Q4 2024 Albertsons Companies Inc Earnings Call
Melissa Plaisance, Vivek Sankaran
Melissa Plaisance, Vivek Sankaran
Speaker Change: Welcome to the Albertson Company, 4th quarter of fiscal year and 2024 earning confidence all. Thank you for standing by. All participants will be enlisted in only mode until the Q&A session. This call is being recorded.
Speaker Change: I would like to hand the call over to Melissa Plaisance, Senior Vice President, Investur Relations, Treasury and Rich Management. Please go ahead.
Melissa Plaisance: Good morning, and thank you for joining us for the Albertsons Company's fourth quarter and fiscal year end 2024 earnings conference call. With me today from the company, our Vivek Sankaran, our CEO , Susan Morris, our COO, and CEO elect, and Sharon McCollam, our president and CFO .
Melissa Plaisance: Today, Vivek will make a few parting comments on his retirement, and then Susan will update you on our strategic priorities and our progress and path forward against them.
Sharon McCollum: Then Sharon will provide the details related to our fourth quarter, 2024 financial results and our 2025 financial outlook before handing it back over to Susan for some closing remarks.
Speaker Change: After management comments, we will conduct a Q&A session. I'd like to remind you that management may make statements during this call that are or could include forward-looking statements within the meeting of the Federal Security's laws.
Speaker Change: Forward-looking statements are not limited to historical facts, but contain information about future operating or financial performance.
Speaker Change: 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.
Speaker Change: 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 10Q, 10K and 8K.
Speaker Change: Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events, or otherwise. Please keep in mind that included in the financial statements and management's prepared marks.
Speaker Change: Are Certain Non-Ga-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.
Vivek Sankaran: Thanks, Melissa. Good morning, everyone and thank you for joining us today. First, let me say a few words about my upcoming retirement and Susan's succession to the role of CEO . It has been an honor to serve as the Albertsons CEO and work alongside the best people in the industry.
Vivek Sankaran: My tenure has spanned the COVID-19 pandemic, our initial public offering, and our re-emergence of the standalone company following our 2022 review of strategic alternatives.
Vivek Sankaran: What I'm most proud of is that throughout this journey we have stayed true to our customers invested in strengthening our business and advancing our customers for life strategy.
Vivek Sankaran: The strategy has firmly positioned the company for its next chapter of growth and value creation for our shareholders.
Vivek Sankaran: Wooden in the few months since the termination of the merger, our module is back. We are executing once again like we used to and we have proof points and therefore more conviction to say that our strategy is right and working.
He has been a top partner with me since the day I arrived and an integral part of developing and leading our customers for life strategy.
Susan Morris: I'm delighted he is taking the reins and cannot wait to see the next great chapter of our company under her leadership, Susan It's all yours.
Speaker Change: Thanks, <unk> for the introduction and for your partnership over the last six years, you've helped us reach a new level from which to grow.
Speaker Change: Turning to the fourth quarter, we're pleased with our results, including <unk> sales growth of two 3%.
Speaker Change: Adjusted EBITDA of $855 million and adjusted earnings per share of <unk> 46 cents.
Vivek Sankaran: These results illustrate the proof points of our strategy that Vivek mentioned and we are guided by the following priorities.
Speaker Change: So I think customer growth and engagement through digital connection.
Vivek Sankaran: Growing our Albertsons media collective.
Speaker Change: Enhancing the customer value proposition.
Speaker Change: Modernizing capabilities through technology, and driving transformational productivity.
Speaker Change: As we outlined last quarter to engage customers, we've continued to invest in growth.
Speaker Change: For digital platforms.
Speaker Change: These platforms are designed to drive increased sales.
Speaker Change: More deeply engage our most loyal customers.
Speaker Change: Increased customer lifetime value and generate digital space and robust data for the Albertsons media collective.
Speaker Change: The first digital platform isn't commerce.
Speaker Change: E Commerce grew 24% in the fourth quarter.
Speaker Change: And the full year with first party far outpacing third party growth.
Speaker Change: We operate our e-commerce business out of our stores, which allows us to leverage our rich asset base and proximity to our customers.
Speaker Change: It also enables full access to our merchandise assortment.
Speaker Change: A fast and convenient drive up and <unk> experience and robust delivery option.
Speaker Change: E Commerce penetration is now over 8% of grocery revenue with our top performing markets now over 10%.
Speaker Change: This growth is driven by award winning experiences in a fully integrated mobile app and the success of our five Star certification program, which we discussed last quarter.
Speaker Change: At over 8% of grocery revenue today E Commerce penetration is still below our industry peers and it's one of our biggest growth customer acquisition and customer retention opportunities for 2025 and beyond.
Speaker Change: The second digital platform is loyalty.
Speaker Change: Loyalty membership grew by over 15% year over year in the fourth quarter to more than 45 million members and at the same time actively engaged customers increased 12%.
Speaker Change: Our new simplified loyalty program is a key enabler of digital customer engagement and a rich source of data for the Albertsons media collective.
Speaker Change: Through the unified mobile App that allows customers to get personalized deals to earn points and to have an extended period of time to redeem them for fuel and grocery award.
Speaker Change: Or automatic cash off their grocery bill.
Speaker Change: Since launching the simplified program, 20% of engaged households are now electing the new cash off option.
Speaker Change: <unk> the customer desire for immediate value.
Speaker Change: In fiscal 'twenty five we will continue to simplify and expand the program to include integrated strategic partnerships that will offer even more value.
Speaker Change: The third digital platform is pharmacy and health.
Speaker Change: In the fourth quarter pharmacy revenue increased 18% year over year, driven by industry, leading script and immunization growth.
Speaker Change: And class customer satisfaction scores and the ongoing integration of experiential health offerings and are sincerely health mobile app.
Speaker Change: Although the pharmacy business is financially dilutive cross shoppers between grocery and pharmacy are exceptionally valuable contributing outsized customer lifetime value to the total store.
