Q3 2024 Albertsons Companies Inc Earnings Call

Vivek: I'll now discuss our initiatives to enhance our customer value proposition, which includes not only price. but also the ease of the value-added services we provide to customers both in-store and online. To date, loyalty memberships, digitally engaged customers, omni-channel households, and transaction counts are all growing because our Customers for Life strategy places the customer at the center of everything we do. So as our customers' needs for value evolve due to inflationary pressures, so are our strategies to address these. These strategies to drive better value for customers, in addition to increasing total category growth, include working with our vendor partners to strategically invest in price.

I'll now discuss our initiatives to enhance our customer value proposition, which includes not only price but.

Also the ease of the value added services, we provide to customers both in store and online.

To date <unk>.

Loyalty memberships digitally engaged customers omnichannel households, and transaction counts are all growing because our customers for life strategy places the customer at the center of everything we do.

So as our customers needs for value evolve due to inflationary pressures.

Our strategies to address these needs.

These strategies to drive better value for customers. In addition to increasing total category growth include working with our vendor partners to strategically invest in price in certain categories and markets.

Vivek: in certain categories and markets. and increasing on-branch penetration. To deliver this, we will source products that customers trust and need at a better value to drive profitable unit growth and increase share of wallet from existing customers. In own brands, we will also offer products at an attractive entry price point so that customers always have an accessible alternative and more prominently feature existing own brands offering.

And increasing owned brand penetration.

To deliver this we will source products that customers trust in need at a better value to drive profitable unit growth and increase share of wallet from existing customers.

<unk> brands, we've also offer products at an attractive entry price point, so that customers always have an accessible alternative.

And more prominently feature existing owned brands offerings.

Vivek: Our third priority is the modernization of our capabilities through technology. Our North Star has been to use technology in everything we do. Over the last few years, we have invested strategically to make technology the key enabler of all major future growth and productivity initiatives. These investments include migration to the cloud, the launch of our end-to-end e-commerce capabilities, the digitization of pharmacy and health. state-of-the-art tools for pricing and promotion. The enablement of self-checkout. So productivity tools to manage replenishment, shrink, and labor, new supply chain systems, and an industry-leading retail media platform. These investments have created long-term capabilities that will continue to allow us to accelerate.

Our third priority is the modernization of our capabilities through technology.

Our North Star has been to use technology and everything we do.

Over the last few years, we have invested strategically to make technology. The key enabler of all major future growth and productivity initiatives.

These investments include migration to the cloud.

The launch of our end to end e-commerce capabilities, the digitization of pharmacy and health care.

The art tools for pricing and promotion.

Enablement of self checkout.

Productivity tools to manage replenishment shrinking labor.

New supply chain systems and in enough industry, leading retail media platform.

These investments have created long term capabilities that will continue to allow us to accelerate that.

Vivek: the transformation of our operating model going forward. They also position us well to take advantage of the evolution of AI and machine learning to elevate our core business processes.

Transformation of our operating model going forward.

They also position us well to take advantage of the evolution of AI and machine learning to elevate our core business processes.

Vivek: The final priority is driving transformational productivity. We have continued to develop our productivity engine. designed to systematically improve the efficiency of our business and improve cost. Over the next three years, we plan to deliver $1.5 billion in savings to invest in our customer value proposition and growth initiatives, as well as to offset inflationary headwinds. To achieve this, we are leveraging our recent investments in technology and the latest innovations and business best practices to build industry-leading capabilities and reduce costs. The first of these initiatives is leveraging a consolidated scale to buy goods for resale. The next is transforming our ways of working, including rebalancing our onshore and offshore activities.

The final priority.

Is driving transformational productivity.

We have continued to develop our productivity engine.

Designed to systematically improve the efficiency of our business and improve costs.

Over the next three years.

Plan to deliver one $5 billion in savings to invest in our customer value proposition and growth initiatives as well as to offset inflationary headwinds.

To achieve this we are leveraging our recent investments in technology and the latest innovations and business best practices built industry, leading capabilities and reduce costs.

The first of these initiatives is leveraging our consolidated scale to buy goods for resale.

The next is transforming our ways of working including rebalancing, our onshore and offshore activities.

Vivek: In our supply chain, we are continuing to make significant progress on automation and the rollout of our new Warehouse Management System, or WMS. By the end of 2025, we expect 30% of our distribution volume to be automated and our WMS to be fully implemented company-wide. These supply chain initiatives improve in-stock conditions. differentiate our fresh quality, lower our cost to serve, and improve our end-to-end data analytics capability.

And our supply chain.

Continuing to make significant progress on automation and rollout a rollout of a new warehouse management system. Our W. S.

By the end of 2025, we expect 30% of our distribution volume to be automated and our WNS to be fully implemented companywide.

These supply chain initiatives improve in stock conditions.

Differentiate our fresh quality lower our cost to serve.

And improve our end to end data analytics capabilities.

Vivek: And finally, in store operation. We are leveraging a more robust technology platform to drive enhanced efficiency, improved customer experience, and deeper associate engagement. For example, we've implemented AI technologies that provide a prompt for missed scans. which is reducing inventory shrinkage and improving the customer and associate experience. We're also expanding the utilization of technology in our produce departments, which is driving increased sales, reduced inventory shrinkage, improved quality, and enhanced labor productivity.

And finally in store operations we.

We're leveraging a more robust technology platform to drive enhanced efficiency.

Improved customer experience and depot associate engagement.

For example, we've implemented AI technologies that provide prompt from missed scans.

Which is reducing inventory shrinkage and improving the customer and associate experience.

We're also expanding the utilization of technology and our produce departments, which is driving increased sales reduced inventory shrinkage improved quality and enhance labor productivity.

Sharon: I will now hand it over to Sharon for an overview of our third quarter and an update on our 2024 financial outlook. Thank you, Vivek, and good morning everyone. It's great to be here with you today. We are pleased with our third quarter results and the operational benefits we are seeing from the investments we have made in our business. We are a stronger company today than pre-merger, and the initiatives that have driven these results affirm our confidence in our future. We delivered solid operating and financial performance during the quarter across all key metrics in an environment where the consumer remains cautious.

I will now hand, it over to Sharon for an overview of our third quarter and an update on our 2020 full financial outlook.

Sharon: Thank you Vivek and good morning, everyone. It's great to be here with you today.

Sharon: We are pleased with our third quarter results and the operational benefits. We are seeing from the investments we have made in our business.

Sharon: We are a stronger company today than pre merger and the initiatives that have driven these results affirm our confidence in our future.

Sharon: We delivered solid operating and financial performance during the quarter across all key metrics and an environment, where the consumer remains cautious.

Sharon: The financial highlights of the quarter included an identical sales increase of 2%, a digital sales increase of 23%, adjusted EBITDA of $1.065 billion, and adjusted EPS of $0.71 per share. Loyalty members increased 15% to $44.3 million. And we increased our quarterly dividend by 25% to $0.15 per share.

Sharon: The financial highlights of the quarter included an identical sales increase of 2%.

Sharon: The sales increase of 23%.

Sharon: Adjusted EBITDA of one point over six 5 billion and adjusted EPS of <unk> 71 per share.

Sharon: Loyalty members increased 15% to $44 3 million.

Sharon: And we increased our quarterly dividend by 25% to 15 cents per share.

Sharon: I'll now provide additional color on the financial details that drove these results. The ID sales increase of 2% was primarily driven by a 13% increase in pharmacy and a 23% increase in digital sales. The digital sales increase was primarily driven by strong growth in first-party sales, fueled by continued innovation in our digital offerings and improved service levels. Our Q3-24 Gross Margin was 27.9%. Excluding fuel and LIFO expense, the gross margin decreased by 27 basis points compared to Q3 last year. Strong growth in pharmacy sales, which carries an overall lower growth margin rate and increases in picking and delivery costs related to the continued growth in our digital sales, drove this decrease, but was partially offset by the benefits from our productivity initiatives.

