel capabilities and higher depreciation.
Q4, 'twenty, one adjusted EBITDA was 1.074 billion compared to $917 million last year.
This increase was primarily driven by the flow through from our 75% sales increase and the margin benefit related to administering COVID-19 vaccine.
Q4, 'twenty, one adjusted EPS of <unk> 75 cents per fully diluted share compared to 60 cents per fully diluted share in Q4 of 2020.
Turning to full year fiscal 'twenty, one IV sales were near flat and up 16, 8% on a two year stack basis.
We also delivered adjusted EBITDA of $4 398 billion.
Activity initiatives and margin benefits from COVID-19 vaccine.
T J conductor.
Substantially offset product wage and other inflationary headwinds.
So your adjusted EPS came in at $3 and seven pence.
Really three times, our 2019 adjusted EPS of $1 four.
I'll now discuss fiscal 'twenty, one cash flow and capital allocation.
Strong earnings and temporary reductions in working capital go better than expected cash flow.
Capital expenditures in fiscal 'twenty, one, but one 6 billion with the majority of investment being made in the modernization of our store fleet and the building of our digital and technology platforms, both of which we expect will continue to fuel our transformation as we enter 2022.
We also returned $207 million to our shareholders through common dividends and repaid $330 million and outstanding notes.
Net debt leverage at the end of fiscal 'twenty, one with 1.2 times compared to one five times in fiscal 2020, and two nine times in fiscal 2019.
I'd now like to provide an update on our recent labor relations activity.
We have continued to settle labor contracts that provide an overall wage and benefit package that reward our existing team members for their significant contribution and strengthen our competitive positioning in the markets we serve.
During the fourth quarter of 2021, we settled retail contract in Denver, Portland, Montana, Idaho, or Oregon in the mid Atlantic.
Thus far in the first quarter of 2022, we have also reached tentative settlement in both northern and southern California with retail contracts in Seattle, Las Vegas, Shaw's Jewel left to be negotiated this year.
I will now turn the call back over to sit back to discuss our fiscal 'twenty two priority.
Thank you Sharon.
As we look forward to fiscal 'twenty two.
Entering the next phase of our transformation strategy customers for life.
Our belief and the evidence is that when we are at our best in the brick and mortar and digital world, our customers never leave us and cheap and more of their wallet with us.
Customers for life is built around disbelief that satisfied customers create outsized lifetime value.
And that everything we do should enable more stickiness.
Customers for life is anchored on placing the customer at the center of everything we do with the ultimate goal of supporting our customers every day every week and for a lifetime.
We want our customers to interact with us daily.
Not only to shop, but sometimes to simply consume relevant content about food plan meals provided information to inspire their wellbeing.
Our business model is pivoting to one that is loyalty based doubling down on our omnichannel engagement with customers beyond just transactions.
We will elevate the in store experience when they shop with us and expand our services and content rich offerings and build a set of competitive and timeless capabilities that create a compelling reason for our customers to seek a lifetime relationship with our team members and our banners.
To support this pivot.
We will be investing in the following strategic priorities.
Digitally connecting and engaging all customers through our mobile App and website.
I can enjoy integrated and curated experiences and e-commerce and community.
Iot and.
In media.
Differentiating our store experience by deepening engagement through the use of technology to.
Moving piece remember pain points to allow them to focus on customer service versus just tasks.
And simplifying the end to end shopping journey and evolving store operations to support Omnichannel growth.
Enhancing what we offer.
By elevating our distinctiveness and fresh.
Expanding our own brands products and services, including our readiness program.
And then enhancing product offerings incentives store to address customers' changing needs and preferences.
Modernizing our capabilities in part to an improved supply chain enhanced data and data analytics and ongoing productivity all built on a foundation of being locally great and nationally strong and finally <unk>.
They're embedding ESG throughout our operations.
Success against these priorities will be measured based on increased digital engagement expanded merchandise and service offerings.
Definitely differentiated omnichannel experience and an accelerated set of digital and supply chain capabilities.
I will now turn the call over to Sharon to discuss the financial outlook for 2022.
And so that said, we're entering fiscal 'twenty two and the next phase of our transformation with continued momentum and strength in our core business evidenced by our Q1 to date mid single digit sales increase.
