Q1 2022 Albertsons Companies Inc Earnings Call
[music].
Good morning, and thank you for joining us for the Albertsons Company's first quarter 2022 earnings conference call with me today from the company are Vivek Shenkman, our CEO and Sharon Mccollam, our president and CFO today.
Vivek will share insight into our first quarter results as well as review our progress against our strategic priority. Sharon will then provide the financial details of our first quarter before handing it back over to Zac for some closing remarks.
After management comments, we will conduct a Q&A session.
I would like to remind you that management may make statements. During this call that are or could include forward looking statements within the meaning of the federal securities laws forward looking statements are not limited to historical facts 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. These risks and uncertainties include those related to the COVID-19 pandemic.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements are and will be contained from time to time in our SEC filings, including on forms 10-Q, 10-K, and 8-K any forward looking statements. We make today are only as of today's date and we undertake.
Make no obligation to update or revise any such statements as a result of new information future events or otherwise.
Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures and the historical financial information includes a reconciliation of net income 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.
In the first quarter, our teams continued to deliver strong operating and financial performance across all key metrics.
If you wanted to thank all of our associates for their ongoing service.
Our customers and communities.
We are so proud of their resilience agility.
Ashford for excellence in this challenging operating environment.
In Q1.
Sales increased six 8%.
We continued to gain market share in food and meal.
We also maintained a number one or number two position and 68% of the 121 msas in which we operate.
In addition, we delivered year over year, adjusted EBITDA growth of 9% to 142 billion and adjusted EPS of $1 per share.
Q1, digital sales increased 28% year over year.
Digital offerings continue to resonate with customers and we further optimized our cost itself.
Also in Q1, we continued to leverage our digital investments.
The channel households, increased 34% year over year with retention rates over 90%.
And they spend three times more than an install omni shopper.
At the same time in store transactions also increased as we can.
<unk> continued to invest in new merchandising initiatives and I would just for you on loyalty offerings.
Just for your loyalty members increased 16% to $31 million.
With actively engaged members, reaching an all time high and spending four times more than non actively engaged members.
Like Omnichannel households retention remained at over 90%.
These growth trends affirm our belief that engaged and connected digital and in store experiences with.
Will it result in long lasting customer relationships.
And industry leading growth.
The underpinnings of the next phase of our transformation strategy.
Customers for life, which we introduced last quarter.
Is based on placing the customer at the center of everything we do.
We want our customers to interact with us daily.
Not only to shop, but to consume relevant content about food plan, Neil I'll find information to inspire the wellbeing.
When we laid out our fiscal 2022 priorities in our last earnings call.
Can you shed that we're investing in four strategic priorities that I will update you on now.
First we are deepening our digital connection and engagement with our customers, which supported a 28% due to growth in the quarter.
This growth was driven by an expansion of our services and innovation for example.
We were operating 2075 dark stores drive up and go stores at the end of Q1.
Our focus on speed is paying off for example, our express delivery two hours or less is now available to 74% of our household.
Penetration of this option has increased fivefold versus prior year.
During Q1, we launched new merchandising features in a unified mobile app.
Providing an increasingly personalized and curated digital experience.
Since the launch we've seen significant growth in the <unk>.
Number of new users and improvements in our iOS and Android App store ratings.
We also saw increased digital engagement driven by our meal planning to launch last quarter.
We are planning capability inspires our customers to engage in our app more frequently.
Plaid sharpened prepare the recipes we offer.
It's gonna be filtered by a dietary preferences, such as carb conscious vegetarian and Pescetarian.
In Q1, we had over $1 2 million unique visitors explorer mean selling to and over 40% of them used to add to shopping list functionality in the app to create a shopping list.
We also continued to invest in the albertson's media collected using industry, leading technologies to build a platform that is easy to use transparent modern and measurable.
We transitioned in house.
While we are in the very early stages of Onboarding clients and agency partners. We are pleased with the growth in the business.
Second we are differentiating our store experience.
Deepening engagement through the use of technology.
Ultimate task management, that's creating more time for our team members to assist our customers despite a difficult staffing environment.
We're also simplifying the end to end shopping journey.
Proving localized assortments and adjacencies of complementary products.
Stalling more checkouts.
Added grab and go sections to ensure a convenient and easy experience.
In support of our omni channel growth.
We are evolving store operations building out staging areas for drive up and go adding where rooms for easier picking and installing additional NFC.
Third we are enhancing what we offer by expanding our own brand products and elevating our distinctiveness and fresh.
We are actively leveraging the strength of our own brand assortment and our ability to manage fresh hyper locally to give customers great choices in the inflationary environment right.
And owned brands, our sales penetration reached an all time high at 25, 8% and owned brand sales outpaced national brands in several categories.
In the quarter, we launched 50, new items, including new keto options and.
And we expect to launch a total of approximately 425 new products this year.
But much of the growth in owned brands is related to increases in underpenetrated markets and product innovation.
Breath of our own brand portfolio.
Opening the premium price points.
So provides great value to customers, who are trying to stretch their budgets.
And fresh our install processing capabilities allow us to tailor their selection.
Cuts and package sizes to fit local demographics and economic circumstances.
We're giving customers choices with the opening price points and large value packs.