Sharon: I'll now provide additional color on the financial details that drove these results.

Sharon: The sales increase of 2% was primarily driven by a 13% increase in pharmacy, and a 23% increase in digital sales.

Sharon: The digital sales increase was primarily driven by strong growth in first party sales fueled by continued innovation in our digital offerings and improved service levels.

Sharon: Our Q3 24 gross margin was 27, 9% excluding.

Sharon: Excluding fuel and LIFO expense, the gross margin decreased by 27 basis points compared to Q3 last year.

Sharon: Strong growth in pharmacy sales, which carries an overall lower gross margin rate and increases in picking and delivery costs related to the continued growth in our digital sales drove this decrease but was partially offset by the benefits from our productivity initiatives.

Sharon: Our selling and administrative expense rate was 25.1% this quarter. Excluding fuel, the SD&A rate increased six basis points compared to last year. This increase was primarily driven by merger-related costs and an increase in occupancy-related expenses, including third-party store security services, partially offset by the leveraging of employee costs and benefits from our productivity initiatives. Interest expense decreased $7,000,000 to $109,000,000 during Q3-24. This reduction was primarily driven by lower outstanding debt. Income tax expense in the third quarter was $14.5 million, a 3.5% effective tax rate compared to 20.8% effective tax rate in Q3 last year. This decrease was primarily driven by the recognition of an $81 million discrete state income tax benefit related to audit settlements.

Sharon: Our selling and administrative expense rate was 25, 1% this quarter.

Sharon: <unk> fuel the SG&A rate increased six basis points compared to last year. This increase was primarily driven by merger related costs and an increase in occupancy related expenses, including third party storage security services, partially offset by the leveraging of employee costs and benefits.

Sharon: From our productivity initiatives.

Sharon: Interest expense decreased 7 million to 109 million during Q3 'twenty for this reduction was primarily driven by lower outstanding debt.

Sharon: Income tax expense in the third quarter with $14 5 million or three 5% effective tax rate compared to 28% effective tax rate in Q3 last year.

Sharon: This decrease was primarily driven by the recognition of an $81 million discrete state income tax benefit related to audit settlements.

Sharon: Excluding this discrete benefit, the effective income tax rate would have been approximately 23%.

Sharon: Excluding this discrete benefit the effective income tax rate would have been approximately 23%.

Sharon: And as mentioned in the highlights, Q3'24 Adjusted EBITDA was $1.065 billion compared to $1.107 billion last year and Adjusted EPS was $0.71 per diluted share compared to $0.79 in Q3'23.

Sharon: And as mentioned in the highlights Q3 24, adjusted EBITDA was 1.065 billion compared to 1.1 hundred 7 billion last year and adjusted EPS was <unk> 71 per diluted share compared to 79 cents in Q3 23.

Sharon: Turning now to the third quarter balance sheet and cash flow, capital expenditures of $494 million were driven primarily by investments in the modernization of our store fleet and our digital and technology platforms. We also returned approximately $70 million to our shareholders through common stock dividends. Net debt leverage at the end of the third quarter was 1.9 times and the balance sheet remained strong.

Sharon: Turning now to the third quarter balance sheet and cash flow capital expenditures of 494 million were driven primarily by investments in the modernization of our store fleet and our digital and technology platform.

Sharon: We also returned approximately 70 million to our shareholders through common stock dividends.

Sharon: Net debt leverage at the end of the third quarter with one nine times and the balance sheet remains strong.

Sharon: I'd now like to discuss our 2024 outlook. As we look forward to the balance of Fiscal 24, we do so with continued confidence in our Customers for Life strategy and our operational execution. We are engaging customers in our digital platforms, driving traffic to our stores, and leveraging the investments we have made to drive efficiency in our operations.

Sharon: I'd now like to discuss our 2020 for outlook.

Sharon: As we look forward to the balance of fiscal 'twenty four.

Sharon: So with continued confidence in our customers for life strategy and our operational execution.

Sharon: We are engaging customers in our digital platforms driving traffic to our stores and leveraging the investments we have made to drive efficiency in our operations.

Sharon: So with that is our backdrop and our Q3 results behind us. ID sales are now expected in the range of 1.8 to 2% versus 1.8 to 2.2% and adjusted EBITDA in the increased range of $3.95 to $3.99 billion versus $3.90 to $3.98 billion. This increase in adjusted EBITDA is driven by the ongoing benefits of increased productivity. We are also increasing our adjusted EPS range to $2.25, $2.31 per diluted share to reflect the corresponding increase in adjusted EBITDA. Additionally, due to the $81 million Discrete State Income Tax Benefit recognized this year in the third quarter, we expect our full year tax rate to be in the range of 15 to 16%.

So with that as a backdrop and our Q3 results behind us.

Sharon: <unk> sales are now expected in the range of $1 eight 2% versus one eight to two 2% and adjusted EBITDA in the increased range of $3 95 to $3 99 billion versus $3 nine to $3 98 billion.

Sharon: This increase in adjusted EBITDA is driven by the ongoing benefits of increased productivity.

Sharon: We are also increasing our adjusted EPS range to $2 25 to the dollar.

Sharon: And 31 cents per diluted share.

Sharon: The corresponding increase in adjusted EBITDA.

Sharon: Additionally, due to the $81 million discrete state income tax benefit recognized this year in the third quarter, we expect our full year tax rate to be in the range of 15% to 16% or.

Sharon: Our capital expenditures remain in the range of $1.8 to $1.9 billion.

Our capital expenditures remain in the range of one eight to $1 9 billion.

Sharon: Before I hand it back to the VEX for some closing comments, I would like to spend a minute on how we are thinking about capital allocation over the longer term. First and foremost, we will continue investing in our business to drive long-term sustainable growth. We also plan to maintain our quarterly dividend and seek to grow it over time, as demonstrated by the 25% increase that we declared this morning. And finally, we plan to opportunistically return excess cash to shareholders by repurchasing shares under our recently announced $2 billion share repurchase authorization. Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long-term sustainable shareholder value.

Before I hand, it back to the back for some closing comments I would like to spend a minute on how we are thinking about capital allocation over the longer term.

Sharon: First and foremost we will continue investing in our business to drive long term sustainable growth.

Sharon: We also plan to maintain our quarterly dividend and seek to grow it over time as demonstrated by the 25% increase that we declared this morning.

Sharon: Finally, we plan to Opportunistically return excess cash to shareholders by repurchasing shares under our recently announced $2 billion share repurchase authorization.

Sharon: Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long term sustainable shareholder value.

Sharon: Consistent with our previous cadence, we will provide our outlook for Fiscal 25 and our fourth quarter conference call in April.

Sharon: Consistent with our previous cadence, we will provide our outlook for fiscal 'twenty, five and our fourth quarter conference call in April.

Vivek: I will now turn the call back over to Vivek for closing remarks. Thank you, Sharon. As we look forward, we start this next chapter in strong financial condition with a track record of positive business performance. Over the last two years, we have invested heavily in our core business, developed new sources of revenue, and strengthened our capabilities through the rollout of new technologies. We have retained our best talent and even added and strengthened talent in critical positions. Our customers for life strategies work. We've added loyalty members, digitally-engaged customers, omni-channel households, and increased transaction counts. Our stores are operating more effectively and efficiently as a new technology stakehold.

Vivek: I will now turn the call back over to Vivek for closing remarks.