Speaker Change: For this reason in fiscal 'twenty five we will continue to invest in our pharmacy and health platform to drive increased customer engagement and loyalty.
Speaker Change: We also expect growth in scripts and immunizations as pharmacy competitors continue to close stores.
Speaker Change: The fourth digital platform is the integration of the mobile app for use in our stores.
Speaker Change: Launched in 2024 over 9 million customers have engaged with us in store feature.
Speaker Change: When customers are in our stores, we want them to digitally engage with us which requires us to raise the bar on store level execution.
Speaker Change: Our in store geolocation mobile feature delivers real time coupons.
Speaker Change: Shoppers locate products.
Speaker Change: And assist customers with Neil planning and generating shopping list.
Speaker Change: In 2025, we expect to drive increased customer engagement through this platform by adding additional conveniences and value.
Speaker Change: All of these digital platforms are working together to generate deeper customer engagement increase.
Speaker Change: Increased digital inventory and enrich our data to accelerate growth in the albertson's media collective or a M C.
Speaker Change: In fiscal 'twenty five we will continue to significantly invest in improving endemic and non endemic brand reach by building industry, leading technologies deliver an easy to use dynamic and transparent measurement model.
Speaker Change: These investments will also improve our ability to define shopper audiences when targeted media campaigns compressed campaign measurement timelines and deliver consistent omni execution across our digital and physical assets.
Speaker Change: In addition, we expect to build new partnerships that out even more digital inventory and capabilities for our media offerings.
Speaker Change: We continue to expect AMC to grow faster than the retail media market and to be one of the largest sources of fuel for reinvestment into our core business.
Speaker Change: Turning now to our customer value proposition inflationary pressures have elevated our customers' needs for value.
Speaker Change: To address these needs, we're working with our vendor partners to strategically invest in price.
Speaker Change: In certain categories in certain markets.
Speaker Change: We've also enhanced the breadth of our loyalty offerings to provide immediate savings and greater value.
Speaker Change: Finally, we're amplifying our own brands presence to drive profitable unit growth and increased share of wallet.
Speaker Change: We will increase innovation more prominently feature existing owned brands and offer products at attractive entry price points.
Speaker Change: We ended Q4 with sales penetration of 25, 4%.
Speaker Change: And believe with increased exposure and new product launches weakening Kris our penetration to at least 30%.
Speaker Change: In Q4, we launched new items, and our industry, leading open nature Cauliflower Pizza line and in our signature select ice cream assortment.
Speaker Change: We also launched our first seasonally relevant birth to flavor campaign to a strong customer response.
Speaker Change: Each of these value creating initiatives are driving increased loyalty.
Speaker Change: Greater digital and omni household engagement and higher transaction counts.
Speaker Change: Our next priority is a modernization of our capabilities through technology, our North star is to use technology and everything that we do with.
Speaker Change: We've invested strategically to build best in class technology platforms with our core infrastructure in the cloud and a modernized scalable network.
Speaker Change: Most recently, we built a real time comprehensive data platform designed to enable data science and artificial intelligence.
Speaker Change: This advanced technology platform on which we will continue to innovate powers, our E Commerce store pharmacy supply chain merchandising immediate collective operations.
Speaker Change: And will allow us to leverage emerging AI technologies to accelerate our operational transformation going forward.
Speaker Change: This transformation includes empowering merchants to optimize pricing decisions using our recommendation and looked like capabilities to provide customers personalized offers to complete their basket and.
Speaker Change: And capitalizing on in store vision AI to reduce inventory shrink.
Speaker Change: <unk> product quality.
Speaker Change: The final priority is driving transformational productivity.
Speaker Change: Our productivity engine is systematically improving the efficiency of our business and lowering our costs.
Speaker Change: From fiscal year 2025 through fiscal year 2027, we expect to rapidly deliver $1 $5 billion in productivity savings, which we plan to reinvest in our growth initiatives and our customer value proposition as well as to help offset inflationary headwinds.
Speaker Change: The largest of these initiatives is leveraging our consolidated scale to buy goods for resale.
Speaker Change: In fiscal 'twenty five we are accelerating national buying on a category by category basis, resulting in lower cost and easier more efficient supplier relationships.
Speaker Change: The next of these initiatives is transforming our ways of working including strategically consolidating divisions rash.
Speaker Change: Rationalizing non customer facing head count and optimizing our onshore and offshore activities to not only reduce costs, but to accelerate innovation in technology and data analytics.
Speaker Change: And our supply chain, we are continuing to invest in automation and the rollout of our new warehouse management system.
Speaker Change: By the end of 2025, we expect 30% of our distribution volume to be automated and we're piloting innovative new technologies to expand our menu of options for future warehouse automation.
Speaker Change: We also expect our new warehouse management system to be fully implemented companywide by year end.
Speaker Change: All of these initiatives lower our cost to serve and improve our end to end data analytic capabilities, resulting in better in stock conditions, and a differentiated level of quality and fresh.
Speaker Change: And finally in store operations in fiscal 'twenty, five we're leveraging new store replenishment shrink management and labor productivity tools to drive enhanced efficiency and improved customer experience and deeper associate engagement.
Speaker Change: We're also continuing to expand utilization of AI technology, and our produce departments increased.
Increased freshness higher sales and better net promoter scores.
Speaker Change: I would now like to talk about the support we provide to the communities that we serve in 2024, along with the Albertsons Company's foundation, we contributed more than $435 million in food and financial support.
Speaker Change: This includes $40 million to our nursing neighbor's program to ensure those living in our communities and those impacted by disasters have enough to eat.
Speaker Change: In addition on March 10th.
Speaker Change: We announced a new goal to enable $1 5 billion meals through 2030 supporting our efforts to help end the cycle of hunger.
Sharon McCollum: I will now hand, it over to Sharon for an overview of our fourth quarter and to provide guidance on our expectations for fiscal year 2025.
Sharon McCollum: Thank you Susan and good morning, everyone. It's great to be here with you today.