We are gaining market share and the investments we have made in growth and productivity are delivering better than expected returns.
The pandemic, we capitalized on the opportunity to attract new customers and at the end of 2000 $20 million to $30 million just for your loyalty members.
45% increase versus year end 2019.
With that as the backdrop, our fiscal 'twenty two outlook assumes the phone.
We expect fiscal 'twenty, two IV sales to increase 2% to 3% driven by continued inflation and market share gains.
In the first half of the year, we expect <unk> sales to be above the full year range in the back half, we expect <unk> sales to be below the full year rate is due to cycling heightened inflation in the back half of fiscal 'twenty one.
We expect adjusted EBITDA in the range of $4, one five to $4. Two 5 billion, reflecting continued growth in the business and stable gross margin in fiscal 'twenty, two and our core business. Excluding fuel we are expecting gross margin rate expansion driven by productivity tailwind.
We are also expecting however, a 65% decline in COVID-19 vaccination and related margin the impact of which will be greater than the core business margin rate expansion.
Therefore, factoring in both drivers we're expecting the gross margin rate, excluding fuel to be down slightly in fiscal 'twenty two.
And selling and administrative expense, we are incrementally investing in our strategic priorities.
Our digital transformation, the Albertsons media collective and the modernization of our supply chain, which will increase our SG&A rate in fiscal 'twenty to drive long term benefits.
Productivity tailwind are also substantially offsetting a significant increase in hourly wages and benefits for our frontline associates.
That brings us to adjusted EPS, which we expect will be in the range of $2 70.
The $2 85 per share based on our current fully diluted share count.
To support this outlook, we expect capital expenditures to be in the range of two to $2 1 billion with more than half of the spending investing in modernization and digitalization in our stores and the remaining and the expansion of our digital offerings and optimization of our supply chain.
I also like to share with you our latest view on additional productivity.
By the end of fiscal 'twenty, two we will have to deliver on our three year commitment of $1 5 billion and productivity.
Is that is coming to a close we have started framing the next wave of productivity and have already identified $750 million in future savings that we are committing to between fiscal 'twenty three and fiscal 'twenty five in the areas of automation and digital tool scalable workforce management modernization of our supply.
Jane and SG&A optimization.
I'll now turn the call back over to put back for closing remarks.
Thank you Sharon.
Yes, Sharon just mentioned.
<unk> with our 2021 results and the continuing momentum we are seeing as we enter 2022.
Our relative performance evidenced by our profitable sales growth and market share gains continues to be strong.
Our strategy is working.
And we're executing well against industry wide pressures.
And the transformation, we began before the pandemic has significantly strengthened our company.
It also shows we've accelerated remodels implemented technology enabled core processes and advanced our capabilities in fresh.
Leveraging our store base, we have built a scaled omnichannel capability, including drive up and go home and online delivery that is proving to be sticky with customers who engage across channels.
We have developed a robust loyalty platform and a unified mobile app that engages customers and personalize offers for a 30 minute.
Just for your members.
We have learned to leverage our scale and <unk> capabilities, such as pricing and promotions and merchandising and supply chain without compromising agility and local ownership.
We have proven that we can deliver productivity at scale.
And are adding an incremental wave.
All of these foundational capabilities have created a springboard for customers for life and our next phase of growth.
While we recognize there are a number of uncertainties in the macroeconomic environment as we enter 2022, we have demonstrated a proven track record in the execution of our strategy and remain confident in our ability to deliver against the 2022 priorities that we laid out for you today.
But none of this would be possible.
Without the unwavering commitment of our associates.
And the ongoing support of our vendor partners and shareholders.
We will now open the call for questions.
Thank you.
At this time will be conducting a question and answer session.
Do you like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Press Star two if you would like to move to your questions from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
So we may address questions from as many participants as possible. We ask you. Please limit yourself to one question and one follow up.
Thank you. Our first question is coming from the line of Robbie <unk> with Bank of America. Please proceed with your questions.
Hey, good morning, Great quarter I'll, just do my two questions upfront. The first one is just on the <unk>.
I'd sales guidance, maybe a little more color. We just had the March food at home inflation came at around 10% I think Sharron you said.
Youre seeing sort of mid single digit.
<unk> to date.
That seems like you'd be falling behind.
The overall food at home inflation numbers, maybe more color on.