Speaker Change: Thank you Sharon.

Speaker Change: As we look forward we start this next chapter in strong financial condition with a track record of positive business performance.

Speaker Change: Over the last two years, we have invested heavily in our core business develop new sources of revenue and strengthened our capabilities through the rollout of new technologies.

Speaker Change: We have retained our best talent and even added and strengthened talent in critical positions.

Speaker Change: Our customers for life strategy is working.

Speaker Change: We've added loyalty members digitally engaged customers omnichannel households, and increased transaction counts.

Stores are operating more effectively and efficiently as our new technologies take hold.

Vivek: And we are proactively managing our costs. Our productivity programs, both old and new, are creating fuel for investments and are an offset to inflationary headwinds. We believe all of this puts us in a strong position to continue to transform the business and adapt to an ever-changing consumer landscape. We also know that we must elevate our performance to compete with the very best in our industry. We are energized by that challenge and see a path to doing so. We're confident in our ability to execute against these opportunities.

Speaker Change: And we are proactively managing our costs.

Speaker Change: Our productivity programs, both all the new Cree.

Speaker Change: Creating fuel for investments and are an offset to inflationary headwinds.

Speaker Change: We believe all of this puts us in a strong position to continue to transform the business and adapt to an ever changing consumer landscape.

Speaker Change: We also know that we must elevate our performance to compete with the very best in our industry.

Speaker Change: Energized by that challenge and see a path to doing so.

Speaker Change: We're confident in our ability to actually execute against these opportunities.

Vivek: We will share more of our long-term plans at the end of the fiscal year.

Speaker Change: We'll share more of our long term plans at the end of the fiscal year.

Vivek: I would like to thank our 285,000 associates for their loyalty and dedication to our customers and community. We're so proud of the difference they make. In December, we published our latest Recipe for Change report. and highlighted the role that our associates play in fighting food insecurity and helping reduce the impact of our operations on the environment. They're the ones who make all of this possible, and I want to applaud them for their hard work and dedication.

Speaker Change: I would like to thank our 285000 associates for their loyalty and dedication to our customers and communities.

Speaker Change: We're so proud of the difference they make.

In December we.

Speaker Change: Published our latest recipe for change to report.

Speaker Change: Highlighted the role that our associates play in fighting food and security and helping reduce the impact of our operations in that environment.

Speaker Change: They are the ones, who make all of this possible and I want to applaud them for their hard work and dedication.

Operator: We will now take a question. Thank you.

Speaker Change: We will now take your questions.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question. participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Operator: As a reminder, we ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your question.

Ken Goldman: Our first questions come from the line of Ken Goldman with J.P. Morgan. Please proceed with your question.

Speaker Change: Our first questions come from the line of Ken Goldman with J P. Morgan. Please proceed with your question.

Ken Goldman: Hi, good morning. Thank you. I wanted to ask about guidance and the adjustments that were made, particularly on the top line. It's great to see, of course, EPS and EBITDA, the outlook coming up.

Ken Goldman: Hi, good morning, Thank you.

Speaker Change: I wanted to ask about.

Speaker Change: Guidance and the adjustments that were made particularly on the topline it's great to see of course, EPS and EBITDA.

Speaker Change: The outlook coming up could you talk a little bit about the decision to maybe trim the top line or the top end rather of Ids ex fuel.

Ken Goldman: Could you talk a little bit about the decision to maybe trim the top line, or the top end rather of ID's XFUEL, what you're seeing as the fourth quarter started, and any specifics around that?

What youre seeing is the fourth quarter started in any specifics around that thank you.

Vivek: Hey, good morning, Ken. It's Vivek here. Ken, you know, December has been kind of a little wonky in that our four-week market share performance improved very materially in December.

Hey, good morning, Ken itself.

Speaker Change: Good.

Speaker Change: You know December has been.

Speaker Change: Kind of a little wonky and that a full week market share performance improved very materially in December but what were seeing it looks like as the data is coming in the food and beverage sector overall sequentially slowed down in December and it's tough to get back a Christmas holiday. So we're just reflecting that slowdown.

Vivek: But what we're seeing, it looks like as the data is coming in, the food and beverage sector overall sequentially slowed down in December. And it's tough to get back a Christmas holiday. So we're just reflecting that slowdown, which we experienced here.

Speaker Change: Which we experience too.

Vivek: Do you believe it's more of a macro, I know you're not promising this, but just based on your data, more of a macro than a company specific pressure point? That is correct, because the data we're seeing is food and beverage sectors slow down broadly. And there's a, I recognize too that the calendar was different, Ken, right?

Speaker Change: Do you believe it's more of a macro I know youre not promising this but just based on your data more of a macro then a company specific.

Speaker Change: Pressure point.

Speaker Change: That is correct because.

Speaker Change: The data, we're seeing is food and beverage sector slowdown broadly.

Speaker Change: And Theres, a I recognize too that the calendar was different Ken right, we had a shorter window.

Vivek: We had a shorter window and so we, and it was an important holiday, so it's really hard to recover it. So we just wanted to be cautious about that.

Speaker Change: And so.

Speaker Change: It is an important holiday so it's really hard to recover it. So we just wanted to be cautious about that.

Ken Goldman: And then quick follow-up, and thank you for that. Of the $1.5 billion you're talking about in terms of efficiencies, do you have any kind of rough idea at this time how much of that will be reinvested versus dropped to the bottom line?

Speaker Change: And then quick follow up and thank you for that of the $1 5 billion, you're talking about in terms of efficiencies do you have any kind of rough idea at this time, how much of that will be reinvested versus dropped to the bottom line.

Vivek: Can we haven't provided an outlook on that and we'll be providing an outlook on 2025 in our fourth quarter conference call in April Got it.

Speaker Change: Ken we haven't provided an outlook on that and we'll be providing an outlook on 2025 in our fourth quarter conference call in April.

Got it thank you.

Ken Goldman: Thank you. Thank you, Ken.

Thank you Ken.

Ken Goldman: Thank you.

John Heinbuckle: Our next questions come from the line of John Heinbuckle with Guggenheim Partners.

Speaker Change: Thank you our next questions come from the line of John <unk> with Guggenheim Partners. Please proceed with your questions.

John Heinbuckle: Please proceed with your question.

Vivek: Hey Vivek, I wanted to start with, when you think about all the new customers, right, that you've picked up over the last two years, how do you size or think about wallet share, right? Because they come on the system, their wallet share is not as high as households that have been around a while. How big is that opportunity? You know, and how long does that take to move them up to where your more mature households are?

John: Hey, Vivek I wanted to start with.

John: When you think about all the new customers right. These picked up over the last two years, how do you size, where think about wallet share right because they come on the system. There wallet share is not as high as households that have been around a while how.

John: How big is that opportunity.

John: And how long does that take to move them up to where your your more mature households are.

Vivek: Hey, good morning, John. Great question. I think that's why we talk about the four different platforms that we have. And what we see is that when they engage in any one of those platforms, you might see, let's say, a 2x or 3x. When they engage in a second or third platform, that number goes up, right? Maybe even 4x, 5x. And our challenge then is first to get them engaged on any one of those platforms, and then to get them on multiple platforms. And what we do know is that in each of these, there is a certain ramp-up curve, right?

John: Hey, Good morning, John Great question, I think that's why we talk about the four different platforms that we have.

John: And what we see is that when they engage in any one of those platforms you might see let's say a <unk> three X when they engage in a second or third platform that number goes up maybe even forex buybacks.

John: And our challenge then is pushed to get them engaged on any one of those platforms and then to get them on multiple platforms and what we do know is that in each of these there is a certain ramp up curve right and.