But innovation two is gaining traction for example with <unk>.
Now have rolled out our ready meals.
To eat.
To heat and ready to Cook meals to approximately 600 stores.
We expect to be in more than 1100 stores by our fiscal year end.
We are modernizing our capabilities in part to an improved supply chain enhance data and data analytics and ongoing productivity.
All built on a foundation of being locally great and nationally strong.
In supply chain, we're currently increasing automation in two of our largest distribution centers and expect to continue to rollout similar automation across our network over the next several years.
We have also begun the progressive rollout of our new enterprise wide warehouse management system.
That is expected to be fully implemented network wide by fiscal 2025.
Both these initiatives are expected to materially improve our ability to differentiate our fresh quality.
Improve in stock conditions, lower our cost to serve.
Prove our end to end supply chain data analytics capabilities.
In our stores, we are rolling out AI based.
And machine learning technologies.
Improve the customer experience and self checkout.
Freshness and product availability in produce and reduce shrink.
In addition, we've continued to modernize our technology and cloud migration and the upgrade of our edge computing platform.
And finally, we're further embedding ESG throughout our operations.
We launched our new ESG framework in April .
It should be for change.
Focused on maximizing the company's positive impact across four pillars.
Got it.
People product and community.
We have a long history of driving sustainability within our operations.
Committed to leveraging our resources and expertise to support the communities, we serve and the planet we share.
Also in April we began utilizing electric terminal tractors in our distribution centers.
In place of diesel power options and we have plans to expand our fleet later this year.
We continued to support hunger relief and the communities, we serve through feedback donations and a $7 7 million fundraiser supporting a nourishing neighbors initiative.
These funds will provide over 30 million meals to people in need.
I will now turn the call over to Sharon to cover the details of our first quarter and our updated 2022 outlook.
Thank you for that and good morning, everyone. It's great to be here with you today.
Our first quarter results were strong across all key metrics.
Identical sales were at six 8% with momentum continuing into Q2.
Market share gains in both dollars and units together with inflation drove these better than expected results.
Our Q1 'twenty to gross margin rate was 28, 1%.
Excluding fuel and LIFO expense the gross margin rate was lower in Q1.
<unk> 21 by 27 basis points.
This decrease was driven by fewer COVID-19 vaccine versus Q1 last year.
And consistent with our expectations for the quarter, excluding CLO lifestyle and fewer COVID-19 vaccine. Our gross margin rate was slightly ahead of the first quarter last year due to ongoing productivity improvements offsetting higher product and supply chain costs.
Our selling and administrative expense rate was 25, 2% this quarter.
Excluding fuel and the SG&A rate decreased 15 basis points compared to last year.
This decrease was primarily driven by lower COVID-19 related expenses and the benefit of productivity initiatives.
These decreases were partially offset by investments related to the acceleration of our digital and Omnichannel capabilities.
It gets driven wage rate increases and higher depreciation.
Interest expense in Q1, 'twenty, two decreased $14 million to $139 million.
Reduction was primarily driven by a lower outstanding debt balance.
Q1, 'twenty two adjusted EBITDA with 142 billion compared to 131 billion last year.
This $110 million increase was primarily driven by the flow through from our six 8% sales increase and benefits from our productivity initiatives.
Okay.
Q1, adjusted EPS was $1 per fully diluted share compared to 89.
In Q1 'twenty one.
I'll now discuss Q1, 'twenty to cash flow and capital allocation.
We ended Q1 'twenty two with $3 2 billion in cash, which provides us with significant liquidity to invest in growth and return cash to our shareholders.
Capital expenditures in Q1 were approximately $614 million with the majority of our investments being made in the modernization of our store fleet and ongoing investment in our digital and Omnichannel transformation.
We also returned $63 million to our shareholders through common stock dividends.
Net debt leverage at the end of the first quarter with 1.0 tight compared to one five times in Q1 'twenty one.
Turning to Labor relations, we have continued to reach settlements that are providing an overall wage and benefit package that rewards our team members for their significant contribution and strengthen our competitive positioning in the markets we serve.
During Q1 as previously shared we settled retail contracts in both northern and Southern California.
Auto Las Vegas and Shai.
And earlier this month.
It's a tentative settlement on the retail contract with fuel.
I'd now like to discuss our financial outlook.
We look forward to Q2 and the rollout of our customers for life strategy. We do so with continued momentum as evidenced by our Q2 to date mid single digit sales increases.
We are gaining market share and continue to see signs of a healthy grocery consumer who is engaging broadly.
While we and the industry are seeing a bit of trade down with in and out of some fresh categories as consumers stretch their budget.
Our share gains in fresh continue.
With that as our backdrop, we have raised our fiscal 'twenty two outlook assuming the following.
We now expect fiscal 'twenty, two IV sales to increase three 4% up 100 basis points versus previous guidance of 2% to 3%.
Driven by continued inflation and market share gains.
In the second quarter, we expect sales to be above the full year range and in the back half below due to cycling heightened inflation in the back half of fiscal 'twenty one.
We are also increasing adjusted EBITDA by $100 million to the range of four to five to $4 three 5 billion versus previous guidance of $4 1542 5 billion.