Why that may be in and some thoughts on that and then vivek.
You talked about enhancing center of store for needs and preferences I was hoping to get some more color from you on what that means and what you're seeing in center store changing.
Yeah.
Ravi. Thank you I'll take your first question on the mid single digit comp sales that we're currently seeing.
I feel very good about the strength of our business, we had a substantial Easter shifts.
Not an albertsons dynamic that's an industry dynamic because last year at this time Easter would have already happened and it's not be happening now for a couple of weeks. So we'll see how the rest of the call.
It plays out, but we wanted to make sure that we gave you guys color on where we are at this point in time and we are running in the mid single digit range. So I'll, let did that take the other part of your question Ravi.
Ravi on the center store recall.
We started this wave of buying differently right.
Now that we have a more consolidated approach to going to the market, especially in the center store.
Now also have an opportunity to start taking decisions on categories, where we under index and there are some very meaningful categories.
Growing that we under index in our space. So that those are examples of the types of things that we're going to continue to do and we can do that at a national scale. So that we can get the best Bang for the Buck. So that's primarily it around the center store the other area I mean.
It's not so much center store, but I don't know where it fits this the whole meal solutions related kind of fits with what I talked about the layout and optimizing things. Those are the types of things. We're also working on so that we can allow people to have quick and fast strips, you'll see it in some of our stores that are oriented towards solving for a meal.
<unk> for the evening to get into now with a few center store categories with primarily the meals. Those are the types of things we're working on rock.
That sounds great. Thank you so much thank you.
Your next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your questions.
Hi, good morning, everyone.
First a quick follow up on it on inflation.
There is a growing set of consensus concern I guess that we could see elevated food price inflation.
For some time now with the war in Ukraine, I guess, what is your expectation for inflation.
May peak based upon kind of what you're hearing from vendors and your work I mean.
Your guidance seems to suggest that maybe you think it's peaking now.
And then in terms of elasticity, it's hard to imagine that elasticity stays so low.
Like Robin said, we see 10% food CPI today, what are you seeing from a consumer behavior standpoint, and then what are you what are you expecting from elasticity standpoint from here.
Hey, good morning.
First on inflation, let me just provide a little bit of context.
I Hope you guys are able to see that we are managing the inflation very very well right and so if you think about what we're trying to optimize here is we wanted to make sure that we're competitive in the way we measure that as market share gains dollar share and unit share both in food and new low and we've got a nice track record.
All through the quarter, if it's sustained attractive growth market share gains and at the same time not compromising gross margin. So that's the that's the equation that we're trying to work through and we're doing very well with it.
Because we're giving people choices customers choices the managing mix.
Allowing customers to get into a competitive basket by doing that.
What we have done is that we have estimated that the current level of inflation.
I think Q4 CPI was seven 4%, Okay and I just saw the news. This morning that the inflation overall was 8% or so we suspect that this is the rate of inflation will continue until it cycles itself around September which will be the beginning of our second half and that assumption. We've made is that this inflation.
It will moderate.
In the second half.
And Thats the assumption we made it. So you could you could argue that if you think what's happening in Ukraine will create more inflation than our assumption there is conservative but the way they've approached it is assumed that inflation will be lighter and moderate in the second half of the year de lever the business that way, because we're going to drive more productivity and other things.
Over there right and if inflation came up that it gets to your second question now if the consumer behaves like she is behaving now.
Honestly, we are not seeing a change in behavior right. We're still seeing the consumer is very strong.
We're not seeing any meaningful trade down.
I'll give you. An example, organic sales penetration is up not down in our business. Okay. So we think the consumer is still strong whether the consumer will stay that way even.
If we go into the second half or perhaps the fall and inflation continues to be at 89% I don't know I would imagine you'd see some elasticity, but that's the approach. We've taken we wanted we expect it to moderate in the second half I hope that gives you enough color on how we've thought about it.
Yes, no that's great and just a quick follow up.
Karen on the guidance for the gross margin compared to 2019 is kind of different throughout the year. It's much harder in the first half than it is in the back half.
How do we think about sort of like first half.
Margins.
Yeah. So we're not guiding by quarter I tried to give you a little more color on the gross margins as we work through the year. One thing to think about is that just as you think about 2022 as it relates to COVID-19 .