Vivek: And I'm not going to give you the specifics on what those ramps are, but we work very deliberately on these ramps. And that's why we're excited. And we start with that notion of engaging people on these platforms, because that drives share a wallet. What we need to do is to get more people into that, but also make sure that we maintain the base. And that's some of the things that we're doing that we talked about, correcting the value proposition and so on, so that we also maintain the base while getting them into these platforms. And that's going to be part of the planning that we bring, John, as we come back at the end of the first.

John: I'm not going to give you the specifics on how what those ramps are but we work very deliberately on these ramps and that's why we're excited and we start with that notion of engaging people on these platforms because that drive share of wallet.

John: What we need to do is to get more people into that but also make sure that we maintain the base and that's some of the things that we're doing that we talked about.

John: The value proposition and so on so that we also maintain the base well why are we getting them into these platforms with.

John: That's going to be part of the planning that we bring John as we come back at the end of the physical.

John Heinbuckle: Maybe as a follow-up to that, right, so if you think about food volumes, right, I think if we take pharmacy and inflation out, and this is not just for you, I think it's for others, food volumes are still in negative territory.

John: Maybe as a follow up to that right. So if you think about food volumes right I think if we take pharmacy and inflation out and this is not just for you I think it's firms for others food volumes are still in negative territory. When do you think that flips to positive and then in your in your secular algo of 2% plus what.

Vivek: When do you think that flips to positive? And then in your secular algo of 2% plus, What do you think the food volumes are? Is it half that? You know, is it 1% or is it less? Where does that shake out? Typically, John, we've thought of that as, you know, one, maybe think of inflation as about at 1% to 1.25%. That's how we'd plan it. Think about 50 bps of food volume growth. That's the long-term algorithm is how we think about. And then there's some share gains that come with it. And the share gains come by doing the things that I talked about addressing your last question.

John: What do you think the food volumes are and should have that as a 1% or is it less or where does that shake out.

Speaker Change: Typically John we've thought of that as maybe think of inflation is about at 1% to 1.25%. That's how we plan. It think about 50 bps of food volume growth. That's the long term algorithm is how we think about and then there are some share gains that come with it and the share gains come by doing the things that I talked about addressing your lost.

Speaker Change: Question, but 50 bps would be kind of what would be typical food volumes in our country.

Vivek: But 50 bps would be kind of what would be typical food volumes in our country.

Vivek: It's hard to predict when we're going to get back to that. And I think we're all trying to search for that answer.

Speaker Change: It's hard to predict when we're going to get back to that I think we're all trying to search for that answer.

Speaker Change: Thank you.

Edward Kelly: Our next questions come from the line of Edward Kelly with Wells Fargo. Hi, good morning, everyone, and thanks for joining us today. I wanted to start with just a question around investment. I mean, it's good to hear, you know, the sizeable productivity. I think there's been a little bit of concern that Albertsons might require more significant up-front investment coming out of the deal break. The press release kind of suggests that productivity pays for investment, but I'm just curious about the timing of that as we think about next year, because I think investors are maybe a little bit concerned around there being some near-term.

Speaker Change: Thank you our next questions come from the line of Edward Kelly with Wells Fargo. Please proceed with your questions.

Edward Kelly: Hi, good morning, everyone and thanks for the update.

Edward Kelly: I wanted to start with just a question around.

Edward Kelly: Investment I mean, it's good to hear the.

Edward Kelly: The sizable productivity initiatives, I think theres been a little bit of concern.

Edward Kelly: The albertsons might require a more significant upfront investment coming out of.

Edward Kelly: Deal break.

Edward Kelly: The press release kind of suggest that productivity.

Speaker Change: Productivity pays for investment, but I'm, just curious about the timing of that as we think about you know next year, because I think investors are maybe a little bit concerned around.

Speaker Change: There being some near term pressure and maybe some mismatch of productivity and investment could you just maybe provide a little bit more color around how youre thinking about all of that.

Edward Kelly: some mismatch of productivity and investment. Could you just maybe provide a little bit more color around how you're thinking about all of that?

Sharon: Yeah, Ed, consistent with the previous cadence that we've had, we're going to provide our outlook for fiscal 25 in April, and we'll be able to talk more about that. We're looking at the cadence of the productivity along with the investments, and we will have a lot to share in April. Obviously, we need to see where we are at the end of the year, et cetera, so we're going to stay with that cadence at this point.

Ed Kelly: Yeah Ed.

Ed Kelly: Consistent with the previous cadence that we've had we're going to provide our outlook for fiscal 'twenty five in April and we will be able to talk more about that we're looking at the cadence of the productivity along with the investments and we will have a lot to share in April.

Ed Kelly: So obviously there is we'd need to see where we are at the end of the year et cetera.

Ed Kelly: We're going to stay with that cadence at this point.

Sharon: And I'll just reinforce, though, that what investors should not be concerned about is that the investments that we've made in the company in building capabilities and ensuring that our assets are at their best, right? So we've done that and we've talked to you about all the technologies that we've put in there. We never throttled any of those. In fact, in those investments, we just became more and more productive. We're getting more for every capital dollar we're putting.

Ed Kelly: I'll, just reinforce though that what investors should should not be concerned about is that the investments that we've made and the company and building capabilities and ensuring that our assets are are at their best rates. So we've done that we talk to you about all the technologies that we've put in that we never talk with any of those.

Ed Kelly: In fact in those investments, we just became more and more productive we're getting more for every capital dollar we're putting it.

Edward Kelly: And then maybe just to follow up, I mean, you have a lot of opportunities. whether it's the media, all of the cost saves, including, you know, central buying, private label, etc.

Ed Kelly: And then maybe just a follow up I mean, you have a lot of opportunity you know whether it's the media all of the cost saves, including central buying private label et cetera.

Vivek: How quickly do you think you can ramp those initiatives, whereas they become a more meaningful contributor to the P&L? They're all different and they'll go at different rates. So as an example, you know, when we think about, we talked about offshoring, onshoring, there are elements of that that can go quickly only because it's, we are late to that game. You know, there's, what's exciting is you go there and you see these companies that have established great capability. So there's aspects of it that'll move quickly. And then there are aspects, so someone put that in the, we can move faster bucket.

How quickly do you think you can you can ramp those.

Ed Kelly: <unk> initiatives, whereas they become a more meaningful contributor to the P&L.

Ed Kelly: They're all different and they'll grow at different rates. So as an example.

Ed Kelly: When we think about.

Ed Kelly: We talked about offshoring onshoring, there are elements of that that can go quickly only because if we are not really relate to that game.

What's exciting is a go go there do you see these companies that have established great capabilities. So there's aspects of that that will move quickly and then there are aspects. So some of them put that in the we can move faster bucket in.

Vivek: In buying, there's aspects of what we can buy that we can move quickly. Some of those, we want to move with caution because we also know companies who've done it and got it wrong. And so we want to make sure we move with caution. But I think you'll see, if I was to simplify it, I think you'll see a steady drumbeat of productivity coming from all of these things over the timeframe that Sharon pointed out. three-year time.

Buying theres aspects of what we can buy that we can move quickly some of those we want to move with caution because we also know companies who have done it and got it wrong and so we want to make sure we move with caution.

Ed Kelly: I think youll see the if I was to simplify it I think youll see a steady drumbeat.

Speaker Change: Of productivity coming from all of these things over the timeframe that chairman pointed out.

Ed Kelly: Three year timeframe.

Edward Kelly: Okay, thank you. Thank you.

Speaker Change: Okay. Thank you.

Rupesh Parikh: Our next question has come from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Speaker Change: Thank you. Our next question is coming from the line of <unk> with Oppenheimer. Please proceed with your question.