Our gross margin rate, excluding fuel and lifestyle, we are expecting core business gross margin rate expansion driven by productivity tailwind.
Offsetting this however is a continued expectation of a 65% decline in COVID-19 vaccinations and related margin.
Impact of which will be greater than the core business margin rate expansion.
Therefore factoring in growth drivers, we are expecting the gross margin rate, excluding fuel and lifestyle to be down slightly in fiscal 'twenty two.
Selling and administrative expense, we will continue to incrementally invest in our digital transformation. The Albertsons media collected and the modernization of our supply chain, which will increase our SG&A rate in fiscal 'twenty to drive growth and productivity longer term.
As an example productivity tailwind are currently substantially offsetting a significant increase in hourly wages and benefits.
Frontline associates and this year's outlook.
That brings us to adjusted EPS, which we now expect will be in the range of $2 80.
The $2 95 per fully diluted share.
10 cents versus previous guidance of $2 77 to.
At $2.85 per fully diluted share.
To support this outlook, we expect capital expenditures to remain in the range of two to $2 1 billion.
Additionally, as it relates to productivity, we are on track to deliver against our three year commitment of $1 5 billion by the end of fiscal 'twenty, two and are already beginning to roll out action plans to deliver the incremental $750 million between fiscal 'twenty, three and fiscal 'twenty five that we shared with you last.
Quarter.
And finally I'd like to provide a brief update on our ongoing review of strategic alternatives.
While we have not yet reached that conclusion, we are pleased to share that as part of the review our third party appraiser. His completed our fiery a compliant real estate appraisal.
The overall value of our real estate portfolio has increased to <unk> 5 billion to $13 7 billion.
Presenting a $4 per fully diluted share increase in asset value on a pretax basis versus the 2019 appraisal at 11 2 billion.
I'll turn the call back over to Vivek for closing remarks.
Thank you Sharon.
We are pleased with our first quarter results and the momentum we are seeing today.
As we look ahead to the balance of the year, we are thoughtful about the macro environment and the possible implications it could have on consumer behavior.
Our top tier performance over the last several quarters.
Even with periods of high inflation has demonstrated a stronger company today than we were pre pandemic.
And the initiatives that have driven our strong results give us confidence in our future.
First our customers for life strategy is working.
We are adapting quickly and we are executing well.
We are adding customers and engaging customers more frequently through.
Our loyalty program and our e-commerce offering.
Customer spend more with us and stay longer with us because we were able to tailor assortment and promotional offers for them.
We are giving customers great value choices.
That being a fresh offerings literally every week and every market.
And through our strong owned brands portfolio.
Our stores are operating more effectively and efficiently.
Supply improves and our new technology stay cool.
And.
We are proactively managing our costs.
Given recently settled collective bargaining agreements, we have visibility into our labor costs into the future.
And our productivity program sports all the new continue to allow for investments and provide the installation for a living.
<unk> commitments.
The event tobacco situation becomes more challenging.
We believe this puts us in a strong position to continue to gain market share and sustain our track record of sales and earnings growth.
I would like to again, thank our 290000 associates.
Their loyalty and dedication to our customers and communities.
They are the ones, who make all of this possible.
We will now take your questions.
Thank you.
Ladies and gentlemen.
Thank you for joining us for the Albertsons companies this quarter.
Earnings Conference call. He will now be conducting a question and answer session.
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The first question comes from John <unk> of Guggenheim keeps go ahead.
Hey, guys I wanted to start with.
How do you think about the market share opportunity from food away from home.
Right and.
In an environment, where menu prices continue to go up.
Imaging size that opportunity in your mind.
How much of that will be driven by ready meals, Brian versus ingredients and how do you Cook.
Kind of go out and maybe market differently.
In this environment to educate consumers about your your offering.
Hey, John Good morning.
John Here's here's how I'd characterize what youre seeing in the market.
So I think I would argue that consumers are still eating a lot at home alright, and possibly because they are working at home, possibly because of some of the things you pointed out about inflation outside in restaurants, sometimes it's hard to get into restaurants, and the way I see that is because of the portfolio. If you are ready meals is doing so.
Well, we just launched a sandwich program and the Sandwich program. So make sandwiches they are doing so well.
And our convenient sandwich and our stores are doing so well. So we think there is one or two phenomenons happening one is people working at all and picking up things to have lunch at all.
The convenience so that they can have a quick lunch at all.
We also see you know.
The types of things that you would pay if you were looking at all.
Okay.
The <unk> programs that we have oils, the things that you would use to cook at home. So we still see that trend going and I think everything we're doing in the app to enable us to provide more views is also working for us. So if you go to.
Just launched a new media capability, where you can pick your meal and then populates the items that you want it we're seeing a lot of traction and things like that John .
Okay great.
And then maybe second totally different topic.
And maybe share your philosophy or what you can share the board's philosophy with regard to real estate ownership right. You mentioned, the $13 7 billion a lot a lot of things.
Big box retailers right view real estate as you know.
Our strategic value right for control reasons in a lot of a lot of other factors, what's what's the philosophy on.
On your end.
As to ownership.
Thank you John .
Our philosophy on real estate is exactly the way you described it which is that we believe that the real estate. We have is a strategic asset for the company.
