Q1 2025 Albertsons Companies Inc Earnings Call
Operator: Companies first quarter 2025 earnings conference call and thank you for standing by.
Operator: All participants will be in a listen-only mode until the Q&A session. This call is being recorded.
Greetings and welcome to the Albertson's companies. First quarter 2025 earnings conference call and thank you for standing by.
All participants will be in a listen-only mode until the Q&A session.
Cody Perdue: I would like to hand the call over to Cody Perdue, Senior Vice President, Treasury, Investor Relations, and Risk Management. Please go ahead, sir.
This call is being recorded.
Cody: I would like to hand the call over to Cody, Purdue senior, vice president, treasury investor relations, and risk management.
Speaker Change: Please go ahead, sir.
Susan Morris: Good morning, and thank you for joining us for the Albertsons Company's first quarter 2025 earnings conference call. With me today are Susan Morris, our CEO, and Sharon McCollum, our president and CFO. Today, Susan will recap the first quarter of 2025 and update you on our progress against our strategic priorities.
Cody: Good morning.
Speaker Change: And thank you for joining us for the Albertson's company. First quarter 2025 earnings conference call with me today are Susan Morris, our CEO and Sharon McCullum, our president and CFO.
Susan Morris: Then Sharon will provide the details related to our first quarter 2025 financial results and our outlook for the remainder of fiscal 2025. before handing it back to Susan for closing remarks.
Today, Susan will recap the first quarter of 2025 and update you on our progress against our strategic priorities, then Sharon will provide the details related to our first quarter of 2025 Financial results and our outlook for the remainder of fiscal 2025.
Operator: After management comments, we will conduct Q&A session.
Before handing it back to Susan for closing remarks after management. Con comments, we will conduct Q&A session.
Operator: I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC.
Speaker Change: I would like to remind you that management may make forward-looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Operator: 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.
Speaker Change: These risks and uncertainties include but are not limited to the factors identified in our filings with the SEC.
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.
Operator: Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release.
Susan Morris: And with that, I will hand the call over to Thanks, Cody. Good morning, everyone, and thanks for joining us today. In the first quarter, our teams delivered solid results with IV sales growth of 2.8%, adjusted EBITDA of $1.11 billion, and adjusted earnings per share of $0.55. These results, again, demonstrate gradual and incremental progress against our five strategic priorities, which include driving customer growth and engagement through digital connection. Growing Our Media Collective. Enhancing the Customer Value Proposition. modernizing capabilities through technology, and driving transformational productivity. Within these priorities, our four digital platforms continue to be the catalyst for customer growth and engagement.
Speaker Change: Additionally, we will be discussing certain non-gaap Financial measures a Reconciliation of these Financial measures to the most directly comparable. Gaap Financial measures can be found in this morning's earnings release and with that, I will hand the call over to Susan
Thanks, Cody. Good morning everyone and thanks for joining us today.
Speaker Change: In the first quarter, our teams delivered solid results with ID, sales, growth of 2.8%, adjusted ibaa of 1.11 billion dollars and adjusted these earnings per share of 55 cents.
Speaker Change: These results again, demonstrate gradual and incremental progress against our 5 strategic priorities, which include driving customer growth and engagement through digital connection.
Speaker Change: Growing our media Collective.
Speaker Change: Enhancing the customer value proposition.
Speaker Change: Modernizing capabilities through technology and driving transformational productivity.
Susan Morris: We continue to drive increased sales and to more deeply engage our most loyal customers, all while generating data and insights for the media collective. Our first digital platform is e-commerce, which grew 25% and reached 9% of total grocery revenue in the first quarter. This growth was again led by strong performance in our first-party business, driven by award-winning capabilities in our fully-integrated mobile app, and supported by our five-star certification program. Our focus on delivering exceptional customer service experience is fueling new customer acquisition and strengthening existing customer retention. To do this, we're continuing to enhance our digital shopping experience, including the introduction of AI and interactive features that deliver both ease and convenience.
Speaker Change: Within These priorities are 4 digital platforms. Continue to be the Catalyst for customer growth and engagement. We continue to drive increased sales and to more deeply engage our most loyal customers all while generating data and insights for the media Collective.
Speaker Change: Our first digital platform is e-commerce, which grew 25%, and reached 9% of total grocery Revenue in the first quarter.
Speaker Change: This growth was again, led by strong performance in our first party business driven by award-winning capabilities and are fully integrated mobile app and supported by our 5-star certification program.
Susan Morris: For example, we launched our new Shop Assist feature, which enables a connected shopping experience that allows customers to communicate back and forth with our in-store associates throughout their orders fulfillment process. We've also created more flexibility in our basket building. Customers can now add items to their orders up until picking has started, recognizing that shoppers often think of one more item they need just after an order is placed. While our e-commerce penetration is still below industry peers, it is one of our biggest growth, customer acquisition, and customer retention opportunities for 2025 and beyond. From a profitability perspective, our e-commerce business is near break-even and improving.
Our focus on delivering exceptional, customer service, experience is fueling new customer acquisition and strengthening existing customer retention to do this. We're continuing to enhance our digital shopping experience. Including the introduction of AI and interactive features that deliver both ease and convenience.
Speaker Change: For example, we launched our new shop assist feature, which enables a connected shopping experience that allows customers to communicate back and forth with our insurer Associates throughout their orders fulfillment process.
Speaker Change: We've also created more flexibility in our basket. Building customers can now add items to their orders up until picking has started recognizing that Shoppers often think of 1 more item. They need just after an order is placed.
Speaker Change: While our e-commerce penetration is still below industry. Peers. It is 1 of our biggest growth customer acquisition, and customer, retention opportunities for 2025 and Beyond.
Susan Morris: Our second digital platform is Loyalty, which grew 14% to 47 million members in the first quarter as we capitalized on the simplification of our program and further enhanced the value the program offers. Members in the program today are engaging more frequently, using more of our easy-to-understand and redeem features, and spending more with us. As case in point, 30% of our engaged households are now electing the cash-off option, reinforcing the customer's desire for immediate value. As we said last quarter, loyalty is a key enabler of digital customer engagement and a rich source of data for our media collection.
Speaker Change: from a profitability perspective, our e-commerce business is near break, even and improving
Speaker Change: our second digital platform is loyalty which grew 14% to 47 million members in the first quarter as we capitalized on simplification of our program. And further enhance the value of the program offers
Speaker Change: Members in the program today are engaging more frequently using more of our easy to understand and redeemed features and spending more with us.
Speaker Change: As case, in point 30% of our engaged households are now electing the cache off option. Reinforcing the customer's desire for immediate value.
Susan Morris: Throughout 2025, we will continue to introduce compelling benefits that will attract new members, improve share of wallet, and further enable marketing and monetization opportunities for the media collective. We will also continue to simplify and expand the program to include strategic partnerships to offer even more value. Our third digital platform is Pharmacy & Health, which grew 20% year-over-year, driven by industry-leading script and immunization growth, best-in-class customer satisfaction scores, and the ongoing integration of Pharmacy & Sincerely Health into our overall digital experience. Cross shoppers between grocery and pharmacy are exceptionally valuable. Over time, these customers visit the store four times more often and buy significantly more groceries with us, resulting in outsized customer lifetime value across the entire store.
Speaker Change: Is a key enabler of Digital customer engagement and a rich source of data for our media Collective.
Throughout 2025, we will continue to introduce compelling benefits.
Speaker Change: That will attract new members improve share of wallet and further enable marketing and monetization opportunities for the media Collective.
We will also continue to simplify and expand the program to include strategic Partnerships to offer even more value.