Youre going to see the most significant impact from Covid vaccination in Q1.
And then in Q2, our numbers were down last year in Covid than Q3 picked up in Q4 picked up so.
When you think about modeling that.
Flow through on Covid is substantial and these vaccinations. So I hope that will be gathered a little more help I've already talked about the pressure of the COVID-19 vaccination, but that's a pressure that you need to model I think about Q1, three and four as being the biggest quarters and honestly.
Q3, and four where the bigger.
After four quarters.
Thank you.
The next question is coming from the line of John <unk> with Guggenheim. Please proceed with your questions.
Hey, guys first question to you in some way to size the.
The dollar opportunity.
About your best customers versus maybe the average.
Right.
I would think there is a several hundred dollar annual spend opportunity there.
With that in mind, if you think about you know two to three comps longer term.
Can you drive the vast majority of that just from the best 15 or 20%.
Of your customer base.
Can you do that.
Hey, John morning.
First on your first question its not several hundred to several thousands okay for the customers who are deeply engaged with us.
And the way, we think about it if I can give you a little context here. If you go back even to our IPO document.
You'll see that we've talked about this notion of customers who engage in multiple parts of our business stay longer with us and spend more with US. Okay that was evident but it was not at the kind of scale. We have today, what do I mean by that today, we have 30 million customers engaged in our loyalty program.
One asked that they can go through.
One that it is important to the whole company whether.
It's not the whole yet, but it'll be there where you can go into the pharmacy business you can engage in E. Commerce, you can get content on Nielsen recipes that so on so forth. So.
Got that we've got an ecommerce business now thats national right with that would drive us to go and delivery at many many choices of deliveries they have a revitalized pharmacy business.
All of these together it gives us a scale a scale national scale and ability to create what we call stickiness with our customers. So the first part of your question, yes, it's thousands of dollars not hundreds of dollars and the second part of your question absolutely, Yes, we imagine driving more and more of our sales from this group of <unk>.
Customers and the big way to do it is by driving more retention with these customers and the reason we have retention at all of the touch points, we have have just become stronger and at scale.
Does that help John Okay Yep.
Yep.
And then maybe secondly, you talked about the 750 productivity for them.
For the next three years that you've just started.
Excuse me will not finished there was it is it possible or likelihood that ends up being similar to the last three years 1 billion five.
And then your thought process on the new if there was a new secular algo.
The old one right.
Is this the same on a higher base.
Is it possible that this all goes a little higher than the old one.
Let me start with the productivity question.
As we said in the prepared remarks, we have just started bringing this next phase of productivity.
Over the last six months since I joined and it's a perpetual productivity engine. So there is absolutely the expectation that over time that number will continue to grow. So that's the first question and then on the second question that you wanted to pay off.
I think John the way I think about it is if we when we went out when we went to the IPO. We were at two in a quarter for them right.
Long term algorithm, obviously, we've sustained a much higher number than that not even not just on an absolute basis, but on a relative basis, it's been incredibly good.
Put a lot of different things in place, let me put it this way.
I'd be disappointed if that's where we ended up for the long term, but we need to lap what we're going through this year before we can establish a pattern on that.
Great. Thank you.
The next question is coming from the line of Ken Goldman with J P. Morgan.
Hi, good morning.
Vivek I think I already know the answer to this based on your tone earlier, but is it fair to say.
But as you are not seeing any meaningful changes in how the consumers behavior. This is true within the consumer as you define them as considered higher and lower end I just wanted to get a little bit of a sense there given how much sensitivity. There is in the market right now to lower end consumers in their spending.
Yeah.
Ken.
I have not seen a big difference yet we have not seen a big difference yet across income segments right. The one thing that we have.
Putting our plan is that as a snap funds reduce which we suspect will go down over as we go through the year.
That lower end consumer all the consumers that we're more dependent on staff, let me put it that way.
We will reduce some spend.
That said today, what we have seen this currency shifts we haven't seen that behavior, yet, but we don't want to conclude just to assume that for the full year. So as we go into the second half we have assumed that the.
The consumer that was depending on snap will spend less.
And then maybe just spend less by trading done right and we've assumed that behavior going forward Ken.
We haven't seen that in any of our segments today.