Rupesh Parikh: Good morning. Thanks for taking my question. So going back to your earlier commentary about the industry slowed in December, just any thoughts in terms of what could be driving Rupesh, honestly I don't know.

Speaker Change: Good morning, and thanks for taking my question, so going back to your earlier commentary about the industry slowed in December just any thoughts in terms of what could be driving that slowdown.

Speaker Change: Croatia honestly I don't know the only thing that's different about December is that we had a much shorter window between the holidays right and that is a bit too, especially in an environment, where the consumer is being so cautious.

Vivek: The only thing that's different about December is that we had a much shorter window between the holidays. Right, and that is a material, especially in an environment where the consumer is being so cautious consumers being price sensitive. Now, I think we'll all know more as the as data comes out, but that's the only thing I can think of that that could have contributed.

Speaker Change: Consumers being price sensitive now I think we'll all know more as that as data comes out but that's the only thing I can think of that that could have contributed to it.

Rupesh Parikh: Great.

Sharon: And then maybe my follow-up question, so Sharon, just on the gross margin line, so we did see sequential improvement on gross margins, Q3 decline versus Q2. I'm just curious how you're thinking about it. We haven't provided an outlook for Q4, but we are going to have the same drivers in the margin. We do expect growth in pharmacy sales, and we absolutely expect to see continued momentum in our e-commerce business. So both of those are going to create the same makeshift impact. And when you look at what those were offset by, it was productivity. Our productivity engine continues to run well.

Speaker Change: Great and then maybe my follow up question, especially I'm just on the gross margin line. So we did see sequential improvement on gross margins Q3 decline versus Q2, I'm just curious how you're thinking about it for Q4.

Speaker Change: We haven't provided an outlook for Q4, but we are going to have the same drivers in the margin. We do expect growth in pharmacy sales and we absolutely expect to see continued momentum in our E. Commerce business. So both of those are going to create the same mix shift impact.

Speaker Change: And when you look at what those were offset by it was productivity our productivity engine continues to run well. So I think that when you look at it it's going to be similar.

Sharon: So I think that when you look at it, it's going to be similar.

Sharon: The other area that we're seeing benefits is shrink, and we will continue to put initiatives forward. We've invested technology. We already talked to you guys about that when we saw you a couple weeks ago. And we expect that technology to pay dividends as it learns, as AI technology and some of ourselves check out and it continues to learn.

Speaker Change: Other area that we are seeing benefits is shrink.

Speaker Change: Shrink and we will continue to put initiatives forward. We've invested technology, we already talked to you guys about that when we saw a couple of weeks ago, and we expect that technology to pay dividends.

It's the AI technology, and some of our self checkout and it continues to learn.

Rupesh Parikh: Great. Thank you, Alpaca.

Speaker Change: Great. Thank you I'll pass it along.

Rupesh Parikh: Thank you.

Simeon Gutmann: Our next questions come from the line of Simeon Gutmann with Morgan Stanley.

Speaker Change: Thank you our next questions come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Simeon Gutmann: Please proceed with your question.

Vivek: Hi, good morning everyone.

Simeon Gutman: Hi, good morning, everyone. So in the last couple of years since we spoke I wanted to hear.

Simeon Gutmann: So in the last couple of years since we spoke, I wanted to hear about market share through your lens. You have better market level information than we do, and specifically excluding pharmacy. Curious what your assessment is, where do you stand? Obviously, Vivek, you made the comment that you're aspiring to get stronger. I don't know if that's a market share comment or just an overall growth level.

Speaker Change: Here about market share through your lens.

Speaker Change: You have better market level information than we do and specifically excluding pharmacy curious what your assessment is where do you stand obviously vivek you made the comment that you're aspiring to get stronger I don't know if that's a market share comment there just an overall growth level, but can you assess where you are especially where you landed through.

Vivek: Can you assess where you are, especially where you landed through the third quarter?

Speaker Change: The third quarter.

Vivek: Yes, Simeon.

Vivek: Yes Simeon.

Vivek: Good morning. When we think about market share, I'll tell you two things that are very, very clear to us. We have a mass retailer and a club retailer that are growing much faster than and no matter what anybody thinks, they're real competitors to us, okay? And we know that to win in the marketplace, we've got to compete with them. And until we compete with them, we can feel comfortable about market share in certain segments of our retail, but we've got to get to better performance to gain market share overall. And that's what I was reflecting on, the notion of getting stronger, is that we've got to accelerate our growth rates to compete with the very, very best in the industry.

Speaker Change: Good morning when.

Speaker Change: When we think about market share I would tell you two things that are very very clear to us we have a mass retailer in the club retailer that are growing much faster than us.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: No matter, what anybody thinks they're real competitors to us okay.

Speaker Change: And we know that to win in the marketplace, we've got to compete with them.

Speaker Change: And until we compete with them. We can we can feel comfortable about market share in certain segments of our retail, but we've got to get get to better performance to gain market share overall, and that's what I was reflecting on the notion of getting stronger.

Simeon Gutman: Is that we've got accelerate our growth rates to compete with the very very best in the industry Simeon.

Simeon Gutmann: My follow-up, I want to talk about the volume growth and Vivek, you mentioned, you know, we're not sure when we'll get there.

Simeon Gutman: My follow up can I wanted to talk about the volume growth, but like you mentioned you know we're not sure when we'll get there.

Simeon Gutmann: In the, I guess, across the chain, you have information on pharmacy, especially GLP-1. Do you think there is a direct correlation between the GLP-1 usage and then unit consumption? Is that part of the ingredients right?

Speaker Change: And then I guess across the chain you you have information on pharmacy, especially G. L. P. One do you think there is a direct correlation between the G. L. P. One usage and then unit consumption is that part of the ingredients right now.

Vivek: That could be, Simeon, it's just hard to, the amount of growth we're seeing in GLP-1s, and I think that you're seeing across the industry, it's hard for me, having been in food and beverage now for 15 plus years, to completely ignore that, because of the amount of reduction in calories that it has.

Simeon Gutman: Yeah.

Speaker Change: That could be a semi and it's just hard to do.

Speaker Change: The amount of growth, we're seeing in <unk> and I think that youre seeing across the industry. It's hard for me having been in food and beverage now for 15 plus years to completely ignore that.

Speaker Change: Because of the amount of reduction in calories that it has.

Vivek: And I always think about if 10% of the people eat 10% less, going back to an earlier question, instead of 50 bps of volume, that's 100 bps of negative volume, right? So it's hard for, I can't conclude that it is a problem, but we are certainly looking at it.

And always think about 10% of the people at 10% less.

Speaker Change: Going back to an earlier question instead of 50 bps of volume to 100 bps of negative volume right. So it's hard I can't conclude that it is a problem, but we are certainly looking at it.

Simeon Gutmann: Okay. Thanks.

Speaker Change: Okay. Thanks, good luck.

Simeon Gutmann: Good luck. Thank you.

Mark Carter: Our next questions come from the line of Mark Carter with UBS. Please proceed with your questions.

Speaker Change: Thank you our next questions come from the line of Mark Carden with UBS. Please proceed with your questions.

Mark Carter: Good morning. Thanks so much for taking the questions.

Speaker Change: Hey, good morning, Thanks, so much for taking the questions. So to start another follow up on pharmacy, just when you look at that business overall, how much of it do you think is being driven in terms of the gross sales capture from competitor closures versus your own initiatives and then you talked about <unk> being a positive just how its contribution trended.

Vivek: So to start another follow-up on pharmacy, just when you look at that business overall, how much of it do you think is being driven in terms of the growth by sales capture from competitor closures versus your own initiatives? And then you talked about GLP-1 being a positive, just how its contribution trended relative to what you've seen in recent quarters.