Speaker Change: Our third digital platform is Pharmacy and health, which grew 20% year-over-year driven by industry-leading Script and immunization growth best-in-class, customer satisfaction scores and the ongoing integration of Pharmacy and sincerely Health into our overall digital experience.
Susan Morris: For this reason, in addition to the market share opportunity competitor closings are creating for us, we're also continuing to invest in our pharmacy and health digital platform. Through this platform, we're also launching customized omni-channel benefits that are not only attracting new customers, but also converting existing pharmacy and grocery-only customers to become craft shoppers. It is also helping customers to find new and personalized ways to improve their health and well-being consistent with evolving national trends. Our Pharmacy and Health Platform is an integral part of our customers for life strategy and a significant growth and customer engagement opportunity.
Speaker Change: Cross Shoppers between Grocery and Pharmacy are exceptionally valuable over time. These customers visit the store 4 times more often. And by significantly more groceries, with using an outsized customer lifetime value across the entire store.
Speaker Change: For this reason, in addition to the market share opportunity, competitor closings are creating for us. We're also continuing to invest in our Pharmacy and health digital platform.
Speaker Change: Through this platform, we're also launch launching customized Omni Channel benefits that are not only attracting new customers, but also converting existing Pharmacy. And grocery only customers to become cross shoppers
Speaker Change: It is also helping customers to find new and personalized ways to improve their health and well-being consistent with evolving National trends.
Susan Morris: For this reason, leveraging our growing scale to improve pharmacy profitability over time is a key operational priority. To deliver this, we are continuing to pursue higher margin service offerings and drive productivity through improved sourcing, increased automation, and labor optimization. This quarter we opened our third central fill processing facility, which is reducing our cost of serve, while at the same time improving overall customer experience. The fourth digital platform is the integration of the mobile app for use in our stores. We're not just selling food, we're simplifying meal planning and making shopping easier and more convenient both in-store and online.
Our Pharmacy and health platform is an integral part of our customers for life strategy, and a significant growth and customer engagement opportunity.
Speaker Change: For this reason, leveraging our growing scale to improve Pharmacy profitability. Over time is a key. Operational priority.
To deliver this. We are continuing to pursue higher margins service offerings and drive productivity through improved sourcing increased Automation and labor optimization.
This quarter, we opened our third Central. Fill processing facility, which is reducing our cost of serve while at the same time, improving overall customer experience.
Susan Morris: Our app has become the epicenter of the omni-channel experience, with digital customers engaging nearly three times a week on average. What began as a tool for enabling e-commerce and delivering great deals is now a Swiss army knife of tools that make customers' lives easier regardless of whether they're shopping in our stores or online. These tools include best in class list building and personalized meal planning capabilities, powerful search and product locating capabilities, and an in-store mode that connects meal planning and other store-specific capabilities. In our media collective in the first quarter, we significantly increased the high-impact digital inventory as our digital platforms work together to enrich our data and generate deeper customer engagement to accelerate growth and deliver a superior return on ad spend.
The fourth digital platform is the integration of the mobile apps for use in our stores. We're not just selling food for simplifying meal planning and making shopping easier and more convenient, both in-store and online. Our app has become the epicenter of the Omni Channel experience with digital customers. Engaging nearly 3 times a week on average,
Speaker Change: What began as a tool for enabling e-commerce and delivering great deals is now a Swiss organized of tools that makes customers lives easier regardless of whether they're shopping in our stores or online.
Speaker Change: These tools include best-in-class list building and personalized meal kit, planning capabilities, powerful search and product locating capabilities and an in-store mode, that connects meal planning and other store specific capabilities.
In our media collective in the first quarter, we significantly increase the high impact digital inventory, as our digital platforms work together to enrich our data and generate deeper customer engagement to accelerate growth and deliver Superior return on ad spend.
Susan Morris: We'll continue to invest in building industry-leading integrated solutions that will support both endemic and non-endemic partners. These solutions include refining shopper audiences, running targeted media campaigns with compressed measurement timelines, and delivering consistent omni-execution to develop personalized relationships for our collective partners with our customers. These same solutions are also providing benefits for our internal loyalty and marketing initiatives. As we look forward, we expect The Collective to grow faster than the retail media market and ultimately be one of the largest sources of fuel for reinvestment into our core business over time. To improve our customer value proposition, we intentionally invested in value, in both loyalty and promotional offerings, as well as by partnering with strategic vendors to invest in price in certain categories and certain markets.
Speaker Change: We will continue to invest in building industry-leading, Integrated Solutions that will support both endemic and non-endemic partners.
These Solutions include refining, Shopper audiences running, targeted media campaigns with compressed measurement timelines.
Speaker Change: And deliver, delivering consistent Omni execution to develop personalized relationships for our Collective, partners with our customers.
Speaker Change: These same Solutions are also providing benefits for our internal loyalty and marketing initiatives.
As we look forward, we expect the collective to grow faster than the retail media market and ultimately be 1 of the largest sources of fuel for reinvestment into our Core Business over time.
Susan Morris: We also surgically managed through the pass-through of cost inflation to further invest in the customer's needs for immediate value. While it is early, these investments did deliver a sequential quarterly unit sales improvement and over time are expected to drive greater existing and new customer engagement across our banners. We additionally amplified our own brand's presence to drive further value for our customers. Ohm Brand Sales Penetration finished the quarter at 25.7% as we launched new offerings across multiple categories. We also expanded the assortment in our recently introduced Overjoy brand and launched our newest brand, Chef's Counter, a chef-inspired meal solution targeting foodies seeking fast and easy restaurant quality choices at affordable prices.
To improve our customer value. Proposition, we intentionally invested in value in both loyalty and promotional offerings, as well as by partnering, with strategic vendors to invest, in price, in certain categories in certain markets.
Speaker Change: We also surgically managed through the pass through of cost inflation to further invest in the customer's needs for a immediate value.
Speaker Change: While the news early these Investments did deliver a sequential quarterly unit, sales Improvement and over time are expected to drive greater existing and new customer engagement across our banners.
Speaker Change: We additionally, Amplified our own Brands presence to drive further value for our customers.
Speaker Change: Home brand sales, penetration finished the quarter at 25.7% as we launch new offerings across multiple categories.
Speaker Change: Solution, targeting, Foodies seeking fast and easy restaurant, quality choices at affordable prices.
Susan Morris: These launches, coupled with greater prominence and better value in own brand merchandising, is expected to drive greater loyalty, increase digital and omni-channel household engagement, and higher transaction counts over time.
These launches coupled with greater prominence and better value in own. Brand merchandising is expected to drive greater loyalty, increase digital and Omni Channel, household engagement and higher transaction counts over time.
Susan Morris: Our next priority is the modernization of our capabilities through technology. As we said last quarter, our North Star is to use technology in everything we do and we are energized by the progress we are making toward this aspiration. Our technology-first focus is positioning us to make a greater impact faster, allowing us to drive greater innovation at a lower cost. Our advanced technology platform, on which we are continuing to innovate, powers our e-commerce, store, pharmacy, supply chain, merchandising, and media collective operations, and is allowing us to leverage emerging AI technologies to accelerate our operational transformation going forward.
Our next priority is the modernization of our capabilities through technology.
Speaker Change: As we said last quarter, our Northstar is to use technology and everything we do. And we are energized by the progress. We are making toward this aspiration.
Our technology first focused is positioning us to make a greater impact faster, allowing us to drive greater Innovation at a lower cost.
Speaker Change: Our advanced technology platform on which we are continuing to innovate Powers. Our e-commerce store, pharmacy supply, chain merchandising, and media Collective operations.