There is been a history in the company.
Occasionally having a transaction where they might do a sale leaseback.
Percentage of the real estate that we have that was about three years ago. I believe the last time, they did that and it was relatively small but despite having the real estate appraisal. We are very excited to see how well we've invested in the real estate you saw that we were up about two and a half.
Which if you put that on an asset value to the stock price on a pre tax basis is about $4 a share. So it was an impressive increase in the valuation.
But we do recognize the strategic value of the real estate and we'll be very thoughtful about that as we continue to consider all of the strategic alternatives that we have in front of us.
Okay. Thank you.
Yeah.
Thank you ladies Suntrust in ingestion have mind swam you should ask obstetrician PS contain a patient to one and one follow up.
The next question comes from Simeon Gutman.
Stephanie.
Yes.
Hey, guys. This is Michael Kessler on for Simeon Thanks for taking my questions.
I wanted to ask first about inflation and units are consumption, how did both of those trend in the quarter.
I guess, even sequentially incrementally versus what you were seeing a few months ago, and then thinking about the pass through of higher costs in the retail pricing, how that's going if theres any changes in how youre viewing that that pass through dynamic and what you're seeing from the competition and then any any sense of inflation outlook for the rest of this year.
And potentially even into next year as we're starting to hear a little more speculation about maybe some commodity deflation coming in.
Hey, Simeon.
First let me if you don't mind, let me just give you a little bit about the consumer backdrop that we're seeing because that's important for me to characterize what they are seeing with inflation.
I don't want to generalize, but I would say, there's two things that we see.
One is the consumer is clearly trading down.
And so you can think of rice beans.
<unk> buying bookcase and sort of arrangements and so on and so we've seen back on one hand, but the good news is they're trading down into a lot of our own brands on that front. The second thing I'd point out is that.
We have consumers and characterize the consumers again not not every segment, but there are consumers who have cash but are very value conscious okay and so the behavior. We see from them is they are buying more they're trading down on deli meats, but theyre also buying a lot of store make sandwiches and meals.
Alright.
<unk>, but theyre also buying organic meats.
Buying premium beer, and therefore people are buying lower priced beer right and sort of finding one of avocado, they're buying bags of avocado. So we're seeing this behavior where people are value conscious.
But I'm willing to spend on the things that they care about so when we think about going back to your question. We're seeing the kind of inflation that you would expect in the marketplace are you seeing in the marketplace.
I think retail CPI was like 10, 9% or so for the quarter.
But.
If you see our numbers, yes, we are seeing some unit declines, but I'll also tell you that our tonnage is better than our units because it's sort of the.
Backup avocado as one unit right instead of three avocados that Dennis talked in the past so we're seeing some of that.
Our expectation on inflation when we really started the year was that the inflation with moderate quite significantly in the back half of our calendar year right and we don't think its going to moderate as quickly which is why we've we've raised our forecast a little bit as you see on the top line.
But what we're seeing though is that the overall behavior of the consumer is that they are engaging on the bookends with us and in the middle and we are working that.
And that allows for that if somebody wants the higher end of the product they've got it somebody wants an opening price point, they've got it in our stores and that combination is working well for us it's driving units and margins as you know the margins are pretty strong where they start engaging in our own brand portfolio.
Does that help Simeon.
It does yeah. Thanks. This is Michael by the way so I mean, it wasn't it didn't make the call, but I'll I'll get I don't know no problem.
But that's helpful. Thank you and then maybe a follow up to actually to John's question. He was asking about food away from home and maybe just a broader one on market share. There is the component of food away from home demand shifting into food at home and then Theres a component of people trading down within food at home, maybe at a lower price or discount channels.
How do you view your positioning I guess in the context of those two dynamics, which maybe to a degree are playing out and if you could maybe speak to where you think the market share gains are coming from and we heard from one of the largest sellers of food in the country yesterday that they also think theyre gaining share. So curious what you think is coming from two thank you.
Yes, Michael I would say the first thing I'll note is that our market share. It is positive and food and you know in dollars and units and that with the last thing I said is very important to us that we are gaining market share and units.
When people are eating more at home.
If they are in fact trading out of food away from home trading into food at home and they are eating more at home the fresh portfolio really really matters and so we think we are gaining market share first because people are coming in for a broad fresh portfolio people are coming into the bookings softness if that's what they choose we got it.
So.
Our observation is that we're gaining market share clearly within the world of retail.
And it's going to be very locally from all the competitors that we track locally Michael and I think you know the names.
Yep got it okay. Thanks I appreciate it good luck.
The next question comes from Paul <unk> of Citi.
I just wanted to be clear of that $6, 8% I'd sales number how much of that was was passing through higher prices to the consumer and then SaaS Scott My follow up now.
Performance of our own brands.
The increase overall compared to that that I'd sales number and you said that it performed the own brands outperformed the national brands in several categories curious.
We're on brands are outperforming versus underperforming and what you think makes up that difference. Thanks.
You want to speak to the other thing I'll speak to both brands.
Yourself.
Congrats what happens in these markets.
If you have a national brand is not as strong national brand people migrate very quickly to the owned brands. So you will see it like categories like oils.
Oils, and shortening and rice and beans and.