Speaker Change: To what <unk> seen in recent quarters. Thanks.

Vivek: Hey, good morning. Yeah, so I think it's a combination of both. One, during the two years of COVID, we spent a lot of energy getting our pharmacy, entire pharmacy platform on our phone, so on the app. We made it really easy for people to schedule. They get constant updates. We've launched this notion of this application called Sincerely Health, where you get into the world of pharmacy, and it gives you so much more to navigate. So we want to make you stickier in the world of pharmacy and you're stickier on our app. So we've done a lot of things.

Speaker Change: Hey, good morning, Yeah. So I think it's a combination of both one during during the two years of Covid.

Speaker Change: We spent a lot of energy are getting our pharmacy entire pharmacy platform on a phone so on the app.

Speaker Change: We've made it really easy for people to schedule. They get constant updates we've launched this notion of it is this.

Speaker Change: Application called sincerely help where you get into the world of pharmacy and it gives you so much more to navigate so we want to make you stickier in the world of pharmacy annual stickier on our App.

Speaker Change: So we've done a lot of things are our execution in our stores is better our NPS is better. So we've done a lot of things to elevate the experience and pharmacy. In addition, we're seeing a lot of competitive closer. So it's a combination of both that is getting customers into us by the way, it's new customers to the franchise, but also a lot of customers who are just shopping.

Vivek: Our execution in our stores is better. Our NPS is better. So we've done a lot of things to elevate the experience in pharmacy. In addition, we're seeing a lot of competitive closures. So it's a combination of both that is getting customers into us. By the way, it's new customers to the franchise, but also a lot of customers who are just shopping grocery with us now engaging in pharmacy. So we have both those.

Speaker Change: Grocery with US now engaging pumps. So we have both those with.

Vivek: With respect to GLP-1, the GLP-1 contributions are negative. So it's not, I mean, they just, it's growing. But again, the GLP-1 customer is an important customer, right? We, over time, we imagine those economics will change, but it is negative.

Speaker Change: With respect to GOP once the GOP one contributions negative so it's not just where it's growing but again the GOP one customer is an important customer right.

Over time, we mentioned those economics will change.

But it is negative.

Mark Carter: Great. And then just looking when looking at your overall core grocery comp, are you seeing any shifts in performance by income cohort? Not a whole lot. We serve a lot of different segments. We're not seeing anything material from a change in the income cohorts.

Speaker Change: Great and then just looking when looking at your overall core grocery comp are you seeing any shifts in performance by income cohort.

Speaker Change: Not not a whole lot we serve a lot of different segments, we're not seeing anything material from a change in the income cohorts.

Vivek: I think what we're seeing is that customers in a cautious environment tend to shop more retailers. and so we're seeing that across the board and so I think that the monies are getting distributed differently from say a year ago or two years ago.

Speaker Change: I think what we're seeing is that customers in.

Speaker Change: In a cautious environment tend to shop more retailers and so we're seeing that across the board and so I think the monies are getting distributed differently from say a year ago or two years ago.

Mark Carter: Great, thanks so much, guys. Have a good one.

Speaker Change: Great. Thanks, so much guys and good luck.

Speaker Change: Thank you.

Mark Carter: Thank you.

Leah Jordan: Our next questions come from the line of Leah Jordan with Goldman Sachs.

Speaker Change: Thank you. Our next question will come from the line of Lee Jordan with Goldman Sachs. Please proceed with your questions.

Please proceed with your question. Good morning.

Lee Jordan: Good morning. Thank you for taking my question first Justine if you could comment on how you view your store footprint today I know you've opened some new stores and done Remodels this year, but what other opportunities do you see for further optimization from here.

Okay.

Lee Jordan: We look forward, we think two things I'll talk first about the opportunity we have.

Lee Jordan: Have opened.

Lee Jordan: Several stores this year and we have had some exceptionally strong store openings.

And we are.

Lee Jordan: Increased our data analytics capability and real estate, and we are really being able to identify markets, where we work well and can drive a great experience for our customers. So theres some opening opportunities in markets I don't want to speak to which markets because it's very competitive of course.

Lee Jordan: On the other side of it over the last several years to come our rationalization of our footprint I'm talking about general hygiene of the real estate portfolio, we have been unable in some in some ways to really do that during the merger period. So we will start seeing that youll see some more store openings, what we don't.

Lee Jordan: One is that read into I indication of some problem, but there could be more closures over the next couple of years that <unk> seen previously just because of high teen.

Lee Jordan: Okay. Great. That's helpful color. Thank you and then my follow up I just wanted to go back and dig into retail media a bit more just if you could provide more detail on the opportunity you see there and just how you view your competitive position in the marketplace recognizing some peers are a little bit further along.

Lee Jordan: And then just also more detail on how the when do you think this could be a meaningful driver to profitability.

Lee Jordan: Trulia the retail media business, we took it in house in 'twenty two.

Lee Jordan: We've spent a lot of energy building the technology platform to do that.

Lee Jordan: We are growing.

Lee Jordan: Going fast from a smaller base, though so we do think it will become very material in the next three year horizon.

Lee Jordan: And the fact that we are starting later it doesn't mean, we cannot build a great business because we still have our customers and many of our markets. We do have a strong presence.

Lee Jordan: And our ability to provide our customers the clients if I can call it.

Lee Jordan: Who is spending the money on on a 360 solution executing in stores and executing digitally I think will make a difference. So we're excited about it we've got everything we need and now we're just focused on building the business in the sense selling the business rather than just building the platform to do the business.

Lee Jordan: When you look at the prepared remarks.

Lee Jordan: We've been working on what we've been building and where we're seeing success.

Lee Jordan: And the growth in those four digital platforms that is what was necessary in order to create the robust inventory that we need for the Albertsons media collected and we have invested heavily in over the last several years, especially in the last two years.

Lee Jordan: We are now.

Lee Jordan: If you step back and to really be able to start capturing our fair share of that market.

Lee Jordan: Great. Thank you.

Speaker Change: Thank you. Our next question is come from the line of Ravi owns with Bank of America. Please proceed with your question.

Speaker Change: Hey, good morning, maybe for you Sharon can you give us some color on what the FIFO gross margin ex pharmacy in digital what you saw this quarter and how whats the outlook for that just to give us some help with what's just going on in your core FIFO gross margin.

Speaker Change: Yeah. So Ravi I just talked about the fact that what has been driving and this has actually been consistent.

Speaker Change: In our gross margin the mix shifts that we've seen into pharmacy sales.

Which is going to carry a very mixed.

Speaker Change: Mix shift impact to the margin dilutive of course, and then the increase in E. Commerce. I mean, we are running this quarter, 23% and we've been in the 20% range as all year. So we expect that to continue to stay robust so thats going to mix shift the margin negatively and then we do expect to continue.

Speaker Change: To drive productivity initiatives into the gross margin. So I think those dynamics are going to continue and you should expect those to continue into 2025, which we actually see as a huge positive. These are areas that drive outsized customer lifetime value and speed AMC. So that's why we will continue to.

Speaker Change: Very excited about both of those ensuring just ex the mixed shift pressures from pharmacy and digital are you seeing any kind of pressures competitive wise or anything going on in the.

Speaker Change: Just sort of the core gross margins.

Speaker Change: I think we continue to invest in price.

Speaker Change: So as we do that but we have other opportunities in productivity. It also includes shrink and other things.

Speaker Change: We believe that we have been doing a very good job balancing that but over time, there could be margin pressure and that's why it is imperative that we drive this productivity engine that we just shared with you today and we gave you that billion dollar target.