Susan Morris: As Susan shared we are pleased with our fourth quarter results.
Susan Morris: The investments, we are making are delivering transformational capabilities and affirm our confidence and our customers for life strategy.
Susan Morris: What I'll do now is to provide additional color on our financials for the fourth quarter and then I will discuss our 2025 outlook and provide an update on our capital allocation priorities.
We grew sales two 3% in the fourth quarter fueled by an 18% increase in pharmacy and at 24% increase in digital sales.
Susan Morris: The digital increase continues to be driven by strong growth in first party sales.
Susan Morris: Our Q4 gross margin was 27, 4% excluding.
Susan Morris: Excluding fuel and LIFO expense, the gross margin decreased 45 basis points compared to Q4 last year.
Susan Morris: Strong growth in pharmacy sales, which carries an overall lower gross margin rate and incremental digital volume related delivery and handling costs.
Susan Morris: Related to the 24% increase in digital sales drove this decrease but was partially offset by productivity initiatives.
Susan Morris: In the fourth quarter, we also made incremental investments in our customer value proposition, which were funded by the benefits from our productivity initiatives, which included reduction in shrink expense.
Susan Morris: Our selling and administrative expense rate was 25, 7% this quarter.
Susan Morris: Excluding fuel.
Susan Morris: SG&A rate decreased five basis points compared to last year.
Susan Morris: This decrease was primarily driven by lower merger related costs and leveraging of employee costs and depreciation partially offset by increased business transformation costs.
Susan Morris: Our selling and administrative expenses also benefited from our productivity initiatives.
Susan Morris: Interest expense net decreased $7 5 million to $101 5 million during Q4 'twenty for this reduction was primarily driven by lower outstanding debt.
Susan Morris: Income tax expense in the fourth quarter was $46 4 million or 21 three.
Susan Morris: 3% effective tax rate compared to a 24% effective tax rate in Q4 of last year.
And as mentioned in the highlights Q4, 24, adjusted EBITDA was $855 million compared to $916 million last year.
Susan Morris: And adjusted EPS was <unk> 46 per diluted share compared to 54.
Susan Morris: In the fourth quarter of 2023.
Susan Morris: Turning now to the balance sheet and cash flow capital expenditures of $485 million in the fourth quarter were driven primarily by investments in the modernization of our store fleet.
Susan Morris: And our digital technology platform.
Susan Morris: In fiscal year 'twenty, four we opened 11, new stores and remodeled 127 stores.
Susan Morris: We also returned approximately $87 million to our shareholders through common stock dividend.
Susan Morris: Additionally, we repurchased $83 million of common stock during Q4 'twenty four.
Susan Morris: Under our $2 billion share repurchase authorization.
Susan Morris: Net debt leverage at the end of the fourth quarter was one nine times and the balance sheet remains strong.
Susan Morris: I'll now discuss our 2025 outlook.
Susan Morris: As a reminder, fiscal 'twenty five is a 53 week year.
Susan Morris: Looking forward to fiscal 'twenty five we do so with continued confidence in our customer <unk> strategy and our ability to execute against it.
Susan Morris: To drive incremental growth with our deepening customer engagement through our digital platforms, enhancing our value proposition and modernizing our capabilities through technology we.
Susan Morris: We are also continuing to drive our productivity agenda.
Susan Morris: Fuel this growth and offset inflationary headwinds.
Susan Morris: Throughout fiscal 'twenty five we will continue to invest in our customers for life strategy.
Susan Morris: <unk> accelerated investments in digital growth.
Susan Morris: The Albertsons media collective.
Susan Morris: And in health and pharmacy.
Susan Morris: We will also continue to surgically invest in our customer value proposition.
Susan Morris: And elevate the customer experience.
Susan Morris: We expect these investments will continue to drive outside growth in our digital and pharmacy businesses.
Susan Morris: Which will result in increased future customer lifetime value, but create short term margin headwind.
Susan Morris: With that as our backdrop and excluding the impact of tariffs and other potential market dislocations.
Susan Morris: We are assuming the following and our outlook.
Susan Morris: <unk> sales growth in the range of one and a half to two 5% assuming inflation in the range of one 5% to 2%.
Susan Morris: Adjusted EBITDA in the range of three eight to $3 9 billion, including the investments I just shared.
Susan Morris: Partially offset by our productivity improvements and including approximately $65 million and adjusted EBITDA related to our 50 <unk> week.
Susan Morris: Adjusted EPS in the range of $2 three to $2 16.
Susan Morris: Including three.
Susan Morris: Related to the company's 50 <unk> week.
Susan Morris: The effective income tax rate is expected to be in the range of $23 524, 5%.
Susan Morris: And capital expenditures in the range of one seven to $1 9 billion.
Susan Morris: Looking beyond fiscal 'twenty, five we expect to leverage the investments we make this year.
Susan Morris: To drive growth consistent with our long term algorithm of two plus percent identical sales.
Susan Morris: An EBITDA growth higher than that in fiscal 'twenty six and beyond.
Susan Morris: Before I hand, it back Susan for some closing comments I'd like to spend a moment on capital allocation.
Susan Morris: First and foremost we will continue investing in our business to drive long term sustainable growth.
Susan Morris: We also plan to maintain our quarterly dividend and seek to grow it over time.
Susan Morris: And finally, we plan to return excess cash to our shareholders through opportunistic share repurchases.
Susan Morris: As a reminder, in December 24, our board authorized a $2 billion share repurchase program.
Susan Morris: Since that time and as of today.
Susan Morris: We have completed over $100 million in share repurchases and have approximately $1 9 billion available for repurchase under that program, which we expect to complete during the next three years.
Susan Morris: Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long term sustainable shareholder value.
Susan Morris: I will now hand, the call back to Susan for closing comments.
Susan Morris: Thank you Sharon.
Susan Morris: Our customers for life strategy is working well.
Susan Morris: We're growing digitally engaged customers omnichannel household loyalty members and increasing customer traffic.