Speaker Change: And is allowing us to leverage emerging AI Technologies to accelerate our operational transformation going forward.
Susan Morris: We are also using our advanced capabilities to use AI agents to enhance many business functions, including pricing and promotion, personalization, customer care, and cogeneration, among others. Driving transformational productivity is our next priority, which is an imperative to fuel our growth. Our productivity engine continues to reduce costs, offset headwinds.
We are also using our Advanced capabilities to use AI agents to enhance many business functions, including pricing and promotion, personalization customer care and code, generation among others.
Speaker Change: Driving transformational productivity is our next priority which is an imperative to fuel our growth.
Speaker Change: Our productivity engine continues to reduce costs.
Susan Morris: and Funder Growth Priorities. It works hand-in-hand with our technology modernization, including our initiatives to leverage AI and data analytics, optimize supply chain costs through automation. and build up shrink and labor management tool to name a few. In addition, the largest of our opportunities continues to be the leveraging of our consolidated scale to buy goods for resale through national buying and more efficient supplier relationships. As we previously shared from fiscal year 2025 through 2027, we expect our productivity engine to deliver $1.5 billion in savings, which we plan to reinvest in growth and our customer value proposition, as well as to offset other inflationary headwinds.
Speaker Change: Offset, headwinds.
Speaker Change: And fund our growth priorities.
Speaker Change: It works hand-in-hand with our technology modernization, including our initiatives to leverage, Ai and data analytics, optimize supply chain costs through automation.
Speaker Change: and build out shrink and Labor Management tools to name a few
Speaker Change: In addition, the largest of our opportunities can continue to be the leveraging of our Consolidated scale to buy goods for resale through National buying and more efficient supplier relationships.
Speaker Change: as we previously shared from fiscal year, 2025 through 2027, we expect our productivity engine to deliver 1.5 billion in savings, which we plan to reinvest in growth, and our customer value proposition, as well as to offset other inflationary, headwinds
Susan Morris: Before I hand the call over to Sharon for an overview of our first quarter and to provide an update to our 2025 outlook, I'd like to give you an update on recent labor negotiations. In fiscal 25, we have negotiations covering approximately 120,000 associates. As of today, we've reached agreements covering nearly half of these associates with two pending ratifications in Colorado and Southern California.
Speaker Change: Before I have the call over to Sharon for an overview of our first quarter and to provide an update to our 2025 Outlook, I'd like to give you an update on recent labor negotiations.
Speaker Change: In fiscal 25, we have any negotiations, covering a proximately 120,000 Associates.
Susan Morris: We appreciate and value our associates, and in these contracts, we are meaningfully improving wages and benefits. At the same time, we're working to negotiate contracts that are not only financially viable, but also provide the operational flexibility the company needs to streamline operations, manage costs, and offer affordable prices in a rapidly changing grocery landscape.
Speaker Change: As of today, we've reached agreement covering nearly half of these associates with 2 pending ratifications in Colorado, and Southern California.
Speaker Change: We appreciate that value, our Associates. And in these contracts we are meaningfully improving wages and benefits.
Sharon McCollum: Sharon, over to you. Thank you, Susan, and good morning, everyone. It's great to be here with you today. As Susan shared, the investments we are making are delivering value to our customers and adding breadth to the capabilities we need to drive future growth. During the quarter, we saw early wins from these investments, affirming our confidence in our strategic priorities and our customers for life strategy. Included in these wins was identical sales growth this quarter of 2.8%, driven by 20% growth in pharmacy and a 25% increase in digital sales. We also saw a sequential improvement in core grocery units.
Speaker Change: At the same time we're working to negotiate contracts that are not only financially viable but also provide the operational flexibility. The company needs to streamline operations manage costs and offer affordable prices in a rapidly changing grocery landscape.
Sharon McCullum: Sharon over to you.
Sharon McCullum: Thank you, Susan. And good morning, everyone. It's great to be here with you today.
Sharon McCullum: As Susan, shared the Investments. We are making are delivering value to our customers and adding bread to the capabilities. We need to drive future growth.
During the quarter, we saw early wins from these Investments affirming. Our confidence in our strategic priorities and our customers for life strategy.
Included in these wins was identical sales growth. This quarter of 2.8% driven by 20% growth in Pharmacy and a 25% increase in digital sales.
Sharon McCullum: We also saw a sequential Improvement in Coeur grocery units.
Sharon McCollum: To drive this growth, our gross margin rate of 27.1% was lower than last year by 85 basis points, excluding fuel and LIFO expense. Incremental investment in our customer value proposition and the mixed-shift impact related to the strong growth in our pharmacy and digital businesses drove this decrease, but was partially offset by benefits driven by our productivity initiatives, including improved shrink expense. Offsetting this growth margin investment was a 63 basis point improvement, excluding fuel, in our selling and administrative expense rate. This decrease was primarily driven by the leveraging of employee costs, reflecting the positive benefits from our ongoing productivity initiatives and lower merger-related costs.
To drive this growth, our gross margin rate of 27.1% with lower than last year, by 85 basis points, excluding Fuel and lipo expense.
Sharon McCullum: incremental investments in our customer value proposition and the mixed shift impact related to the strong growth in our Pharmacy, and digital businesses drove this decrease, but was partially offset by benefits, driven by our productivity initiatives, including improved shrink expense
Offending. This growth margin investment was a 63 basis point Improvement, excluding Fuel and are selling and administrative expense rate. This decrease was primarily driven by the leveraging of employee costs reflecting the positive benefits from our ongoing productivity initiatives and lower merger related costs.
Sharon McCollum: Interest expense in Q125 decreased $4 million to $142 million compared to $146 million last year due to lower average borrowing. Income tax expense in the first quarter totaled $75 million or 24.1% compared to $69 million or 22.3% in Q1 last year. This tax rate increase was primarily driven by a reduction of an uncertain tax position last year that did not recur in 2025. Adjusted EBITDA was $1,111,000,000 in the first quarter compared to $1,184,000,000 last year. Adjusted EPS was $0.55 per diluted share compared to $0.66 per diluted share last year.
Interest expense in q125 decreased 4 million to 142 million compared to 146 Million last year, due to lower average borrowings.
.3% in q1 last year.
this tax rate increase was primarily driven by a reduction of an uncertain tax position last year that did not recur in 2025,
Sharon McCullum: Adjusted IBA was 1,111 million in the first quarter compared to a billion 184 Million last year.
Adjusted EPS with 55 cents per diluted share, compared to 66 cents per diluted share last year.
Sharon McCollum: Now I'd like to discuss capital allocation, the balance sheet, and cash flow. Consistent with our capital allocation priorities, during the first quarter, we invested $585 million in capital expenditures, including the opening of three new stores and the completion of 36 remodels, as well as the ongoing modernization of our digital and technology capabilities. We also returned $401 million to our shareholders, including $86 million in quarterly dividends and $315 million in share repurchases, leaving approximately $1.5 billion in our existing multi-year $2 billion share repurchase authorization. At the end of the first quarter, our net dent to adjusted EBITDA ratio was 1.96.
Now, I'd like to discuss Capital allocation the balance sheet and cash flow.
Sharon McCullum: Consistent with our Capital allocation priorities. During the first quarter, we invested 585 million in capital expenditures including the opening of 3 new stores in the completion of 36 remodels.
Sharon McCullum: As well as the ongoing modernization of our digital and Technology capabilities.
We also return 4001 million to our shareholders. Including 86 million in quarterly dividends and 315 million in Sheri purchases leaving approximately 1.5 billion in our existing multi-year 2 billion dollar share repurchase authorization.