Speaker Change: But nothing.

Speaker Change: I'm not seeing anything abnormal Ravi.

Speaker Change: Terrific great. Thanks, so much.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question is coming from the line of Scott musket with RFID capital. Please proceed with your question.

Hey, guys welcome back and.

Speaker Change: I know you have some stores down there in southern California, So our thoughts are with those associates down there. Thank you Scott.

Speaker Change: I wanted to touch on something.

Speaker Change: Around pricing.

Obviously this topic comes up with a lot of people, but my thought and I wanted to get your take on this is that there are examples out there in the marketplace, where there is a price gap between mass merchants, a decent one yet theyre gaining share. It. So how do you balance as you think about investing kind of the store experience.

Gary it's enhancing merchandise.

Speaker Change: This is just reducing prices.

Speaker Change: Scott Good morning, and.

Speaker Change: You know youre right its not new right. This conversation on pricing. So I just wanted to make sure I give you some context on it though.

Speaker Change: 50 million households, shopped us in the last 12 months.

Speaker Change: And we're growing transactions were increasing engagement across all our platforms. So net net customers are seeing value in what we offer for the prices that we charge and that's been there before and it still continues.

Speaker Change: I think though we do recognize we absolutely recognize that customers are feeling pressure.

Speaker Change: There they are cautious they are shopping more outlets.

Speaker Change: There's a couple of retailers that you know that are doing very well they are strong and pricing.

And so the way we think about this is we don't have a macro problem, but we do know that there are going to be said there are markets and there are some categories, where we need to get shop, and we will do that and we'll do that as we go forward, but we're also doing that recognizing that there is productivity that we need to drive.

Speaker Change: We need to generate the fuel to do that and a lot of things that we talked about in the opening statements Youll see are intended to generate that productivity. So that we can get sharper, where we need to but our philosophy has always been finding ways to add value.

Speaker Change: We've talked about all of those and you can go to a store and the level of service that we provide the products that we provide are all about adding value that.

That a customer may not be able to get elsewhere.

Speaker Change: That's great to have that concern.

Follow up question on this is when you think about.

The store experience and maybe the overall experience and Capex.

Speaker Change: How do you think about your store fleet and what you might need to invest in it I know, obviously Walmart is investing a lot in their store fleet.

Speaker Change: Probably some of their market share gains were attributed to that how.

Speaker Change: How do you think about the overall experience in the investment the Capex.

Speaker Change: Scott you know in the last couple of years, we've become a share and talked about the data the analytics behind our investments it's not just a new stores, but also in Remodels, we have a very deep understanding now on when we can put a dollar of dose store how much of that is purely for maintenance versus how much of that is.

Speaker Change: For driving growth and when we think about driving growth. These are investments that are following initiatives and whether that is driving more giving creating more ecommerce capacity in the store or driving more a better experience in in ready meals, but these are all investments that are.

Speaker Change: Going behind growth initiatives.

Speaker Change: And Thats, how we are deploying our capital so.

Speaker Change: And every single investment in the store is reviewed that way, which is why we've become more effective and efficient in deploying our capital.

Speaker Change: And Scott if you look back on the history of Capex in the company, we have invested more money in the last three to four years in capital than we had in our history and even though we were in a merger situation. It had no impact on our Capex.

Speaker Change: Related to what was in our strategic plans related to our fleet of stores.

Speaker Change: We continued through the merger to invest capital in the remodel of our stores.

Speaker Change: Moving forward, we expect to do the same and there has been a consistent strategy that <unk> described to continue to maintain our stores and invest in that deferred maintenance.

Speaker Change: Okay.

Speaker Change: Perfect. Thanks, guys.

Speaker Change: Thank you. Our next question is come from the line of Michael Montana with Evercore ISI. Please proceed with your questions.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Michael could you check if you're on mute please.

Speaker Change: Yes, Hi, good morning can you hear me.

Speaker Change: Michael Yes, yes, that's great. Okay. Just just wanted to unpack I guess two elements if I could one was on the ROIC C front I just wanted to think about how we should be looking at that you know moving forward and how important store rationalization could be to that one and then secondly, I guess was around the buyback side in them.

Speaker Change: Sharon what would you think about for free cash flow. This year, what's sustainable free cash flow and then is that really how we should think about the pacing against the 2 billion authorization.

Speaker Change: Yes so.

Speaker Change: I would say this we're going to give our 2025 outlook.

Speaker Change: In April and we're going to talk a lot more about that we did provide.

Speaker Change: A long term algorithm, we said, we're going to grow about 2% and.

Speaker Change: And we expected our adjusted EBITDA to grow slightly faster than that we gave you. The capex numbers one eight to $1 9 billion. So as we look at that in your model that we see it very consistent in the past. So we'll give you more outlook Michael.

Speaker Change: In $2000 in April.

Speaker Change: On the buyback side.

Speaker Change: Do expect to Opportunistically buy shares.

Speaker Change: And we are not doing an ASR as we shared with all of you. When we met with you a couple of weeks ago. So that we do.

Speaker Change: <unk> opportunistically to be buying shares back with excess cash.

Speaker Change: Okay.

Thank you our next questions come from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your questions.

Speaker Change: Yes. Thanks, Good morning, guys I wanted to dig in a little bit more with the productivity improvement effort. The one 5 billion in cost reduction that you guys are targeting.

Speaker Change: Are there like big buckets, where you see opportunity or is it just lots of.

Speaker Change: Small things that you just can do more efficiently and it adds up to 1 billion and a half.

Speaker Change: Joe It's both so if you just look back at our history over the last five years or so.

Speaker Change: We have always delivered.

Speaker Change: <unk> delivered productivity in fact, we delivered more than we've told you all about it right. So.

Speaker Change: And what that productivity engine continues.

Speaker Change: The nature of that productivity is defined.

Speaker Change: <unk> penny's everywhere and we're really good at that and we now have the governance around it and it has become part of the fabric of the company, we're adding new things, though so when we talk about new productivity, we talk about G&A.

Speaker Change: We talked about buying better those are new tranches of productivity that we're adding.

Speaker Change: And that will that will all be part of this one 5 billion. So it's a little bit of both Joe's and these are very very targeted and material places that we're looking at as you can imagine these are huge line items.

And I think what's important is that we have been working on these productivity initiatives now for it.

Speaker Change: Two years in other words, we're not starting this period in a half dollars is identified we know what we're going after we've got plans in place to do it we didn't just come and lay out a plan today.

Speaker Change: It is very well underway and you guys even by our next call. We'll see some of these things are unfolding.

Speaker Change: That's great. Thank you for that guys and actually does that you did touch on with the buying differences that you're doing can you share a little bit more color on that I think.

Speaker Change: It feels like Youre going to be centralizing, the buying a little bit more maybe you could explain explain that process.

Speaker Change: Joe the way I'd frame. It is I think we're going to be leveraging our scale more.

Speaker Change: And we're going to be leveraging our scale more and doing more for our suppliers. So that they can they can get the kind of growth that I think they can get with us alright, So I think of it less as center.

Speaker Change: We're centralizing I don't want people to walk away with that because I think that that creates mental models that are not productive, but we can find ways to leverage scale with data technology and better decision making.

Speaker Change: That's really helpful. Thanks for that and.

Speaker Change: Good luck guys.

Speaker Change: Okay. Thank you our next questions come from the line of Bill Kirk with Roth. Please proceed with your question.

Speaker Change: Good morning in the in the deal divestiture process. There were over 60 potential bidders interested in some of your stores have conversations with those bidders continued particularly considering comments made in court about possibly closing stores or exiting markets.

Speaker Change: Bill we are.

Speaker Change: We are maniacally focused on operating our business.