Susan Morris: Our stores are operating more effectively and efficiently as new technologies take hold.
Susan Morris: And we are proactively reducing our costs.
Susan Morris: Our productivity programs are creating fuel for investments and are an offset to inflationary headwinds.
Susan Morris: We believe all of this puts us in a strong position to continue to transform the business and serve our customers even better.
Susan Morris: As we look forward to the balance of fiscal 2025 and beyond we are excited about the investments that we've made in our core business.
Susan Morris: And new sources of revenue.
Susan Morris: And in our tech enabled capabilities, we expect to.
Susan Morris: To continue our investments going forward <unk>.
Susan Morris: Including enhancements to our value proposition for our customers.
Susan Morris: As a result of these investments, we expect gradual and incremental improvement and topline trends in our grocery business in the second half of 2025.
Susan Morris: Ultimately driving growth in line with our long term algorithm of 2% plus identical sales and adjusted EBITDA growing higher than that in fiscal year 'twenty six.
Speaker Change: In closing I am thrilled to be taking the helm of our company. During this transformational time and our customers for life strategy.
Speaker Change: None of our success would be possible without the support of our 285000 associates, who worked tirelessly to make it all happen.
Over the next weeks and months, Sharon and I look forward to engaging further with all of you in the investment community and thank you for your support.
Speaker Change: I would also like to thank Melissa play funds, who will be retiring next month after 35 years with the company.
Speaker Change: On behalf of all of US we want to acknowledge her contributions to our success, including the relationships that she has developed with all of you.
Speaker Change: Melissa.
Speaker Change: You will be greatly missed.
Cody Purdue who you all know we will be assuming her responsibilities.
Speaker Change: We will now open up the call for questions.
Speaker Change: Okay.
Speaker Change: Thank you, we'll now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one from your telephone keypad, a confirmation tone will indicate your line. This is a question for you.
Speaker Change: We prefer to hear to withdraw your question from the queue.
Jason: Jason Thru speaker equipment may be necessary to pick up the handset before Christmas turkeys.
Jason: In order to allow as many as possible to ask questions. Today. We ask you. Please limit yourself to one question and one follow up.
Jason: One of them please poll for questions.
Jason: Okay.
Speaker Change: Thank you and our first question comes from the line of Leo Jordan <unk> with Goldman Sachs. Please proceed with your questions.
Speaker Change: Thank you good morning, Thanks for taking my question.
Speaker Change: Just given the price investments you've made in the quarter and plan to make for this year just seeing if you could provide an update on how you view your price gaps today, maybe what youre seeing in the competitive environment and just given the dynamic consumer environment. Overall, just has anything changed in your view on the breadth and depth of investments that you need to make.
Speaker Change: Throughout the year.
Speaker Change: Thanks for the question. So I would say a couple of different things. So first of all I'm going to address the second part of your question first.
Speaker Change: We have not seen a dramatic shift in the recent months from consumer behavior.
Speaker Change: As we've mentioned before that we're seeing a shift towards value. They are clearly more responsive to promotion.
Speaker Change: When we listen to the voice of our internal customers, we recognize that our snap customers are feeling more pressure and that customers in general are thinking.
Speaker Change: About their budgets and how to optimize them eating out less and making different choices shopping our own brands those kinds of things.
Speaker Change: With regards to the pricing question first and foremost.
Speaker Change: We have a very different price position across the multiple markets that we operate in.
Speaker Change: And as we think about our investments we are taking a very surgical approach.
Speaker Change: We are making those adjustments surgical by category and by market.
Speaker Change: To be honest, we've been actually investing in price over the last several quarters very thoughtfully using the new tools and technology that we've developed over the last few years that help us understand elasticities help us make the best decisions that will optimize value for the customer, but also support the sales and margin goals.
Speaker Change: We're trying to achieve.
Speaker Change: Great. Thank you that's very helpful. And then I just had one quick follow up.
Speaker Change: Around the comments around the buybacks I noticed you made buybacks in the quarter. It sounds like some activity has continued maybe even a little bit quarter to date. So I guess I'm curious have you assumed anything with buybacks within the guide and then how are you thinking it about it as a lever for this year. Thank you.
Speaker Change: Lay out in the guidance what we have is in.
Speaker Change: In our prepared remarks, we said we will be repurchasing one 9 billion over the next three years and if you spread that radically over that timeframe that way.
Speaker Change: <unk> to approximate the fence of accretion in EPS each year, if you bought it that way, but that gives you some.
Speaker Change: Great. Thank you very helpful.
Speaker Change: Okay.
Speaker Change: Our next questions are from the line of Mark Carden with UBS. Please proceed with your question.
Mark Carden: Good morning, Thanks, so much for taking the questions so to start.
Mark Carden: Wanted to ask one on tariffs just as it stands what proportion of your cost of goods you import at this stage and how do you think about the impact of tariffs once you back out U S. MCA exempt goods understanding again that it's very fluid.
Speaker Change: Good morning, Mark Thanks for the question so for us for Albertsons companies, we procure more than 90% of our products domestically.
Speaker Change: So that's a very different position than some of the competitive set out there.
Speaker Change: We also recognize though that even in those domestic purchases there are impacts from ingredients that are sourced from tariffs enacted tariff impacted areas.
Speaker Change: The situation is very fluid, we're staying very close to it we have deployed a task force to help us understand the complexity of the situation as it evolves and we've got some very good plans in place to help mitigate the impacts accordingly.
Speaker Change: Great. That's helpful. And then how are you thinking about demand growth with your Albertsons media collected initiative in the year ahead and are you seeing any hesitancy in advertiser spend just given the macro.
Speaker Change: So today as you may.
Speaker Change: We are rather nascent in our media collective opportunity, which and actually to date, we're still delivering outsized growth compared to the market and media. So we're very optimistic about our abilities to achieve the goals that we set forth for 2025.
Yes.