At the end of the first quarter, our net debt to adjusted, EBA ratio was 1.96.
Sharon McCollum: Now let me walk you through our updated 2025 Outlook. As Susan said, we remain focused on our five strategic priorities. Through the balance of Fiscal 25, we will continue to invest in our customer value proposition, customer experience, digital growth, the media collective, and health environment. These investments are expected to drive outside growth in digital infirmacy, both of which drive higher future customer lifetime value, but create near-term margin headwinds. We will also continue to drive our productivity agenda to fuel this growth and offset inflationary headwinds.
Now, let me walk you through our updated 2025 Outlook.
As Susan said, we remained focused on our 5 strategic priorities.
Through the balance of fiscal 25, we will continue to invest in our customer value proposition, customer experience digital growth, the media Collective, and health and pharmacy.
Sharon McCullum: These Investments are expected to drive outside growth in digital and Pharmacy, both of which drier higher future, customer lifetime value, but create near-term margin. Headwinds
Sharon McCullum: We will also continue to drive our productivity agenda to fuel this growth and offset inflationary headwinds.
Sharon McCollum: With that backdrop, we are updating our outlook as follows. We expect identical sales growth in the increased range of 2% to 2.75% up from 1.5% to 2.5% last quarter. This assumes continuing growth in pharmacy and digital sales as well as gradually increasing units in groceries. From a cadence perspective, we expect the second quarter IV sales to be towards the lower end of our guidance range with gradual acceleration in the back half of the year. We expect Adjusted EBITDA to be in the range of $3.8 to $3.9 billion, unchanged from last quarter. As a reminder, this includes approximately $65 million in Adjusted EBITDA in the fourth quarter related to our 53rd week.
With that backdrop, we are updating. Our Outlook is followed.
We expect identical sales growth in the increase range of 2 to 2.75% up from 1 and a half to 2 and a half percent last quarter.
This assumes continuing growth in Pharmacy and digital sales as well as gradually increasing units in grocery.
Sharon McCullum: From a Cadence perspective, we expect the second quarter ID sales to be towards the lower end of our guidance range with gradual acceleration in the back half of the year.
Sharon McCullum: We expect that just at ebit dot to be in the range of 3.8 to 3.9 billion unchanged from last quarter.
Sharon McCollum: We expect adjusted EPS to be in the range of $2.03 to $2.16, unchanged from last quarter, and including three cents related to the 53rd week. The effective income tax rate is expected to be in the range of 23.5% to 24.5%, unchanged from last quarter. And capital expenditures are expected to be unchanged in the range of $1.7 to $1.9 billion.
as a reminder, this includes approximately 65 million in adjusted, even de in the fourth quarter related to our 53rd week,
we expected just to EPS to be in the range of 23 to 2.16 unchanged from last quarter and including 3 cents related to the 53rd week.
Sharon McCollum: Looking beyond 2025, as we capitalize on the investments we are making behind our strategic priorities, we continue to expect fiscal 2026 to coincide with our long-term growth algorithm of two plus percent identical sales and adjusted EBITDA growth higher than that.
The effective income tax rate is expected to be in the range of 23 and a half to 24 and a half percent unchanged from last quarter. And capital expenditures are expected to be unchanged in the range of 1.7 to 1.9 billion.
Susan Morris: I will now hand the call back to Susan for closing comments. In closing, our Customers for Life strategy is working. We're investing in our core operations and improving our customer value proposition. These investments are driving increased traffic. and growing digitally engaged customers, omnichannel households, and loyalty members. To fuel these initiatives, we are driving productivity and leveraging new technologies to drive efficiencies across our operations. As Sharon said, we continue to expect 2025 to be a year of investment, including enhancing our customer value proposition.
Sharon McCullum: Looking Beyond 2025, as we capitalize on the Investments, we are making behind our strategic priorities. We continue to expect fiscal 2026 to coincide with our long-term growth algorithm of 2 plus percent identical sales and adjusted ebit dog growth higher than that.
Susan Morris: I will now hand the call back to Susan for closing comments.
In closing our customers for Life Strategies working.
Speaker Change: We're investing in our core operations, and improving our customer value. Proposition, these Investments are driving increased traffic.
Susan Morris: And growing digitally engaged customers Omni Channel households and loyalty members.
To fuel these initiatives, we are driving productivity and leveraging new technologies to drive efficiencies across our operations.
Susan Morris: As a result, we expect gradual and incremental improvement in top-line trends in our grocery business in the second half of 2025, 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 2026.
Susan Morris: With just over two months as CEO of Albertsons Companies, let me say that I am more confident in our strategy with each day. I'm energized by the work our teams are progressing and excited to continue building on our strong foundation. To our 285,000 great associates, I am more inspired than ever by you and all that you make possible for our customers and our communities each day. No matter where you are across our business, you make a difference. To keep our systems running, ensure our products are in stock, and delight our customers.
Susan Morris: As Sharon said, we can continue to expect 2025 to be a year of investment, including enhancing our customer value, proposition. As a result, we expect gradual and incremental Improvement in Topline Trends in our grocery business in the second. Half of 2025, ultimately driving growth in line with our long-term algorithm of 2% plus identical sales and adjusted Eva dog growing higher than that and fiscal year 2026.
Speaker Change: With just over 2 months, as CEO of Albertson's companies, let me say that I am more confident in our strategy with each day I'm energized by the work, our teams are progressing and excited to continue building on our strong Foundation.
Speaker Change: In our communities each day.
No matter where you are across our business, you make a difference, you keep our systems running and sure our products are in stock and Delight our customers.
Operator: We will now open the call for questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Speaker Change: We will now open the call for questions.
Thank you. If you'd like to ask a question. Please. Press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Operator: To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you.
Speaker Change: You may press star 2. If you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Paul Legewey: Our first question comes from the line of Paul Legewey with Citi. Please proceed with your question. Hey, thanks, guys.
Speaker Change: To allow for as many questions as possible. We ask that you each keep to 1 question and 1 follow-up. Thank you.
Speaker Change: Our first question comes from the line of Paul with City, please proceed with your question.
Susan Morris: I'm curious if you could talk about the drivers of the gross margin decline this quarter, maybe five of them for us, and how we should think about each of them remaining a headwind for the rest of the year, which stay, which might go away, which become less of a headwind. Maybe that you start with that. And then also curious how you would characterize the pricing environment around you in the future. Thank you. Thanks, Paul.
Speaker Change: Hey, thanks guys. Um curious if you could talk about the drivers of the gross, margins decline, this quarter, maybe 5 them for us and how we should think about each of them remaining a headwind for the rest of the year which day.
Which might go away which become less of a headwind. Um, maybe that, uh, you start with that. And then also curious, how you would characterize the pricing environment uh, around you in the competitive landscape. Thanks.
Susan Morris: As I think about gross margins, so we've been very clear that our top priority is driving sales and specifically driving an increase in units and we're investing in that and remain true to that. We expect to continue that by the way throughout the rest of the year. As we think about Q1, it was actually one of our largest overlaps year over year. And that's the compare that you're seeing from the gross margin investment. That said, as I mentioned before, we're going to continue to invest in margin, but we also expect our productivity to begin to provide a tailwind as our national buying gradually kicks in as the year progresses.
Speaker Change: Thanks Paul, as I think about gross margins. So I we've been very clear that our top priority is driving sales and specifically driving an increase in units. And we're we're investing in that and remain true to that. Um, we expect to continue that, by the way, throughout the rest of the year,
As we think about q1, it was actually um 1 of our largest overlaps year-over-year.
Speaker Change: And thus the compare that you're seeing from the gross margin investment.