And are you seeing a little bit of our sorry does your outlook, rather assume a little bit of incremental promotions incremental discounting to sort of offset some of those pressures that those consumers might feel.
Yes, it does.
It does.
Alright, and then my follow up is and this is possibly a wasted bolt, but I'll go down this road anyway.
Can you talk about what the impetus was for the strategic review, it's just such a so odd to see a company that IPO. So recently performing well fundamentally you know, adding great C suite talent to announce something like this especially given how broad some of the wording is so I'm just curious if you could talk about sort of what sparked all.
This which has created some noise in the market.
Yeah. So Ken it was really start by the fact that valuation compared to peers.
With not reflecting the strength of our performance.
There were reasons in our minds for some of that our performance has been if you know if you put us on the same.
Basis at Kroger, we have different quarter, and but if you measure us out yeah, we outperformed Kroger in Q4, we outperformed in for the year et cetera. So that was really originally the catalyst for it and of course, there was the overhang of the preferred shares that have hit the market.
And then of course, the IPO lockup.
That was coming.
As opposed to playing whack a mole that's an alternative if you could just react to each event.
Felt that a much more comprehensive assessment was much more inclusive of all of the alternatives.
And that is included as you know I don't have to read the press release to you, but the assessment of our balance sheet optimization, any kind of strategic or financial transaction et cetera. So that's what we're looking at and that was the catalyst for it I said that.
After we put out that release and the catalyst Hasnt changed that's exactly why we're doing it and well keep you guys updated as we move forward.
Thanks, so much sure.
The next question comes from the line of Scott Myshkin with Arc five capital. Please proceed with your question.
Hey, guys. Thanks for thanks for taking my questions. So I just wanted to go back to what Ravi was talking about.
And the inflation rate market share I, just want to make sure you guys are assuming or are you thinking youre going to continue to gain share volume share and dollar share. This year because looking at the guide you May think think that do you think theres some kind of change there.
No Scott we are going to we have gained.
Let me give you the share story. So when we started this year, we were lapping some significant numbers of 2020.
So through the first half of 2021 fiscal 'twenty, one we're clearly gaining share in food, but we are not gaining share versus Mueller and.
Because I think.
Grocery supermarkets it outperformed the rest of the market in 2020 now the second half of the year everything still positive. So we gained share in Mueller and in.
In food on dollars and units and the rate of share gain continues. It just continues so we are expecting to continue to gain share.
All of the different things that we're doing.
<unk> that.
That is our primary metric.
Okay, perfect and then.
But you can figure out which question I wanted to ask because I have a bunch of them and maybe maybe talk about competition and product availability.
You know that Youre seeing right now is competition changing much.
Clearly, we may still have some product availability and make sure you may get worse, I mean, I think chicken is a hard commodity chicken breasts. So how are you guys thinking about that as the year goes it goes on both competition and product availability.
Yes, Scott the product availability continues to be a challenge.
It needs to be a little bit of whack a mole.
And <unk>.
We had imagined back then that by now we can see some relief, but it stopped the case.
We are imagining that product available availability will continue to be a challenge through most of this calendar year.
Amy.
All of this year at least and maybe start to get some relief in in the fall, which is why we also thing.
It'd be more supply and that supply might put down some inflation. So that's how we've thought about it.
The.
An example is X ray for Seagate going into Easter.
The flu when they've got prices going up on our costs going up on on just the White X and so we continue to have all of those kinds of issues.
And we are planning that we need to manage around that.
<unk> not a whole lot has changed I would say, it's still quite stable the carpeting.
It's hard for somebody to get into a massively promotional mindset.
Given the challenges with product availability.
Perfect. Thanks, guys.
Our next question comes from the line of Simeon Gutman with Morgan Stanley . Please proceed with your question.
Good morning, everyone I'd like to paraphrase something on inflation and units.
For the for the rest of the year Vivek.
So if you.
If we look at the composition of comp.
It looks like it's tracking inflation, which means maybe units or flat or something like that and that's different than where it was a year or so ago.
It's fine I think that makes sense.
It sounds like Youre, not expecting that dynamic to change even as inflation continues if I heard that right, but there may be some sensitivity at the low end with with snap does that mean, there is an offset and then.
It sounds like again, youre not expecting inflation to step up later in the year, we're going to lap it and then inflation sort of normalizes.
<unk> that's right so.