Even in some beef and deli meats and so on we are starting to see people move very quickly to the owned brands I'll remind you that our owned brand portfolio, a 1000 basis points better margin.
National brands, so even a small movement in the old branch makes a meaningful difference into in our gross margins I think owned brand penetration went up 30 bps, if I'm right. This quarter right. So that's a substantial change.
The contribution to <unk>.
To the to the gross margin.
And I had a question on the six 8% IV sale clearly Vivek mentioned that retail CPI was in the high <unk> for the quarter and we.
Painted coming into Q1 that we would start seeing.
Some breakage in units as well as government stimulus has been rolling off so all of that contributed our market share gains contributed to the IV sales as did the opportunity for us to continue to grow the ASEAN business, we've taken about 30.
Basis points our penetration.
Brands went up from 25, 5% last year and up to 25, 8% this year and we expect that to continue.
Going forward. So that is the answer on your six 8% of course inflation helped drive that number to be at some of the offsets were.
Some breakouts in units and we also saw a government stimulus go down.
Yeah. Thanks, Ryan Thanks for that good luck.
Yeah.
The next question comes from Edward Kelly of Wells Fargo.
Hi, good morning, everyone.
I wanted to go back to the to the to the.
The volume.
Question and discussion around sort of elasticity.
It does look like this quarter.
With double digit inflation of elasticity.
<unk> picked up a bit.
I'm curious as to whether that's what you are seeing as well I know you mentioned that sort of tonnage, but then as we look forward now and we think about.
Decelerating inflation.
We looks like we could be entering a period, where there's very low comp growth and I'm curious as to how you think the industry acts in that environment from a promotional standpoint, and how if at all change how you act from a promotional standpoint.
So first Ed.
Thank you.
Inflation is decelerating, but there is still inflation, but I think we should remember that.
And it may not be 10, 9% if I remember we've operated a business historically that has been over 152% inflation and we think as a business was so much stronger than pre pandemic, but even at 152% inflation.
Going to have much better comps than we went into the pandemic with right. So fundamentally I think theres more strength in the business to do that but the inflation is going to be.
Slightly slightly higher than that than the old numbers I think.
The second thing in terms of the elasticities.
<unk> if I go back to my history in this industry in CPG and so on the elasticities are so much better than we typically used to see it in the past that.
There are elasticities right I think it's showing up in two ways. One is maybe people buying a little less of something clearly people trading down I would expect that if that's the behavior then people will trade back up our buyback more if this if the inflation starts dropping right. So.
If it goes one way in one direction. They should go the other way in the other direction and so my sense is the volumes will also start coming up as the inflation moderates.
And then I.
I think the other thing I'd point out is that everything we are doing it's driving stickiness.
We are very deliberate about saying when we get a customer we want to engage to keep them get them to spend more with us and helping us do that as the digital engagements that they have in the E. Commerce business that continues to grow once we get them, we're able to personalize it and keep it.
And Thats a market share gain that's working for us channel work.
Okay, and then I just wanted to pivot and ask question, maybe it's for you Sharon, but if we look at.
States at all.
And your Opex dollar growth this quarter was about 5% or so.
And I know youre, making investments into the business.
Obviously been some stuff that's happening from a labor standpoint on contract renewals.
How do we think about.
SG&A dollar growth both for sort of like the sheer and then.
And sort of like going forward.
With things like labor rate inflation that got some that's sort of embedded into contracts that type of stuff just kind of curious as to how we should be viewing the growth of that line item.
Yes, so Ed we do anticipate continuing to invest in several key areas digital and omni channel of course, we're also investing in the Opex since media collected which of course is a longer term.
Revenue driver for us, but today, we are just beginning the investments and the opportunities media collected and then the modernization of our supply chain, it's going to bring out substantial cost savings in the future. So those are the big areas, where we are investing in SG&A and in the out.
And I gave an adjusted EBITDA for the year I gave a little color on SG&A and those were the areas that we said we would invest in we did expect that in the back half by the end of the year that we would have a rate deleverage on SG&A due to that its investment here.
One we leveraged our rate, but that was heavily driven if it laid out in the press release by significantly lower COVID-19 related costs and those are not going to do with the vaccine. We're talking about the costs that we incurred in Q1 of 'twenty one in our stores.
So that was the right leverage in Q1 and that with Q1 last year with our largest quarter of Covid store related investment. So I anticipate in the balance of the year to continue to see us make these investments and I expect these investments by the way. She is bring US return now offsetting that we tie all.
Ted.
In the prepared remarks earlier, it's productivity we saw the highest.
The increases we have seen in frontline.
In our history quite frankly in 2022.
And yet our productivity savings that we are continuing to identify and capture all of them have.
Virtually offset that increase this year and we expect to continue.
Our productivity programs, which I also mentioned, we just announced last quarter another $750 million productivity program from 23 to 25. So while we are making these investments. We are also finding the investments through productivity and expect to continue to identify increasing productivity in many.
The investments by their very nature are well.
We will create productivity.
Great. Thank you.
Okay.
The next question comes from a pitch.
Oppenheimer.
Good morning, Thanks for taking my question. So I wanted to touch on the promotional and competitive backdrop are you guys seeing any changes of note right now on the competitive side and then as the year progresses, just given increased consumer sensitivity do you expect it to become a more promotional environment later this year.