Speaker Change: Great. Thanks, so much good luck.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Edward Kelly with Wells Fargo and succeed with your questions.
Speaker Change: Yeah, Hi, good morning, everyone.
Speaker Change: I wanted to ask about the 25 guidance and the investment and I was hoping that you could provide maybe just some additional color around the key buckets of investment.
Speaker Change: That you are planning to attack in 'twenty five the magnitude of the investment.
Speaker Change: Around those areas and then how do we think about the cadence of EBITDA growth or EBITDA throughout the year. Susan I think you maybe you mentioned something at the end about progressing towards the algo as the year rolls on so I'm, just kind of curious around that as well.
Speaker Change: Sure. Thanks for the question.
Speaker Change: Think about the investment.
Speaker Change: It's multifaceted right. So clearly there is.
Speaker Change: The conversation, we just had around price, which we think is a very surgical opportunity.
Speaker Change: And it's already begun by the way in many respects across the organization.
Speaker Change: S markets.
Speaker Change: The other elements are around investing continuing to invest in growing our digital and loyalty business important parts of our growth algorithm and when you think about the ecosystem that we talk about the more we can engage customers and loyalty.
Speaker Change: In our digital platforms and pharmacy and of course in our stores, there's two extra yes, forex value for those customers as they go through.
Speaker Change: Worked through that cycle.
Speaker Change: The investments will be.
Speaker Change: And then as I think about how they occur throughout the year.
Speaker Change: The timing of the investments while not necessarily.
Speaker Change: Let me think.
Speaker Change: And I think about the investments.
Speaker Change: The cadence will be fall throughout the year, recognizing the fact that some of the benefits that we have through the media collective through productivity and so forth, they're not directly align with the timing of the investments.
Speaker Change: And that's part of the reason is we shared our expectations for the year.
Speaker Change: We expect to leave 2025.
Speaker Change: With stronger growth.
Speaker Change: And building towards our long term algorithm of ideas at 2% and EBITDA growth higher than that in 2026, Sharon would you add anything to that no I think that's absolutely right. When you think about it it's gonna be these accelerated investments, we're making in digital growth obviously, a media collected as a main focus for us.
Speaker Change: This year, and then in health and pharmacy, and the customer value proposition that pulls all of that together through the digital platforms is going to be what will bring us to the back half of 'twenty five allow us to enter that algorithm in 'twenty six.
Speaker Change: Okay, and then maybe just a follow up and maybe maybe this is for you Sharon I don't know, but as you think about Q1, obviously the backdrop has been rather uncertain, especially from a consumer standpoint, I'm just kind of curious as to how.
Speaker Change: How we should think about Q1 I don't know if you can share anything around what youre seeing from a.
Speaker Change: The standpoint of Ids, so far relative to the guide and do you expect Q1 to be a softer quarter than the rest of the year for in front of these reasons.
Speaker Change: Yeah, but you need to expect is not because of what is happening with the consumer is going to be the investments.
Speaker Change: We will be making investments in the first half of the year. This season in fact, we will be expecting some investments to start paying off towards the back half of the year.
Susan Morris: And from a customer point of view I'll, just reiterate what Susan said, we are not seeing a major change in customer behavior. At this point everything youre hearing about our own research validates the consumer sentiment is low it cetera, but consumers also saying that they will.
Susan Morris: Do what they've been doing with should seek value and find ways to tighten their pocketbooks food.
Susan Morris: Food away from home versus for the deposit is always a decision for those customers who need value. So at this point, we have not seen any major change.
Susan Morris: Great. Thank you.
Susan Morris: Okay.
Susan Morris: Okay.
Speaker Change: Our next question is from the line of John <unk> with Guggenheim Partners. Please proceed with your question.
John: Thank you Susan I wanted to start with.
Speaker Change: You've acquired a lot of pharmacy customers. The last two years three years.
Speaker Change: Maybe the journey as they go through the engagement process right. When you think about their wallet share.
Speaker Change: Where does it start out how does that progress.
Speaker Change: What's the opportunity there right and then how do you attack that is that simply.
Speaker Change: CRM.
Speaker Change: Through things they might be interested in or.
Speaker Change: How do you look at that.
Speaker Change: Good morning, John Thanks for the question, so thinking about the pharmacy customer, it's definitely an evolution over time.
Speaker Change: They engage with us they start to engage with those typically in store first and join our pharmacy business.
Speaker Change: In that first year.
Speaker Change: But over the course of one and half to two years, they engage across multiple platforms. So going back to our ecosystem right as they think about of course brick brick and mortar customers evolve to e-commerce, the pharmacy of Ulta loyalty as they engage with us through those multiple platforms off when we start to see them.
Speaker Change: The the bigger unlock and their lifetime value.
Speaker Change: That said customers that shop, Thomas season, and brick and mortar alone typically have forex the basket.
Speaker Change: Or is that Tom.
Speaker Change: Okay.
Okay, and then just maybe as a follow up right when you think about.
Speaker Change: Enhancing profitability in the in the digital channel, but obviously youre not.
Speaker Change: Running larger automated facilities.
Speaker Change: But as.
Speaker Change: As the opportunity when you think about.
Speaker Change: Density right of delivery versus in store labor productivity, where are the big unlocks in.
Speaker Change: In the e-commerce profitability.
Speaker Change: Sure. Thanks for the question, so and as I think about that the largest opportunity for us in E. Commerce profitability is all around.
Speaker Change: Growing things right. So so.
Speaker Change: Scale breed productivity you touched on the fact that our stores are actually in the neighborhoods in our customers' lives through our proximity to customers.
Speaker Change: Some productivity for us that perhaps others may not have.
Speaker Change: We have advantages in our growth because we do carry full assortment, we have fast delivery convenient delivery are Doug part of our business is actually quite robust, which helps on the profitability side.
Speaker Change: The other part around scalability as we look at our growth and we mentioned before 24% growth in the fourth quarter, which is fantastic strong penetration, which by the way at 8% storefront penetration. We believe there is upside there versus our competitive set and we fully expect to be able to capture that but that gross that expansion of growth for scalability.