Our plan.
When we cycle the current level of inflation.
Inflation will moderate significantly.
And thats going to depend on supplies coming into and we think there might be supply. The late latter part of the year, but that's exactly how we've thought about it when we put the guidance forward to you that the second half was much more moderate inflation and we've also also assume that the lower end customer.
<unk> customer will spend less as we go into the second half of our year.
Okay and this is to clarify not my follow up and this is this is based on to date, even as inflation has picked up you're not seeing a further degradation in units or is it picks up it is kind of it staying flat in that debt and that gives you the confidence that we won't see that elasticity pick up.
Okay.
We have not seen a further degradation in units, we're seeing consistent behavior from the customer.
Okay, and then my follow up it might be for more and more Sharon related and this goes back to what John asked earlier.
Your EBIT if you look at it relative to 2019 is up about $1 billion. So it's pretty impressive this year the outlook as comps are going to grow yet at the midpoint EBIT doesn't look like it's going to it looks like it's going to decline some of it could just be conservatism, we'll see how the year plays out.
Some of it Theres expenses should we think about it as an investment year.
And then as an investment year does it normalize one year later two years later I understand there is a little gross margin.
A compare issue regarding vaccines, but how should we think because on a two to three comp your EBIT base, probably ought to grow in the future I think that's probably a fair assumption, but when does that begin.
Yeah. So when you think about the guidance.
There are two major pressures that if you'd go back and look at the transcript I tried to lay it out for you in gross margin and the SG&A.
On the gross margin side, we are expecting the gross margin and then that would flow through to the bottom line of Covid basically.
Two declined by 65% and let's put this in comparison to Croker as an example.
They have done 11 million plus COVID-19 vaccination and they are basically twice by revenue.
And we had 12 million, so actually more COVID-19 vaccination than they've done and it on half the revenues. So the impact of Covid on Albertsons is significantly higher demand so that flow through and that pressure falls through to the bottom line.
And we are talking about a significant number and you can do the math, we have helped you with that last quarter.
If you do the math on that and then the second thing is to your point, we are making investments those investments are exactly where you are seeing the benefit that we're seeing today you are seeing that as investments in our digital transformation and the Albertsons media collective and.
Another major area is the modernization of our supply chain that is a big project I talked to you about last quarter, that's coming into 2022 and 2023. So those are the three areas that we're making those investments and.
And of course the Lai.
We of course have substantial increases in labor like everyone else in the industry and but the productivity has been such a strong tailwind and that continued to offset that it's really COVID-19 and these investments.
I could go on for productivity.
Over the last two three years, we've learned how to deliver productivity at scale. So it gives us more confidence.
And so I would say.
Productivity becomes an engine right in and as we've said before there's so much water explored in our company.
Given where we were and where and given where we began let me say.
Yeah.
Thanks, Good luck.
Our next question comes from the line of refresh Perique with Oppenheimer. Please proceed with your question.
Morning. This is actually Erica eiler on for Pam. Thanks for taking our question. So first I mean, it sounds like you're not seeing any signs of trade down to date, but maybe you could talk about your expectations on the on the private label side. This year. You know are you expecting you know maybe we start to see a shift more towards private label.
You know maybe just any thoughts you can share on private label penetration this year it would be helpful.
Private label.
Penetration is back up to 25, six if I recall that was what it was before the pandemic. So we're right back there.
And I would expect.
I would expect private label to become a bigger and bigger part of the consumer's basket customer's basket only because with that we are offering better price points better opening price points.
Now just like everybody else, we do have.
Supply challenges in private and private label brands that the national brands.
And but that comes back and if the deflation holds it will become a bigger and bigger.
<unk>.
Growth in gross margin agenda.
Okay. No. That's helpful. And then just switching gears to SG&A, So I mean.
You highlighted the puts and takes and maybe could you dive a little bit more into you know the latest you're seeing on the on the <unk>.
<unk> pressure front with their contracts and labor availability and then also just in terms of the investments you're making this year.
Is there anything to call out in terms of cadence.
Should we think about you know any of the quarters being more pressured by by those investments this year.
Yeah, so on the <unk>.
SG&A side, obviously, we lifted out for you in the prepared remarks, where we have finalized our contract.
Northern and southern California are to be ratified that we have settled they are and then we have the.