Hey, good morning, refresh Oh, no we're not seeing a material change in the marketplace on desktop page, but I've said this before.
I think we are in.
Not going to come out of this.
Going back to the old form of promotional intensity and the reason behind that is I think all of US are one better at the use of technology and we're a much more digitally engaged in our promotions and so yet we are promoting but we are promoting very deliberately in an extremely targeted fashion.
Giving people the promotions that matter for them.
And you'll continue to see that in my opinion right as we go forward.
The other thing is I think you should also note that while supply is better supplies vastly improved supply, it's not where it used to be right in many categories. We've all got to a steady state of managing it and Thats also going to throttle promotions to quite a bit.
Quite an extent or at least the next six to eight months.
Great and then maybe my one follow up question just on the E. Commerce front, one of your competitors called out changing consumer behavior I think towards more pick up are you guys seeing the same thing on the ecommerce side the chips shifts in consumer purchasing behavior online versus in store.
Our route based pick up pick up pick up pick up you get more pickup versus delivery, yes, I got it.
Two things that we've always believed is that pickup matters and speed matters in delivery and so the two things that are working for US is one we've got more pick up in a.
Stores 2075 stores at the end of Q1.
But we've also expanded two hour delivery and same day delivery and we're getting tremendous traction with two hour delivery.
With the customers and so and the nice thing about that is we are leveraging our stores to do that sometimes it's just putting a web room in a store to do that which is a very low capex that means it's more shelving and the back of the store for the fast moving items and that those two things are working for us.
Great. Thank you I'll pass it along.
The next question comes from Ken Goldman of J P. Morgan.
Hi, Thank you.
Sharon do you have an update on how to think about which of your multi employer pension plans might be backstopped by the government I think the U S <unk>.
Recently put out some papers on this subject, but I might need a some kind of advanced degree to fully understand I'm. Just curious if you have any additional thoughts at this time.
So we do have an update first of all what youre, what youre speaking to.
Ken and thank you for bringing it to everybody's attention is the American rescue planned act, it's called the ARPA.
And it was during Covid. It was put out there to provide special assistance to keep these multi employer pension plan solvent.
So we participate in about 90% of those plans now keep in mind that we do not.
<unk> liability for the plant.
And that is the most important thing to take away from this but for those plans that we participate in in the 10-K, we disclosed that we had about $4 9 billion. There was $4 9 billion of liability in those plans.
And after tax it was about $3 7 billion.
And as we look at this we have already started to be safely applied and received.
Funding for that and we anticipate that all of that liability about half of it.
He would be covered by ARPA up to about half of it would be covered by ARPA. So yes. It is out there. It got settled it's acting and moving forward and again, we have 16 plans, which is 90% of our underfunding that it did in that category.
That's very helpful. Thank you and then.
Vivek more of a broader question you said in your opening comments and I think you'd say this consistently but you said that albertsons faces a challenging operating environment and.
I do appreciate that by nature right. The industry. You are in is is perpetually challenging, but I guess I'm not quite sure why today should be considered particularly tough right. You have rational competition. You have actions that are taking share you're offsetting high labor inflation with productivity lower Leicester City.
I guess one of the questions I get sometimes is why aren't these considered the good old days all things considered it wasn't that long ago that supermarkets were losing a lot more share to mass we had a historically high level of deflation. So.
Sorry to be overly worried but I'm just curious what's challenging today relative to prior years in your mind.
Ken.
Bonnie.
I think I think here's how I'd characterize it you're right I think our sector and we in particular, we are doing really well relative to where we were pre pandemic the pandemic and the initiatives that we have in place have accelerated so many different things we're doing the gaming customers, we're keeping them a portfolio.
Who is working with better execution.
We're driving stickiness.
Our schools I mean, we just.
The pharmacy NPS scores last year 54, now 81, five and guess, what we're adding scripts everyday and our pharmacy. So there's a lot of things going well, what's challenging the challenging part is the uncertainty and the way we have to deal with that uncertainty is by being incredibly local and incredibly nimble and I'm so far apart.
Teams for doing that.
And that's the that's one challenging piece the second challenging pieces.
We also have projects going away its not yet so we still have the timing around it causes disruptions, it's causing disruptions and it's not like it was before but we still have those uncertainties to manage that's the part that I characterize is challenging and we don't know where this inflation or inflation so far.
I think because of our portfolio and the way we're executing we are managing through this inflation very well and I think we all have the backstop mines, what the consumer might behave if this thing keeps going right. So those are the types of things, we're navigating that it's more the uncertainty than anything else.
Great. Thanks, so much vivek.
Thank you Ken.
The next question comes from Michael One Tony.
This time.
Hey, good morning, Thanks for taking the question wanted to ask if I could first off in terms of the Ids sales could you just clarify was the actual number of transactions.
<unk> are down in the quarter.
Yes in order to drive that as the IV trends, we don't quantify but transactions were absolutely up.
Okay got it.
About the fact that we are seeing a return.
Michael of in store traffic.
Yes.
Adding households, adding transactions.
Understood and then if I could just follow up on the guidance for a moment.