For we're going to continue to invest in margin.
but we also expect our
Speaker Change: activities to begin.
Susan Morris: Also keep in mind our focus is on gross margin dollars on EBITDA dollars and not on You had a second question about the pricing environment, and I might have missed a question in the middle. And what we're seeing is continued promotional investment from the competitive set, of course, in our own operations. We're also leaning in more heavily on loyalty, on personalized deals. I would say that the pricing environment is rational, so we've not seen any broad swings across the industry at this point in time. And I would just add to that that you're continuing to see pressure from mass club stores and the value players.
Speaker Change: To provide a Tailwind as our national buying gradually kicks in as the year progresses.
Speaker Change: Also keep in mind, our focus is on gross margin dollars on EBA dollars.
You had a second question about the the pricing environment and I might have missed a question in the middle and what we're seeing is continued um promotional investment from the competitive set, of course, in our own operations. Uh, we're also leaning in more heavily on loyalty, um, on personalized deals.
Um, I would say that.
Speaker Change: The pricing environment is rational, so we've not seen any broad swings across um the industry at this point in time.
Speaker Change: And I would just add to that that you're continuing to see pressure from Mass Club stores and the value players.
Paul Legewey: Thank you, guys. Good luck.
Speaker Change: Thank you guys, good luck.
Leah Jordan: Our next question comes from the line of Leah Jordan with Goldman Sachs. Good morning. Thank you for taking my question. You made an interesting comment that e-com profitability is near break-even and improving. Just seeing if you could provide more detail on the key drivers supporting that improvement. You know, how much is Albertsons Media Collective a factor at this point?
Speaker Change: Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs, please proceed with your question.
Susan Morris: And what's your line of sight into reaching break-even in So, Leah, I think it's really important to recognize that different companies are calling e-commerce different things in their P&Ls. When we are talking about e-commerce, that is specifically our e-commerce business. There is nothing in our e-commerce P&L related to the Media Collective from a financial point of view. Of course, it creates data for the Media Collective, and it is a major provider of information for the Media Collective, but from a P&L point of view, it's pure. What is driving that is volume, first and foremost, leveraging the fixed costs of the operations of that business.
Good morning. Thank you for taking my question. Um, you made an interesting comment that Ecom profitability is near break even and improving. Um, just you know, if you could provide more detail, on the key drivers supporting that Improvement, you know how much is Albertson's? Media Collective a factor at this point and what's your line of sight into reaching break? Even in that business?
Susan Morris: Also, labor efficiency in the business. We've invested in tools and systems in order to drive efficiency in labor, and then we are also very much focused on continuing to leverage transportation costs in that process. So, it's across the P&L where we're seeing improvement, but in that type of a business where you've got fixed costs that put the space in the stores, the real estate, because all that's allocated to that business. We are continuing to lever that, so we are getting very close to breakeven in our e-commerce business.
So Leah. I think it's really important to recognize that different companies are calling e-commerce different things in their p&ls when we are talking about e-commerce. That is specifically our e-commerce business. There is nothing in our e-commerce. P&l related to the media Collective from a financial point of view, of course, it creates data for the media Collective. And it is a major provider of information for the media Collective, but from a p&l point of view, it's pure. What is driving? That is volume, first and foremost leveraging, the fixed costs of the operations of that business. Also, labor efficiency.
In the business we've invested in tools and systems in order to drive efficiency and labor. And then we are also very much focused on continuing to leverage Transportation costs in that process. So it's across the pnl where we're seeing Improvement but in that type of a business where you've got fixed costs.
Susan Morris: And Sharon, if I could just add to that as well, and you touched on this, a reminder that our fulfillment model is through our stores, and our stores are already in the neighborhoods that are serving our customers. So that creates efficiencies for us, perhaps versus some others out there. That's very helpful. Thank you.
Speaker Change: In the stores, the real estate because all that's allocated to that business, We are continuing to leverage that. So we are getting very close to Break Even in our e-com business.
Speaker Change: um, I think that's
Leah Jordan: And then I just had a quick follow-up on the ID sales guidance. I mean, just think if you could comment on the cadence of ID sales throughout the quarter, and then with the deceleration that you're guiding into Q, just what are the key drivers of that? Are you seeing something change with the consumer? Is this related to the pharmacy business?
Susan Morris: Anything there would be Leah, there's a couple of things. First and foremost, the compares on pharmacy, you have to look at pharmacy growth last quarter, which we disclosed. So if you take a look at that, that has a major swing impact on the comp each quarter. So look at that. Secondly, from a cadence point of view, we feel pretty confident that as we progress through the year, we expect to are on the grocery side of the business, we talked about the fact that we're expecting to see progressive units as we go through the back half of the year, thus the price investment that we have spoken about.
That's very helpful. Thank you. And then I just had a a quick follow-up on the ID, sales guidance. I mean it um just seems to be a good comment on the Cadence of ID sales throughout the quarter and then with the deceleration that you're guiding into Q just what are the key drivers of that? Are you seeing something changed with the consumer, is this related to the pharmacy business? Anything there would be helpful. Thank you.
Susan Morris: So in Q2, we do need to keep in mind that there will be an impact from the strike that we had during the quarter. So that'll have an impact, but we quantify that for you in order for you to help model. We said in our prepared remarks that we expected in the second quarter to be at the low end of our guidance range. So hopefully that'll be helpful. And we continue to expect to see strong pharmacy in the numbers going into Q2.
Speaker Change: Yeah, there's a couple of things first and foremost. Um, the Compares on Pharmacy, you have to look at Pharmacy growth last quarter which we disclosed. So if you take a look at that that has a major swing impact on the comp each quarter. So look at that. Secondly um from a Cadence point of view, uh we feel pretty uh confident that as we progress through the year. Um, we expect to see our on the grocery side of the business we talked about the fact that we're expecting to see Progressive units as we go through the back half of the year as us, the price investment that uh we have spoken about. So in Q2, we do need to keep in mind that there will be an impact from the strike that we had during the quarter so that'll have an impact. But we quantify that for you in order for you to help model we said in our Pro
Prepared remarks that we expected to in the second quarter to be at the low end of our guidance range. So hopefully that'll be helpful and we continue to expect to see strong Pharmacy in the numbers. Going into Q2
Leah Jordan: Very helpful. Thank you.
Speaker Change: very helpful. Thank you.
Edward Kelly: Our next question comes from the line of Edward Kelly with Wells Fargo. Hi, good morning.
Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.
Sharon McCollum: I was hoping that you could maybe take a step back and update us on your price investment goals, you know, just kind of given what you have seen so far. Customer response, you know, does that give you any confidence maybe to lean in a little bit more? And then as you think about, you know, productivity initiatives rolling in, and then you think about, you know, returning to your algo next year, is it your expectation that eventually get to the point where, you know, you will continue to invest in price, productivity offsets, gross margin is a bit more stable?
Sharon McCollum: Just curious as to how we should be thinking.
Sharon McCollum: Sure. Thanks, Ed, for the question. So as we think about price, just a reminder, as we went into the year, we have an incredible amount of data, and our price investments are very surgical. We know the categories and the markets where we need to make those investments, and we've begun that process. And also keeping in mind, too, that as we talk about investing in price, it's really investing in the total value proposition. So yes, some of it's based pricing, it's promotional, it's investing in our loyalty programs as well, and of course, focusing on own brand.
Edward Kelly: Hi, good morning everyone. Um, I was hoping that you could maybe take a step back and update us on your price investment goals. Um, you know, just kind of giving what you have seen so far customer response. Um, you know, does that, give you any confidence, maybe to lean in a little bit more? And then, as you think about, you know, productivity initiatives rolling in, and then you think about, you know, returning to your algo. Next year is that your expectation that that eventually gets to the point where, you know, you will continue to invest in price, productivity offsets gross. Margin is a bit more stable, um, just curious as to how we should be thinking about all that. Thank you.