Speaker Change: That creates efficiencies from our picking a platform as well. So we've got in house built tools that are fantastic. What we're learning, though is as you get more and more ecommerce orders in a given store, we actually shift the way that the takers are collecting orders capacity, so they're doing more than one quarter at a time slower times of the day and they're going back to <unk>.
Speaker Change: One, but we're really.
Speaker Change: Studying and understanding the science of how we're investing labor to most effectively first of all delivered a terrific customer experience. That's we're looking for but also to seek more productivity in the ecommerce business.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question is from the line of refresh Perique with Oppenheimer. Please proceed with your questions.
Speaker Change: Morning. This is actually Erica eiler on for Pam. Thanks for taking our question. So I was just hoping maybe unpack gross margin a little bit more this year. So it would be helpful. I think if you could just.
Speaker Change: Maybe talk about the puts and takes obviously a lot of moving pieces. There I mean, you've touched on productivity a little bit and maybe you could talk about how you're thinking about you know.
Speaker Change: Level of reinvestment of the $1 5 billion of savings you guys have outlined.
Speaker Change: And you touched on price investments and then just also as we think about mix headwind are you assuming similar type headwinds from you know the strong growth in pharmacy and digital.
Speaker Change: That that you're seeing currently.
Speaker Change: Yes. Thank you and we look at 25 and you think about first let's talk about productivity.
Speaker Change: From a productivity perspective, youre going to see it and SG&A and in the margin and over the years it will shift in.
Speaker Change: In 2025, Youre going to see more of it in SG&A than you do in the gross margin. We will continue we are expecting strong growth from the digital platforms. So we're expecting strong growth in ecommerce and pharmacy in house, which will create a mix shift impact I will say that that's getting better.
Speaker Change: Because as e-commerce scales, it levers and other pharmacy and health side, we have productivity initiatives.
Speaker Change: Are coming into place like central fill and other things that we are able to do that we'll take that dilutive nature pharmacy and make that better.
Speaker Change: Additionally, obviously, we talked about investing in loyalty and the customer value proposition, so that will flow into the margin and that would be partially offset by the cost of goods sold and the buying together.
Speaker Change: <unk>.
Speaker Change: Initiatives that we have so that's how you should think about it but when you look at the guidance for next year and you think about fair to weight, It which is probably where your question came from you gave your way into the margin.
Speaker Change: Okay. That's super helpful. And then just lastly for me just wanted to touch on you know that the competitive backdrop in the promotional environment. So I mean are you seeing any changes on the competitive side and then just given the increased macro uncertainty out there and you've talked about you know that your consumer increasingly seeking out.
Speaker Change: Value.
Speaker Change: What are you expecting on the promotional front this year.
Speaker Change: So Erika and I think I might have mentioned this earlier, we are absolutely still seeing customers navigate towards value and towards promotions higher promotional volume is up.
Speaker Change: And this is where our work around buying better together and seeking to improve our cost of goods is going to be critical for us as we go throughout 2025.
Speaker Change: From a competitive perspective.
Speaker Change: I think like the rest of the industry. We're all seeing the pressures from mass and club stores value players that said our customer traffic is up.
Speaker Change: We have shared growth in several of our markets and we understand exactly where those are on a very thoughtful about how we're investing in the areas, where we have opportunity very surgically using the tools and technology that we have to help us make the best decision.
Speaker Change: Great. Thank you.
Speaker Change: The next question will come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: This is on for Simeon I would like to ask you about the guidance could you talk a little bit about.
Speaker Change: What food inflation assumptions are embedded in your I'd sales guidance.
Speaker Change: What would be the effect of pharmacy within the IV sales figure.
For the full year.
Speaker Change: Thank you the inflation assumption within the guide so you've got a one 5% to 2.5% IV sales guidance and within that it's 1.5% to 2% on inflation.
And on.
Speaker Change: The mix of pharmacy and E. Commerce, we expect to see very strong growth in E. Com and continued growth in pharmacy, we're not guiding that but you can think about in terms of.
Speaker Change: We are making continued investments there so that would be how I would model. It if I was here.
Speaker Change: Okay, great. Thank you and as a follow up if I could ask you about ecommerce. Congratulations you had impressive sales skills there, 24% in the fourth quarter could.
Speaker Change: Could you help us think through how youre looking at the e-commerce contribution to profitability and how you were thinking and more broadly alongside retail media and the loyalty program into 2025.
Speaker Change: Yes, so on e-commerce.
Speaker Change: E Commerce is dilutive to our margin.
Speaker Change: And it is getting better.
Speaker Change: All the time, if you look at the explanation in the press release about our gross margin in Q4, we talk about the fact that they're taking costs and delivery costs are putting weight on the margin. But then we explain it is only because of the volume.
Speaker Change: And so we actually are making progress in productivity in our e-commerce operations within our stores. So that business is getting more and more profitable as it goes so our guess would be that when you combine our our first party.
Speaker Change: Our third party businesses that we are getting close.
Speaker Change: To being contributing to the EBITDA margin, we expect that to continue to grow over time.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: The next question is from the line of Robert <unk> with Bank of America. Please proceed with your question.
Speaker Change: Oh, Hey, good morning, I had a.
Speaker Change: I just have two quick follow up questions just.
Speaker Change: Maybe you don't want the pharmacy growth outlook, how much is <unk> still a driver to the comps there and as do you see that feeding it all in in 2025 and <unk>.
Speaker Change: What are the other.
Speaker Change: How much is <unk> versus how much benefit are you getting from from drug store closings.
Speaker Change: Thanks for the question.
Speaker Change: So first and foremost of course G O P ones are contributing to our growth, but that's not the sole.
Speaker Change: The increase that we have in our core script volume is growing year over year and actually has been for several years now. So we're excited about the health of the business from that regard.
Speaker Change: Clearly the G L P. One.