So for the next three quarters it looks like it's implied about a $200 million decrease in EBITDA year over year versus the 100 million increase year over year in <unk> and understand there's cross currents going on you know, obviously lower I'd sales as well, but just help us to walk through that in terms of you know the productivity.
Gender sounds good but then also you've got basically less incremental volume forecast. So is it consistent promotion ality that youre, assuming through the year and I'm just kind of why is that the right outlook.
Yeah keep in mind, Michael that well get back to an 865% reduction in Covid vaccination in 2022 versus 2021.
And recall that there was a big increase in our current Q2 will be our.
Smallest quarter, we are in 2021.
But then Q3 and Q4 started to re escalate and that is hitting us very hard in Q3 and Q4.
Okay. Thank you for that.
The next question comes from Scott <unk>.
Our faas capital.
Hey, guys. Thanks for taking my questions. So I guess I wanted to look at when I think about what the pushback in owning albertsons really from the IPO, pensions, which which recovered already and I think that's obviously a big plus.
Org ship overhang, which I think you guys addressed a little bit and then the third it was a major one was pricing.
Everyone and this hasn't come up really that much on the call.
But it does seem that you guys continue to invest part.
Part of your savings in narrowing the price gap.
At the same time I don't know how long, it's going to last two of certain competitors.
We have enormous pressures on their business, whether it be an omni channel build out or.
General merchandise problem. So how should we look at this pricing gap as you go forward do you think it's something you can continue to narrow.
And kind of you'll take that off the table as a concern or is that something you think is going to widen out again, when the competitive environment changes.
Morning, Scott.
Two.
Talk about pricing first you've got to believe that youre going to have gross margin stability in the business, you know and and we've always talked in the past about having tailwind on gross margin.
And for example, assortment so board of own brands, most store made products that we sell the better the gross margin promotions, we're putting a lot more technology into our promotions. It's a lot more personalized such a gross margin tailwind operations reducing.
Reducing our shrink right through technology in production technology and produce ordering.
Technology at the self checkout, we thought we'd optimize it now this technology will reduce shrink of the check out cost of goods. We are rolling out lot more merchandising fine.
We're even finding reduce costs in our own brand portfolio and the supply chain. So the first thing is we need to have a lot of confidence.
In our gross margin by the way, we're also automating our supply chain Dcs, So we need to know that.
Habit.
Everything I told you our initiatives that are in flight some of our late summer early but we look at the ability to deliver tailwind as we look into the future.
Combine that with being extremely surgical about grabbing invest in price and the metric. We're always looking at is are we gaining market share in dollars and units food immuno and where we feel that that is out of kilter, we invest in price and so that mechanism will continue only because we have all of this I just talked about.
To continue to do that Scott, So theres no theres no.
We don't believe in going and making large scale changes, we just don't think that pays off and we by the way we offer a set of things in our stores that we think comprehensively provides value to our customer.
And it's that combination that matters.
And so there's a little thanks for that and so as a follow up and then I'll Oh.
You guys have been gaining share now gosh, you know I guess a couple of years consistently if you had to kind of say you'll answer. The question I guess, most investors don't believe it's going to happen because its doctors really want to move up in this valuation is real low.
Why do you think it's sustainable and why do you think is happening.
Why is that.
Scotland, Minnesota, So what is the share gain sustainable well Scott I think I think there's just a few things working right for US one is up it always starts with having a great portfolio and.
And our portfolio works in many many different.
At bottom right. So now we are in an inflationary environment I think that was concerned whether a portfolio. We work actually works because we could get people those bookends right those who choose to stay with organic beef and by Hamburger you've got it you got it in our store.
Second thing, we do have to emphasize that while I'm, giving you a general statement the magic is local.
Cannot win in this market if youre not working it on a store by store basis locality by locality basis, and optimizing do it and that's our that's our heritage and the teams are doing that the third thing is driving stickiness, we picked up extremely seriously, which is why we want people to engage more digitally because we can drive more stickiness with itself.
Loyalty program already covers program and the fourth thing is this is underrated, but its just great everyday execution right. The NPS scores Rx I gave you is just good old everyday execution, just getting better for the customer says Hey, I'd love to come here for my strips that somewhere else.
All of those you know we still think we have plenty of headroom and everything I just said.
And I would just add to that that the other thing to keep in mind is at the end of Q4, we gave you a metric on our desks pretty new loyalty members.
It had gone up 45% to 30 million loyalty members and then coming into Q1, we just increase another mill again hit 31 million just for your loyalty members and if you go back and reflect on the prepared remarks, what youll see.
Is that actually just for new loyalty members mature as an example, when they become omni channel.
Over time.
Could be spending three times more than the in store only shoppers are.
Actively engaged when they become actively engaged with us they become four times more than in Africa shopper centers in our stores and nobody Julie just for you and become either one of those immediately it takes time and it grows over an extended period of time.
So as we continue to gain these members and then we had the pandemic significant increase in those members.
And what we have been most pleased with is the retention of that member.
Chris.
And as we do that that helps fuel ongoing share gains because these customers become more and more valuable they continue to gain share of wallet from those customers. In addition to attracting new customers to the brand and that provides a very significant tailwind too.