Speaker Change: Sure, thanks for the question. So as as we think about price, just a reminder, as we went into the year, um, we have an incredible amount of data and our Price investments are very surgical. We know the categories and the markets where we need to make those Investments.
Edward Kelly: And, and we've begun that process.
Sharon McCollum: To date, it's still early in the investment process, so we'll be able to understand a little bit more.
Edward Kelly: Um and also keeping in mind too that as we talk about investing in price, it's really investing in the total value proposition. So yes some of it's based pricing its promotional. It's investing in our loyalty programs as well and of course, focusing on own brands
Sharon McCollum: This is certainly a journey, not something that is a one and done. It'll be an iterative process with multiple phases launching throughout the year. Right now, we've seen sequential improvements in our unit trajectory, which is what we expected to see.
Edward Kelly: Uh to date. It's still early um in in the investment process. So we'll be able to understand a little bit more. This is um certainly a journey, not something that is a 1 and done. Uh, it'll be an iterative process with multiple phases launching throughout the year.
Sharon McCollum: We have been tracking... are CPI versus the competitive set and are generally pleased with what we see, but once again, it's quite early in the process. You asked about productivity, and what I would say here is, as I mentioned a moment ago, there will be a tailwind from a gross margin perspective as we implement our national buying processes. But keeping in mind, too, that that is a process, we're working closely with our vendor partners, category by category, vendor by vendor.
Edward Kelly: Um, right now we've seen sequential improvements in our unit trajectory which is what we expected to see.
Edward Kelly: Um, we have been tracking, um,
Edward Kelly: Our CPI versus the competitive set and are generally pleased with what we see. But once again, it's quite early in the process.
Edward Kelly: you, you asked about productivity and what I would say here is, as, as I mentioned, a moment ago,
Sharon McCollum: So we expect to see that start to show through towards the second half of the year and expect to leave 2025 going into 2026, delivering on the long-term algorithm.
Edward Kelly: there will be a Tailwind from a gross margin perspective, as we Implement our national buying processes, but keeping in mind, too that, that, that is a process. Um, we're working closely with our vendor Partners category by category, uh, Vendor by vendor. So we expect to see that, uh,
Edward Kelly: start to show through towards the second half of the year and expect to leave 2025 going into 2026 delivering on the long-term algorithm
Sharon McCollum: And then just maybe a follow-up on the pharmacy and grocery cross-shopping momentum. I mean, pharmacy growth has obviously been very. But the grocery business has lagged, and I'm just curious as to what's happening with the momentum of that cross-shopping activity, what you're doing to get those customers to engage more in the store.
Edward Kelly: And then just maybe a follow-up 1.
Susan Morris: And over time, I mean, it seems like we should expect the Grocery ID to respond to all this. I'm just kind of curious as to how you are thinking about, you know, the momentum. when that really So as we've shared before, it does take time for the cross shopping to begin between pharmacy and grocery customers. That said, we know what they do. They often visit the store four times more frequently. They drive outsized customer lifetime value. And they One of our goals with all of this is, of course, getting them engaged in both center store and pharmacy, recognizing that as they're engaging in the pharmacy side of the business, we are working to increase their engagement with higher service offerings.
On the pharmacy and and grocery Cross Shopping momentum. I mean Pharmacy. Growth is obviously been, you know, very impressive. Um, but the grocery, you know, businesses lagged and I'm just curious as to, you know, what's happening with uh, the momentum of that cross shopping activity, you know what you're doing to, um, you know, to get those customers to engage more in the store and
Edward Kelly: So as we've shared before, it does take time for our the Cross Shopping to begin, between Pharmacy and grocery customers that said, we know when they do, they often visit the store 4 times more frequently, they drive outsized customer lifetime value. Um, they and they, they
Susan Morris: Test and treat is one example, immunizations is another. From a grocery perspective, we did see positive growth in grocery in the first quarter, exclusive of our pharmacy business. So we were pleased to see that happening there.
Susan Morris: As I mentioned before, two words. focused on creating incredible amounts of productivity in our pharmacy business, including improving our sourcing, buying better. increasing automation, creating solutions for our pharmacy techs and teams to create to make their jobs more efficient. We've invested in three central fill facilities in our Southwest Division in Dallas and in southern Washington State, which are also helping our productivity. So again, we like the total value equation when our customers engage with us in store, in pharmacy, online. That's a virtuous flywheel for us that drives ongoing growth and productivity, by the way.
Edward Kelly: 1 of our goals. With all of this is of course, getting them engaged in both Center store and Pharmacy recognizing that is, they're engaging in the pharmacy, side of the business we are working to increase their engagement with higher service offerings. Test and treat is 1. Example. Immunizations is another uh from a grocery perspective. We did see positive growth in grocery in the first quarter exclusive of our Pharmacy business. So we were pleased to to see that happening there.
Edward Kelly: number 2, we're
Edward Kelly: focused on creating.
Incredible amounts of productivity in our Pharmacy business, including, increasing our sourcing, uh, buying better.
Edward Kelly: Increasing automation, creating solutions for our pharmacy, techs and teams to create to make their jobs more efficient. Uh, We've invested in 3, Central field facilities.
Susan Morris: So we're very excited about the future and believe in the priorities that we've laid forth.
Edward Kelly: In our Southwest Division in Dallas and in southern Washington state which are also helping our productivity. So again, we we like the total value equation when our customers engage with us in store in pharmacy, online. That's a virtuous flywheel for us, that drives ongoing growth, um and productivity by the way. Um, so we're very excited about the future and believe in the priorities that we've laid forth.
Rupesh Parikh: Our next question comes in line of Rupesh Parikh with Oppenheimer and Company. Good morning, and thanks for taking my question. Just going back to retail media, I was just curious how that ramp is going versus expectations so far, and just anything surprising at this point.
Speaker Change: Thank you. Our next question comes from the line of repair with opener company. Please receive with your question.
Good morning and thanks for taking my question. So just going back to retail media. Um, I was just curious how that ramp is going versus expectations so far and just anything surprising at this point,
Susan Morris: Hi, Rupesh. We are very pleased with the progress that we're seeing on the Media Collective. Our growth is outpacing the industry. Our team has done a phenomenal job of condensing the amount of time that it takes for us to be able to give feedback to our vendor partners on the performance of their investments. They're enhancing our digital properties so that we have more inventory to be able to sell. And we're also working on really creating more streamlined personalization opportunities so that our vendor partners can have direct connections with the customers that they're serving. So we feel good about our progress there, but we also see that as some blue sky ahead.
Speaker Change: I'm petsch.
Speaker Change: We are very pleased with the progress that we're seeing on the media Collective. Um, our growth is outpacing the industry. Uh, our team has done a phenomenal job of condensing, the amount of time that it takes for us to be able to give feedback to our vendor Partners on the performance of their Investments. Uh, their enhancing our digital, um, properties. So that we have more inventory to be able to sell
Speaker Change: And we're also working on really creating more streamlined, uh, personalization opportunities. So that our vendor Partners can have direct connections with the customers that they're serving. So we feel good about, um, our
Susan Morris: We recognize that we're catching up in some ways, and our goal is to leap forward, but there's great progress there.
Speaker Change: Progress there. But we also see that as as some blue sky ahead, we recognize that we're catching up in some ways and our goal is to to Leap Forward but there's there's great progress there from the team.