Other big one and that is gonna be cure, which is in the Midwest. So that as we see each of those throughout the year, what youre going to see is gradual and incremental increase is coming through the year. That's starting now.
On all of the big ones that I laid out in the release that has been under negotiation are happening with US today and then the rest will come in toward mid year and toward the end of the year. So that's how you should think about it but again to that point I want to go back to productivity.
This is not a surprise.
And I know, it's a surprise to any of you on the call and it's not a surprise to us we expect it to see substantial increases and as such have planned productivity accordingly, and we're proactive on productivity in order to address that so the thing that we're here to say today as well.
First of all we are it puts us in a very strong competitive position in the markets that we serve while we of course nobody likes cost increases.
We are investing in our associates. They are important to our mission and we are moving forward with.
The highest increases that we've seen but putting the productivity engine that took that talked about behind that and that will be happening throughout the year. So those are the big drivers.
And then of course, we all want us to continue to deliver against these investments in these strategic priorities, including and I really want to call out the Albertsons media collected.
You know this is our alternative or whatever in the industry, they're calling it alternative revenue streams, we are several years.
Find others in that space, we're building it we announced it earlier this year, it's something we're really excited about we have to build the foundation those investments are going into day, but the returns are.
I'm going to start happening over the next couple of years and it's substantial so those are areas, where investors want to see investment and that's exactly where the money is cali.
Great. Thanks for all the additional color.
Yeah.
Thank you. Our next question is from the line of Karen short with Barclays. Please proceed with your questions.
Hi, Thanks very much.
I wanted to then apologies for the short term orientation of the questions but.
Could you actually it's two questions could you actually quantify the Easter shift impact on comps in the quarter to date.
And then my second question is obviously, you've gotten a lot of questions on your EBITDA Guide I'm.
I'm wondering if you could actually quantify the vaccine dollar benefit to 2020 , one as well as actual lapping of COVID-19 costs in 2021 because that would just help frame.
The down guide on EBITDA.
'twenty two.
Yeah, So Karen.
Until we see what happens at Easter to quantify the Easter shift is harder.
To do but we're not going to be guiding.
Weekly sales. So we gave you where we are to date.
Your second question.
Vaccination.
We have not specifically quantified.
That number and what that headwind it looks like.
We did point out.
That worked out we expect to be down about 65% on the number of vaccinations that we guess.
And last quarter, you might recall that in our company after our follow up call.
You just found some numbers out there on the Internet that helps you sort of put a frame around that are we have arrangements and contracts that we have confidentiality agreements. So I can't sit here today and give you the exact numbers, but leave it to say that it is a substantial earnings headwind going into next year.
And we have accounted for that in the EBITDA guidance.
Okay, and then 85% of 12 million carats.
Pardon me.
65% of 12 million vaccines.
Great.
And Caroline than they used to fight Covid costs I think you had one other piece, which was baseline COVID-19 costs.
And we don't anticipate that changing COVID-19 is not falling.
Just look at Philadelphia, They just went back to mass mandates in April .
Covid has not gone and we would not anticipate on the cost side too.
To see a material change year over year, and cleanliness in our stores and keeping people customers and employees safe is a top priority and that will not change.
Okay, and if I may ask with respect to the valuation gap versus peers can you just clarify exactly who you were you were including in your peer set I mean, I'm, assuming it's not just kroger.
Yeah.
We think you can look at a lot of different peer set but I think that you can take a look at the places where you're pointing to in your own report and those would be the same places we'd be looking at.
Okay. Thank you.
Yeah.
The next question comes from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your questions.
Good morning, everyone nice quarter.
Have you comment on how business is looking how the customers are behaving as gasoline prices have tracked up during your fourth quarter and thus far into the first quarter. Please.
Hey, Chuck Good morning, you know.
Well one of the things that we've observed with with customers is that.
The traffic the traffic is up over last year, and it's holding very steady, but what's fascinating is that the baskets, if I compare to 2019, a substantially larger right. Even if you account for inflation.
So one of the things that we're observing as I think we've got customers consolidating shops that behavior that started during the pandemic I think is still sticky where people have consolidated trips when fuel prices go up at least it tends to lead to EBIT more consolidation of trips okay and.
Shift from what might be other channels that are more connected to commuting to people like us where you go to the project at the price points are better so.