Speaker Change: Our profitability is less that's dead.
Speaker Change: Sure.
Speaker Change: As we engage those customers into our entire ecosystem, recognizing clearly their eating habits change, but their eating habits change with regard to wanting more protein for supplements are buying more fruits and vegetables. We have all of those things. So it's actually an opportunity for us to even more deeply engage those customers sure what might you add.
Speaker Change: Yeah, I'm going to add that we continue to actually be excited about the G. L. P walk the customer and as you know the industry is evolving it's going to be in pill form.
Speaker Change: Don't know the exact timing of that but as that goes but it gives us such a substantial opportunity to help these customers achieve this live call.
Speaker Change: And when we embraced those customers we can.
Susan Morris: Fill their new basket remember their basket materially changes and it shifts to the Susan said to a more profitable basket and we believe three sincerely how and the other investments that we're making in the digital side of our business that we can be a asset to these customers and that they will choose us.
Susan Morris: For the role that we play in their house care. So from that standpoint, so that's how we're thinking about it right.
Susan Morris: And then you had mentioned.
Susan Morris: Oh, sorry, I was just going to answer your acquisition question. So yeah, we are continually looking at opportunities to.
Susan Morris: Acquire scripts.
Susan Morris: Pharmacy businesses, certainly hired the pharmacists and the text from other units around us.
Susan Morris: We have a very solid thoughtful approach on how we do that but we are absolutely looking to continue to grow our pharmacy business pathways.
Susan Morris: That's really helpful and maybe Sharon a quick follow up for you just on the so this year, we should expect a little more pressure on gross margin and maybe some offset in SG&A, what what's the the wage rate pressure you guys are expecting in 2025 and that SG&A.
Susan Morris: Yeah, We said last quarter that we don't.
Susan Morris: Used to take two to three perfect, we're seeing significantly higher than that remember these contracts are multiyear so our assumption on wage growth in 2025 looks a lot like the wage growth. We saw in 2024, and we don't anticipate that changing materially and part of the challenges.
Susan Morris: We recognized are actually the opportunity. We have is we recognize that as Sharon mentioned these are multiyear contracts. So as we talk about are one and a half billion dollar goal in productivity, which by the way as I think all we've got evidence that we can we can accomplish that and we will continue to do so but those targets were set with the wage growth in mind.
Susan Morris: Got it thank you.
Susan Morris: Okay.
Speaker Change: The next question is from the line of Scott, Michigan with Arclight Capital. Please proceed with your question.
Speaker Change: Hey, guys. Thanks for thanks for taking my question. So my first one is kind of looking at the business by category and if you think about the center store do you need the center store to be positive next year or two or this year I guess now to make your comp numbers.
Speaker Change: My first question.
Speaker Change: So we are let's see we are seeing growth.
Speaker Change: In center of store and we win by the way when I'm seeing sort of a store.
Speaker Change: I I mean grocery in grocery and nonfood, but we're actually also seeing growth in our fresh departments. So yes, we're seeing strong pharmacy growth, we're seeing strong e-commerce growth growth, but we are actually experiencing growth in the in the core part of the story as well.
Speaker Change: Okay and then if you were just going to if you were to exceed.
Speaker Change: Your thoughts on EBITDA internally would that flow to shareholders. This year or would that just be you know.
Speaker Change: Further invested in the business.
Speaker Change: Scott, we put our guidance out there and at this point as the year progresses are we can talk more about that but our guidance at the three eight to $3 9 billion is where we expect to land the year at this time.
Speaker Change: Okay. So no no thoughts on if you were to exceed them.
Speaker Change: That money would go.
Speaker Change: Lots of thoughts, but not for you.
Speaker Change: [laughter].
Speaker Change: Alright, thanks, so much for your questions I appreciate it.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question is from the line of Michael Matson with Evercore ISI. Please proceed with your question.
Michael Matson: Oh, Yes, hi, good morning, Thanks for taking the questions.
Michael Matson: The first one was just if you could give an update within the capex, how you're planning to allocate that out how many remodels should we expect and also new stores for.
Michael Matson: For this year and then for Nex, and then I had a separate follow up.
Michael Matson: Okay.
Michael Matson: On the Capex for next year, you can think about it very similarly to the way I played out this year, we expect to open new stores, we're not giving committed numbers at this point, but you can think about the capital is half of it is in our stores, there's a maintenance capital piece and then the rest of it will be invested in the digital side.
Michael Matson: Form 10, a M C.
Michael Matson: Okay.
Michael Matson: Okay.
Speaker Change: And then if I could just follow up around tariffs.
Michael Matson: You mentioned that it's not in the guide.
Michael Matson: To the extent that it does flow through over the course of the year is the goal to preserve margin dollars or margin rate.
Michael Matson: Should we think about that evolution.
Susan Morris: On the tariffs, but we would tell you is our goal for our priorities for this year are going to be well advised that Susan laid out our goal is to drive customer growth and engagement through a digital connection it's growing AMC, it's enhancing the customer value proposition and we thought.
Michael Matson: Those three priorities.
Susan Morris: It is fluid.
Can we handle the tariffs how we handle negotiations with vendors et cetera.
Susan Morris: We'll depend on continuing to deal with the tariffs, but doing so in a way that continues to amplify our work towards those Taiwanese and.
Susan Morris: Sure what I would add to that is you know clearly it's dollars that that drive our business and that's all we have okay.
Susan Morris: Understood. Thank you.
Speaker Change: Our next questions are from the line of Karen short with Melius Research. Please proceed with your question.
Karen short: Hey, Thanks, very much and Melissa it's been a long a 25 plus years, so congratulations and I have loved working with you.
Speaker Change: Thank you. So my two questions are a.
Speaker Change: Price gaps so when you think about price gaps relative to your peers can you give me a sense of what you think your price gaps are.
Speaker Change: And where you think they need to go and then my second question is do you think he could be at the algo bite for acute as it relates to sales growth and EBIT dollar growth.