The issues that you've mentioned about continuing to gain market share over time and these are some of the notes that we feel like we have been able to build over the last couple of years in order to create the environment that can make that share gain environment sustainable.
I'll just close out with this cost that you know for to do all of this you need capacity to invest and Thats, where our productivity program comes at a first one point, though if I can call. It the $1 5 billion going great. We talked to you about the next tranche of productivity, it's off to a great start and so we feel will continue to have.
The ability.
To drive productivity and invest in the things that drive growth.
Fantastic color guys I really appreciate that.
Yeah.
Okay.
The next question comes from Robert Moskow of Credit Suisse.
Hi, Thanks for the question, maybe trying to get a vivek Ah.
It's into inflation from a different perspective.
Do you expect sequential inflation in in your next quarter like do you expect prices to be sequentially higher and and what's driving it are you still seeing vendors come to you asking for more pricing.
And if so you know.
Are you more or are you less amenable for that given what's happening in the commodity markets to work or not.
Yes, so rob.
That's how I characterize the broad answer to you is yes, we would expect sequential inflation, but a more moderated level of spend we're seeing so if you just early in the year, we expected that we'd lap it and we'd lap it and inflation will moderate very significantly we are.
Less sure about that now so that was to characterize what we're seeing one on the one hand, you see commodity prices decreasing.
But on the other hand, we also expect that things like produce and others will come in a little harder because fertilizer costs are up and those are the that's the crop that people are already put in the ground and so when we harvest that we're going to see some prices. So net net we're seeing signals on both sides today.
And then some CPG dark coming forward with.
Price increases later in the year of course, we will continue to challenge all of that because we do our own clean sheets on on what something should cost and will continue to challenge that but net net answer is we do expect some sequential inflation, even if moderated through the rest of the year.
Okay. Great last question I didn't hear anything about supply chain disruption being an issue in the quarter.
Are you still experiencing that or is that tamped down a lot and as a result or are your shelves full or you're still not getting everything you need from from your vendors.
We are definitely seeing supply chain disruption and we still have categories.
Where we are on allocation. So those issues have moderated as they are in no way.
Pat.
And from a supply chain operations standpoint, we have been hiring better and we've been more able to find labor I'm not saying, it's all it seems to have mitigated and on the transportation side that continues to be a challenge.
But again moderated but not fixed so I think all of us as an industry would say we've seen some relief.
But it is not at this point, where we would call it being.
Significantly better is moderate it doesn't make us prop yes, good but we have time for one last question.
Thank you the final question comes from Greg.
Monday shutdown of Wolfe research.
Good morning. This is Spencer hanus on for Greg one of your biggest competitors.
We are passing through price increases on food and consumables to manage the markdowns.
And in general merchandise categories. Just curious how you think that's going to impact the competitive environment in grocery and do you think your peers are going to take the opportunity to also bring up pricing.
So the question again totally on general merchandise.
One of our biggest competitors.
Yes.
Yeah, Hey, I don't know I can't speak about what might be happening in somebody else's business, but I can tell you that I think everybody is feeling that the food business is doing well right youre seeing that across the markets. Even if you saw some other earnings calls today, you'll see that the food businesses are doing well.
And my my sense is that for some of the things I talked about earlier it would be really hard to in this environment to do drive down prices and expect massive uptick in supply in volume suddenly because in our supplies channel and people are looking for different things, it's not just about going into <unk>.
Buying a.
Packaged good people are looking for a full portfolio to solve their challenges and meet their needs today.
Got it that's helpful and then I totally understand that the Soviets remain challenged and that's considering promotions for now.
Starting to see some pick.
Kick off and then you see unit change to accelerate further in the second half.
Do you think the promotions have been their maintenance nationals, they've been over the last 12 to 18 months.
Oh, Yeah, it's still has rationalized again I go back to if you go back to the past the old behavior in our sector was that we.
We would all run them in 810 page AD and Blas promotions that didn't give us a return okay and that was what diluted gross margins in the past I think I think there's plenty of technology and data and digital access and so on today to become much more targeted and get a better return on promotions.
So.
And so far I still find it rational I suspect that.
I talked about the food rates just to put in perspective.
We are getting some of these.
Categories, we're at 65% service level and feeling good because it's better than 35 65 still sucks. Okay. So.
So I think we've got a long way to go before we get completely comfortable as the sector on supply.
We've said consistently that with the pricing for medicine data analytics investments that the entire industry has been making over the last several years. We believe that it is the tide that raises all boats. This isn't a specific albertsons discussion we believe that this discussion apply.
Can most of our sophisticated competitor that through personalized promotion. It is why the media collectives are doing better than that talked about the fact that the that the suppliers and retailers together have realized that the effectiveness of medicine.
Can be so much greater when you can personalize and you use data analytics to drive it.
I think that over the last couple of years, if you take a look at the investments that we've all made in those capabilities.
They have changed the game and to just give away March it I, just don't see that behavior coming back into the industry and the way that we saw pre pandemic.
Okay. Thank you very much for participating in today's call. We look forward to speaking with you over the balance of the day and the rest of the week. Thank you. Thank you all thank you.
Thank you ladies and gentlemen that does concludes today's teleconference. Thank you for your participation you may now disconnect your lines.
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