We haven't I mean, I'm, not saying that it seem that I'm not seeing any material change yet because of fuel prices, but there is a new behavior that seems to become more entrenched. There also could be because people are eating more at all.
But its leading towards more consolidation of trips.
How about in response to the.
The fuel component to the loyalty program any any effect.
Great point, you know the fuel rewards are incredibly powerful and.
This has always been it has always been one of our best returns and one of the biggest drivers of stickiness. So over the last several weeks we've increased the number of rewards that we provide for fuel.
Drive it'll drive more stickiness to us and it will drive more of that consolidation of the basket to us Youre right.
Okay.
Thank you and good luck.
Okay.
The next question is from the line of Polish Wang with Citi. Please proceed with your question.
Hey, everyone. This Brandon Cheatham on for Paul Thanks for squeezing us in I was just wanted to kind of circle back to your price gaps compared to competitors.
I was like for the marketplace as being quite rational right now in passing along price to consumers or your guidance I think you mentioned that you.
But promotions to kind of increase as the year progresses.
Specifically, what do you expect the changes to make the marketplace a little promotional more promotional and if there is an improvement in supply chain you know, how how could that maybe benefit your margins to help offset some of those promotions.
Right so.
Bush's are going to defend completely on supply right.
And we are the operator that does more high low unless you DLP and so we do that there is a set of customers and important segment of customers, who care about that and we wanted to make sure that we're able to serve them.
One important difference, though from the past is that if you recall go back to the 30 million people, who are engaged in our loyalty program. They.
They get very very specific personalized promotions, so even as promotions come back in our sector are my belief is that the promotions will come back at an extremely granular. It is an extremely surgical way rather than what was the old approach of promoting putting a lot of ads on the front page and drive.
It out for everybody. So that's how I imagine, it's coming back which would be which would be good because I think it takes care of the customers that we need to take care of.
And protect our P&L.
Great.
Then on the media call active you know.
Yes, where are you in launching that.
Do you have a full team already hired and then anything you can share on kind of like the long term potential of this initiative from what might be considered in 'twenty two guidance. Thanks.
You should expect that to follow the pattern that you've seen with many others who started this journey on on.
On the media business, if I can call it earlier.
Got a we've hired a team that has done this before Dan this.
Had a lot of success.
We've been patient about building because we wanted to build it the right way and in a.
A modern way.
And we've launched it in February on February 27, So this year, it's about building it.
The following years it will become more material in our P&L, so, but we're very we feel very comfortable because at the end of the day. This is being built to serve our customers who are most engaged with us in the markets, where we are the strongest and in those markets and for those customers. We are one of the best.
Vehicles to reach them, if you want to market to them.
And recall in our guidance that we gave you. This morning that it was called out as one of the areas, where we have significant investment in 2022.
Got it thanks and good luck.
Thank you.
Final question. This morning will come from the line of Michael <unk> with Evercore ISI.
Hey, there good morning, thanks for taking the questions.
I wanted to ask if I could.
First off on the flow through rate.
The comp store sales do end up exceeding your guidance, what's the rate flow through rate to think of Sharon for every 100 bps of comp you know beyond the mid point.
Yeah, I would put that in the range of <unk>.
<unk>.
Presented as a.
As a percent of sales yeah.
Sorry is that for EBITDA or EBIT.
EBITDA.
EBITDA okay.
And then another follow up I had was on the gasoline side, obviously you had mentioned.
The COVID-19 vaccines, but is there any incremental color you can share in terms of you know either how much tailwind that could have been last year or how much headwind to think of for this year.
As it relates to if you will.
Yeah, just trying to think of that.
Right.
Yeah, do you want to take that.
Yes.
<unk> business, Michael for Us is not terribly large.
And we would expect I think worked the way we've thought about it is with the volumes will be higher this year, but the margins will be lower this year, that's how we've thought about.
So it started material headwind tailwind, let me put it that way, it's kind of going to reflect the total kind of what we had this year, maybe a little less in terms of profit.
Okay, great. Thank you for taking the questions.
Okay. Thank you everyone for participating today, Cody and I will be available for follow up questions and.
Have a great day.
This will conclude today's conference. Thank you for your participation you may now disconnect. Your lines at this time. Thank you all.