Rupesh Parikh: And then maybe just one follow-up question, just on the consumer, just curious what you guys are seeing right now and with the recently passed legislation, just any thoughts on SNAP impact. I'll start with the SNAP impact. So for us, we have a lower penetration of SNAP than the majority of the competitive set that we have. That said, that customer is very important to us. They typically have a larger basket. They're very loyal, and we'll work hard to make sure that they have the communication information they need to get access to those resources when available. I would also add to that that there, when you look at the new legislation, there is a very long ramp to implementation of many of the things within that legislation.
Speaker Change: Great. And then maybe just 1 ball question. Just just on the consumer just curious what you guys are are seeing right now and I and with the recently passed legislation just any thoughts on snaps impact?
Speaker Change: I'll start with the snap.
Speaker Change: So for for us, um,
Speaker Change: We have a lower penetration of snap than the majority of the competitive set that we have. That said that customer is very important to us. They typically have a larger basket.
Speaker Change: Very loyal and will work work hard to make sure that they have the communication and information, they need, um, to get access to the to, uh, those resources when available.
Susan Morris: So, in the short term, we don't anticipate that being a headwind of any material amount in the short term. Thanks, Sharon.
Susan Morris: And on the consumer side, we continue to see the customer seeking value. We're selling more on promotion. That's been happening for quite some time now. We're leaning heavily into own brands, understanding that. And as we mentioned before, we're proud of our own brands program that we have, but we're not satisfied with the penetration that we have. So, we're really leaning in for the Q2 and the rest of the year. That's upside potential for us moving ahead.
Speaker Change: I would also add to that that there when you look at the new legislation, there is a very long ramp to implementation of many of the things within that legislation. So in the short term, we don't anticipate that being a headwind of any material amount in the short term. Thanks Sharon. And on the, on the consumer side, uh, we continue to see the customer seeking value. Um,
We're selling more on promotion, that's been happening for quite some time now. Uh, we're leaning heavily into own Brands, understanding that. And, and, as we've mentioned before, we're proud of our own Brands program that we have, but we're not satisfied with the penetration that we have. So we're really leaning in um, for the the
Susan Morris: As I think about the customer, we were looking at some category information, and it's been interesting. Some of our top performing categories in the first quarter was kind of a tale of two cities. We absolutely saw increases in the shift into pork and ground beef as one example, again, indicating that the customer is looking for value. We also saw strong growth in our deli chicken business as an example, knowing that I think customers are always looking for quick and easy meal solutions. And with the increase of food away from home, I think the inflation was almost 4%.
Speaker Change: Q2 and the rest of the year that's upside potential for us. Um moving ahead. As I think about the customer, we were looking at some
Susan Morris: We're absolutely providing value there.
Speaker Change: Category information and it's been interesting, some of our top performing categories in the first quarter, was kind of a tale of 2 cities. Uh we absolutely saw increases in the shift into pork and ground beef as 1 example. Again, indicating that the customers looking for Value. We also saw strong growth in our deli chicken business, as an example. Um, knowing that I think customers are always looking for a quick and easy meal Solutions. And with the increase of uh, food away from home, I think the inflation was almost 4%. Uh, we're absolutely providing value there.
Susan Morris: Great, thank you for all the color. Thank you.
Great. Thank you for all the caller.
John Heinbockel: Our next question comes from the line of John Heinbockel with Guggenheim Partners. Please proceed with your question. Hey guys, I want to start with, I think you said, maybe I heard wrong, food volumes were positive in the quarter grew. Was that right? If so, is that predominantly traffic or items per basket? And then I think your goal, a couple of quarters ago, you talked about 50 basis points. Is that still a fair goal, or you think you can do better than that? Yeah, so John traffic and AIV were positive on the units. It is a sequential improvement in units from Q4 to Q1.
Speaker Change: Question comes from the line of John heinbockel with Guggenheim Partners. Please proceed with your question.
Speaker Change: Hey guys, I wanted to start with I I think you said, if maybe I heard wrong, uh, food volumes uh were positive in the quarter, grew was that, right? Um if if so is is that predominantly traffic or items per basket and then I think your goal a couple of quarters ago, you talked about 50 basis points
Speaker Change: Is that still a fair goal? You, you think you can do better than that?
Speaker Change: John.
Speaker Change: Were.
Susan Morris: And that is not yet to pass.
Speaker Change: Improvement in units from Q4 to q1 and that is not yet deposited.
Susan Morris: Okay, and then follow up is if you think about you reference technology. Where do you think the most fruitful labor productivity opportunities are? I think about these, you guys are promotional, electronic shelf labels, you know, thinking about that, thinking about, you know, automation back into the warehouses. Where are the biggest opportunities to move the needle on cost per unit?
Okay.
Speaker Change: And then and then um, follow up. Is if you think about you, you you reference technology
Speaker Change: Where do you think the most fruitful, labor productivity opportunities are right? I think about these, you guys are are promotional electronic shelf labels? You know, thinking about that thinking about, you know, automation, um back into, uh, the warehouses
Speaker Change: Where, where are the biggest opportunities to move the needle on cost per unit?
Susan Morris: John, thanks for the question. So you actually touched on a few that are very important to us today, one of which is DC automation. We've had great success with recent launches and look forward to accelerating that agenda for a variety of reasons, efficiency being one of them. With regards to store labor, we have an incredible amount of data. And I think about e-commerce as one example where we've actually been able to enhance productivity, because we're able to get the data that we need to create more predictive scheduling. That's really helping us create efficiencies there. That's already underway in the rest of the store.
John thanks for the question. So uh, you actually touched on this, you that are very important to us.
Speaker Change: Which is DC automation. Uh, we've had some great success with recent launches and look forward to accelerating that agenda for a variety of reasons, efficiency being 1 of them.
Susan Morris: And we're in the process, it's actually fairly robust in center store. We're working through the fresh departments. So wall-to-wall forecasting is what we call it. And that's going to be a big unlock for us. We are currently in pilot on ESL, and I think it's 40 stores at this moment in time, seeing great results there. But to your point, we're absolutely leaning in heavily on technology and automation, tasks where we can, eliminating pain points across the organization and existing tasks, and looking forward to what we're going to learn from our experiments on AI across the company, because we see further opportunity there for us.
Susan Morris: Thank you. I would also add that over the last several years, we've invested heavily in our stores in several technologies that are used by a very large number of people in our stores. We implemented Offresh, we've implemented ordering and other types of technologies. And one of the big opportunities that every retailer has is the utilization of that technology. And there is a full court press within the company on execution in the stores and elevating that in our stores. So we are expecting to see changes and continued improvement in the stores in the utilization of the tools we currently have.
Speaker Change: With regards to store Labor, uh we are so that we have an incredible amount of data and I think about e-commerce is 1 example where we've actually been able to enhance productivity because we're able to get um the data that we need to create more predictive scheduling, that's really helping us create efficiencies there that's already underway and the rest of the store and we're in the process. Um, it's actually fairly robust in in Center store, we're working through the fresh departments. So, um, wall-to-wall forecasting is what we call it, and I, I, and that's going to be a big unlock for us. We are currently in pilot on ESL and I think it's 40 stores at this moment in time seeing great results there. Um, but but to your point, we're absolutely leaning in heavily on technology and automation of tasks where we can eliminating uh pain points across the organization and existing tasks and looking forward to. What we're we're going to learn from our experiments on AI across the company because we see further opportunities there for efficiency.
Speaker Change: Thank you. I would also add that over the last several years, we've invested heavily in our stores in several technologies that are used by a very large number of people in our Stores. Um, we implemented Opera we've implemented, um, ordering and other types of Technologies and 1 of the big opportunities that every retailer has is the utilization of that technology, and there is a full court, press within the company on execution in the stores and elevating that in our stores.