Speaker Change: Got so much opportunity in front of us.

Speaker Change: That we see and we're excited about and so that's where our focus is what what chairman mentioned earlier about store closures are related to much more about the catching up to the normal course of business. Let me put it that way right because we haven't been able to do the same pace over the last couple of years.

Speaker Change: But that's what we're focused on.

Speaker Change: We're not at this time, having conversations with others.

Speaker Change: Okay, and then as a follow up Mark asked earlier about performance among different income cohorts, maybe you could give us some detail on how the different food product categories are performing like fresh versus frozen frozen or packaged versus fresh that things like that.

Speaker Change: Yes.

Speaker Change: We are.

Speaker Change: We are we tend to be we have a bigger assortment of fresh thats, what we lead with.

Speaker Change: So that's always at our value proposition for our customer begins with not just the breadth of the fresh assortment, but the value that we add to our fresh assortment. So when I say ready meals. If you walk into our stores, you'll know exactly what I'm, saying youll see us providing customers that kind of convenient so.

Speaker Change: So.

Speaker Change: It's become destinations for us so we always start with that that's where we tend to lead and the work. We always have to do is do more work at the center store if that helps but that's.

Speaker Change: That's how we think about our proposition.

Speaker Change: Okay. Thank you.

Speaker Change: And Bill I'd only add to what <unk> said is that this question about other buyers transactions things like that it's critical to just say that it's.

Speaker Change: It's obvious that will say its our job is to create long term value for our shareholders.

Speaker Change: And if that means that a strategic transaction comes to the doorstep. We of course, we will consider and look at those things.

Speaker Change: Vivek described that as we're more reactive and proactive at this point in time, but of course, just because we had a protracted merger and it ended up terminating it has not left any sense within our board or our company that this is not a value creating strategy, but it's going to be reactive versus.

Speaker Change: It's proactive.

Speaker Change: Thank you. Our next question is come from the line of Kelly Bania with BMO capital markets. Please proceed with your questions.

Speaker Change: Yeah.

Kelly Bania: Good morning, Thanks for taking our questions.

Kelly Bania: I appreciate the disclosures on on E Commerce.

Kelly Bania: If I heard it correctly there was a comment that the <unk> component of your ecommerce is bigger than three P. But.

Kelly Bania: Maybe correct me if I'm wrong, there, but what was curious just how you think about balancing that one P growth versus three P. Along with the margin implications of those two components of E Commerce, and particularly as you think about the albertsons.

Kelly Bania: Albertsons media collective opportunity within those different.

Kelly Bania: Areas of E Commerce.

Speaker Change: Hey, Martin Kelly, Yes, Youre right, the <unk> bigger than our <unk> and it's growing faster than our <unk> and we like that because of exactly what you said that that gets us digital engagement and that gets us inventory to do the AMC and such but it also gives us the data on the customer right and it gives us a chance to connect them.

Speaker Change: To all the other platforms. So I always tell people if you want to know what our businesses open our App and you will see our entire business laid up in the App and we want them to navigate all the pieces in the App and get engaged.

Speaker Change: And so from a and by the way from economic standpoint, we've become better and better and better.

Speaker Change: At the at a first party book the cost of operating it but importantly at the speed at which we deliver it we think speed matters.

Speaker Change: And we are maniacally focused at the speed at which the customer gets their products and we've become really good at that so we like the <unk> business a lot Kelly for all these reasons and Kelly I would just add that.

Speaker Change: What is most important to us is serving our customer where when and how they want to be served.

Speaker Change: Does the <unk> business is important because there are customers, who choose that and we support both but one P is by far the fastest growing piece of our business and that is due to the investments we made in those four digital platform.

Speaker Change: Yes.

Speaker Change: And just to follow up on that is that a one P largely pick up and how long should we think about the gross margin pressure associated with with the picking and the labor associated with that how how long should we expect that gross margin pressure to continue.

Speaker Change: Yeah, the mix shift, we expect our digital business to grow substantially.

Speaker Change: Reported the back in his prepared remarks, he shared with you today that our E. Commerce business is up two 7% of our total grocery sales and we expect that to continue to grow. It's underpenetrated. If you look at the total grocery market. So I expect that to continue in the foreseeable future and.

Speaker Change: When you look at the value that the data creates for the media collected we want that to be the case and thats, where the customer's going to.

Speaker Change: Okay.

Speaker Change: Thank you we do have time for two more questions. Our next question is come from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your question.

Chuck Cerankosky: Good morning, everyone.

Speaker Change: First off the.

Speaker Change: 23% tax rate ex the state tax benefit is that the number that is being used in the guidance and then we should think about for next year at 23% tax rate.

Speaker Change: Yeah, you can you can use the math you can do the math check that's a good range tax is always a little bit volatile, but that sounds good.

Speaker Change: And then thanks, and then focusing on the automation of the distribution centers.

Speaker Change: How many are automated at this point and what are you. What number are you looking at to do over the next.

Speaker Change: Two years.

Speaker Change: Chuck.

Speaker Change: We have I think three that are done three of them two or three opening very early this year. We are excited about continuing to drive that we have.

Approval from the board.

Speaker Change: Our capitalist are associated with it the team is getting better at it and we think it's a very important driver of both performance and productivity for us. So we're going to continue to roll it out.

Speaker Change: Thank you good luck thank.

Thank you.

Speaker Change: Thank you our last question will come from the line of Jacob <unk> Phillips with Melius Research. Please proceed with your question.

Speaker Change: Thanks for the question.

So I just wanted to see if you had any more color on changes in the consumer I understand December was kind of wonky, but you provided a little detail on like income level, but maybe.

Speaker Change: Any more on that and then on like regional variations or changes to Q.

Speaker Change: Not a whole lot more I think.

Speaker Change: I think we just need to see how the next few weeks play out whether December was a was it December thing or if it is something longer than that so I don't have any more color on that.

Speaker Change: The consumer I think is not behaving any differently from a macro standpoint, there from what they were a few months ago and that I think consumers are as I said more cautious they are price sensitive we know that theyre shopping more stores now than before the well.

Speaker Change: Went into the pandemic so.

Speaker Change: And that changes the dynamic of how we all compete for share of wallet.

And again, we're not seeing anything dramatically different between AWS and our business from a change between the different segments that we serve.

Speaker Change: We focus on a few.

Speaker Change: We think consider we try to make things really easy for consumers. We tried to win with the fresh assortment that we have with consumers we try to make it easy for them to engage on all of our different platforms. When they do that we gained share of wallet and Thats why we focused on.

Speaker Change: Alright, and then.

Speaker Change: The guidance kind of implies a wide range for <unk> for comps EBITDA and EPS could.

Speaker Change: Could you give us some puts and takes on what would make you hit the upper end versus the lower end of that.

Speaker Change: Yes, there are several big things that happened in the fourth quarter I remember our fourth quarter starts in December, but we will go into the ballgame.

Speaker Change: The big grocery time.

Speaker Change: And which teams end up in a ball in our in the in your markets and those sorts of things. We also have Valentine's day during that time does a very important holidays for us.

So those are some of the things that drive variance in the outcomes that we saw during Christmas Theres. Some mix shift there is timing shifts again this year timing between Super Bowl on Valentine's day et cetera. So those are the things that happened during this quarter that create variability.

Speaker Change: Thank you.

Speaker Change: Thank you that does conclude today's question and answer session I would now like to hand, the call back over to Melissa play songs for closing remarks.

Speaker Change: Thanks, everyone for participating today, and we look forward to talking with you in follow ups.

Speaker Change: Take care.

Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.

Speaker Change: Okay.

Speaker Change: [music].