Speaker Change: Sure first of all you made I'm also very happy with your comments. Thank you for that so with regards to price jobs. It it's not a simple answer we operate in over 120, Msas and our price position is very different in each of those so there's really not one simple answer there are markets, where we're very comfortable with our price.
Speaker Change: Position and see very little need to change and there are others, where we have more opportunity.
Speaker Change: So we're really excited about using the new tools technology and processes that we have in place to be very surgical and thoughtful about how and where we make those investments. We feel we have a deep understanding of the elasticity of our customers based off of experiments that we've been running over the last several months. So it is a very surgical and thoughtful approach sure maybe I'll.
Speaker Change: Give me although question over to you yeah. So we won't be building towards that obviously as we make these investments may start to return and when we start getting towards Q4 as we're expecting that.
Speaker Change: To materialize by the end of 2026, we expect it to be gradual and incremental so you should be expecting us to be moving in that direction.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: The next question is from the line of Kelly Bania with BMO capital markets.
Speaker Change: You're quite right.
Kelly Bania: Good morning, and thanks for taking our questions and congrats to both of you Vivek and Melissa on your retirement.
Speaker Change: Was wondering if we could just talk about Ids, a little bit more granularly. The I think you mentioned an improvement in kind of grocery sales trends in the back half and your expectations and wondering if you could just unpack kind of the traffic versus the ticket component of that.
Kelly Bania: And the expectation for that to improve in the back half and then also.
Kelly Bania: If there's any conservative conservatism with regard to snap and if there's if there are any developments on reductions in snap there into the back half.
Speaker Change: So Kelly think thanks for the question so for <unk> sales.
Speaker Change: We are as mentioned before we're looking at that one and a half to two 5% range.
Speaker Change: Clearly, we expect to see growth increase as we exit 2025 and going into 2026.
Speaker Change: Sure any color you would add yeah, so kelly and as it relates to when we go into 2025 as we're entering the year, we affect consistently we are continuing to see customers. The traffic in our store is positive.
Speaker Change: We're excited about that.
Speaker Change: Obviously the AIB.
Speaker Change: With CPI in the fourth quarter of one nine and he is going to be up and what the opportunity for us at this point is it going to be in units as we go into 2025 and a lot of the initiatives I'm not going to go back to them, but all the initiatives. We talked about are doing exactly what Susan keeps saying and.
Speaker Change: Continues to drive in the company, which is bringing units back into the store.
Speaker Change: And that is the opportunity that we see within the guidance and yes. We believe that we are doing it and we can.
Speaker Change: Okay, and if I can just follow up on confirm if the obviously that is and remains a key component of your strategy. I was just wondering if it's possible to integrate prescriptions in pharmacy deeper into your digital offering for pickup and delivery.
Speaker Change: Given that competitors are moving forward with that is that something that albertsons can do and it's considering doing.
Speaker Change: Yes, we absolutely are so it varies a bit by market and there are some technological solutions.
Speaker Change: Solutions that we're working on that will help us get there, but that is absolutely on our roadmap for pharmacy. This year, we agree with you.
Speaker Change: Or that we can.
Speaker Change: Take pressure off the customer experience, especially patients and pharmacy make their life easier. We're seeking every possible way to do that and Kelly I would think our top store here in Dallas last night and day right now seeing a speaker that to welcome you to do both your dog at your pharmacy, you order them.
Speaker Change: It's too dark so.
Speaker Change: Your question was perfect I was just there last night and we were telling our customers all about it.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Anil question today comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your questions.
Joe Feldman: Yeah, Hi, good morning, guys. Thanks for taking some time wanted.
Joe Feldman: I wanted to ask about you made a comment about the division consolidation, which I know you've done some.
Joe Feldman: I was curious if there's more to go there it sounded like there are opportunities still and.
Joe Feldman: If you could share a little more color on that.
Joe Feldman: Also with the the second kind of question I had was around the Albertsons media collective issue.
Joe Feldman: Could you share a little more color on sort of the adoption by the your partners and what's the feedback you're getting on it initially and where there are some of those opportunities you described earlier.
Joe Feldman: I joke with.
Joe Feldman: With regards to the division consolidation. The most recent one we just announced because of the blending of our Denver and inner mountain divisions were calling at mountain West.
Joe Feldman: As part of that there's it's multifaceted you really were looking at first and foremost how can we create.
Joe Feldman: Create productivity.
Joe Feldman: By bringing two divisions together, but also we're seeking to better develop our teams.
Joe Feldman: Two improved tools and processes and learn from that consolidation, how we might leverage opportunities across the rest of the organization. So we're continually evaluating how we're going to markets, where there might be opportunities to look for synergies such as this and in other ways as well.
With regard to AMC.
Joe Feldman: We have had strong performance strong engagement with our vendor partners. We also recognize that we have an opportunity to as we look about.
Joe Feldman: Our efforts around buying better together leveraging a M C as part of those conversations.
Joe Feldman: Today, we operate 11 dividends across the organization and theirs.
Joe Feldman: Important times after the 11th but there's also times doctors, one and when we think about unlocking dollars for whether it's cost of goods reductions are a M. C dollars this opportunity of buying better together creates simplicity for our vendor partners ease of execution consistently across the organization. So we see a lot of opportunity.
Joe Feldman: As we evolve our model moving forward.
Speaker Change: Great. Thanks, Good luck guys.
Joe Feldman: Thank you. Thank you.
Speaker Change: Thank you I'll now turn the floor back to management for closing remarks.
Speaker Change: Just wanted to say thank you for your time and for the questions today.
Speaker Change: We remain very excited very energized about the growth agenda that we put forth in 2025, clearly, it's a year of investment for us.
Speaker Change: We feel very confident in our ability to deliver both internally and externally the commitments that we have made we appreciate your support and we look forward to talking to you often.
Speaker Change: This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.
Speaker Change: Yeah.
Speaker Change: Yeah.