Susan Morris: Another area that we continue to invest in, and you have to invest in it from two perspectives. One is the customer experience, and one of them is from a shrink perspective, but is in the self-checkout and the various things we can do with self-checkout from a customer experience point of view. Using Vision AI as part of that process, we saw, as you saw in our prepared remarks, that we did have some favorability and shrink. Part of that, we believe, is coming from the technology that we have invested in self-checkout. So that is another area that benefits you in labor in many different ways.
So we are expecting to see changes in continued Improvement, in the stores, in the utilization of the tools, we currently have another area that we continue to invest in and you have to invest in it. From 2 perspective, 1 is the customer experience and 1 of them is from a shrink perspective but is in the self-checkout and the various things we can do with self-checkout from a customer experience point of view.
Susan Morris: But the key to self-checkout is making sure that that customer experience is as great as it can be. And we're spending time on that and ensuring that, and I believe that will help us continue to take self-checkout to the next level.
Susan Morris: Thank you.
Speaker Change: Uh using Vision AI. Um, as part of that process, we saw if you saw in our, um, prepared remarks that we did have um, some favorability and Shrink part of that, we believe is coming from the technology that we have invested in sub checkout. So that is another area that it benefits you in Labor, in many different ways. But the key to self-checkout is making sure that that customer experience is as great as it can be. And we're spending time on that and ensuring that and I believe that will help us continue to take self-checkout to in the next level.
Speaker Change: Thank you.
Simeon Gutman: Our next question comes from the line of Simeon Gutman with Morgan Stanley.
Speaker Change: Thank you. Our next question comes from the line of Simeon, Gutman with Morgan Stanley. Please receive with your question.
Simeon Gutman: Hey, Susan. Hey, Sharon. How are you? I wanted to follow up on pricing. Susan, I asked you about where your head is on pricing. I think you've lived in a high-low environment for most of your career. So, I'm curious what this iteration looks like. Are you moving to part EDLP with high-low? And you mentioned, is this a one-time catch-up or this is iterative and of course open to changes down the road? And then, I don't know what in the conversations with vendors, how you're communicating some of the changes as you try to work with them on the central buying.
Speaker Change: Looks like, are you moving to part edlp with high low? And you mentioned, this isn't is this a 1-time catch-up or this is iterative. And of course, you know, open to changes down the road and then I don't know what in the conversations with vendors. How you're communicating some of the changes as you. Um try to work with them on the central bank.
Susan Morris: Simeon, thanks for the question. So first and foremost, I want to highlight the fact that, and I've mentioned this a couple times, and we talked about this last time, we have an incredible opportunity with our own risk. Our penetration, while it's growing at 25.7% for the quarter, we should be at 30% plus. So we are leaning into that from both ends, both from a price perspective, but also from a cost of goods perspective, so that we can fuel our own growth there. Going back to your price question in general, I would just, yes, you're right, we've typically been a high-low retailer.
Speaker Change: First and foremost, I want to highlight the fact that and I, I've mentioned this a couple times. And we talked about this last time, we have an incredible opportunity with our own Brands, um, our penetration while
Speaker Change: It. It's growing, it's 25.7% for the quarter. We should be a 30% Plus
Speaker Change: So we are leaning into that from both ends both from a price perspective but also from a cost of goods perspective. So we can fuel our own growth there.
Susan Morris: And if I had to describe our go-forward approach, I'd say we're more of a modified high-low. That's where we're looking to achieve. And yes, it's iterative. This is absolutely not a one-and-done. And what the team has created, which is actually pretty fantastic, internally, we've created a suite of tools that helps us utilize the data that we have to anticipate the changes that we're making based off of past performance of various price points, understand the customer elasticities, and then feed us what those pricing changes should be to optimize unit growth, optimize profitability. And those tools are only becoming more and more robust.
But going back to your price question in general. Um, I would just, yes, you're right. We typically been a high low retailer and, um, if I had to describe or go forward approach, I'd say we're more of a modified high low. That's that's where we're looking to to achieve and yes, it's iterative. This is absolutely not a 1 and done and what the team has created which is it's actually pretty fantastic. And totally we've created um, a suite of tools that helps us utilize the data that we have to anticipate. The changes that we're making based off of past, uh, performance of various price points, understand the customer elasticities and then feed us what those pricing changes should be to optimize unit growth optimize profitability.
Susan Morris: We continue to add to the suite. So to answer your question shortly, no, this is not a one-and-done.
Susan Morris: This is a new go-to-market strategy. We are deeply engaging our vendor partners. That takes time, by the way. So as we talk about our productivity as a tailwind, that will come gradually over time as we're leaning into partnerships with our vendors to say, hey, how do we do this together? We want to move more units. We want to move them with you. How can we lean in and create the right opportunity to grow sales and share, unit sales and share, collectively?
Speaker Change: And and those tools are only becoming more and more. More robust. We continue to add to the suite. So to, to get to answer your question shortly? Uh, no, this is not a 1 and done.
Speaker Change: This is a new go to market strategy. We are deeply engaging our vendor partners that takes time by the way. So as we talk about our productivity, um, as a as a Tailwind that will come gradually over time as we're leaning into Partnerships with our vendors to say, Hey, how do we do this together? We want to move more units, we want to move them with you, how can we lean in and create the right opportunity? Uh to grow sales and share unit sales and share um collectively.
Simeon Gutman: Okay, and then switching topics for a follow-up, SG&A run rate, can you talk about, I think it was up three and a half or so percent, union contracts, I'm sure it was part of your plan at some point, because you know when they come up and you have some expectation.
Sharon McCollum: Can you talk about how the union contract could or couldn't change that run rate and any investments that come in, and then, you know, managing it relative to where you think comps can come in, is it in the right range so that you could eventually leverage when you get some of the unit pick-up in the back? Simeon, yes, in our SG&A guidance that in our outlook for this year, we have anticipated what these increases could look like, and that is incorporated in the adjusted EBITDA guidance that we provided for the year. As it relates to other areas in SG&A that you didn't ask about, keep in mind this quarter, we were, we had a year over year benefit of about 63 basis points.
Okay. And then switching topics for follow-up sgna, run rate, can you talk about? I think it was up 3 and a half or so percent. The, um, Union contracts. I'm sure it was part of your plan at some point. Um, because you know, when they come up and you have some expectation, can you talk about how the Union contract could or couldn't change that run rate and any Investments that come in and then
you know, managing it relative to where you think comps can come in, is it in the right range so that you could eventually leverage when you get some of the unit pickup in the back half.
Sharon McCollum: Take a look at how much of that is one-time costs. You can see the one-time costs in our reconciliations in the press release. So about half of that comes from the elimination of merger costs, but the rest of that has been driven by productivity. One of the big areas of productivity that we expect to see this year, early in the year particularly, is going to be in SG&A. Remember, we are materially changing our ways of working.
Speaker Change: To me and yes in our sgna guidance that in in our outlook for this year, we have anticipated uh what these increases could look like. And that is Incorporated in the adjusted, Eva values that we provided for the year, as it relates to other areas in sgna that you didn't ask about. Keep in mind this quarter, we were, we had a year-over-year benefit of about 63 basis points
Sharon McCollum: We've had several announcements on the opening of our new headquarters in India for technology, which we're very excited about. We are also transitioning many of our back-end accounting functions to an existing location that we have in the Philippines. And that transition is also happening. So we are making several, we call them internally, ways of working moves that are helping to offset some of the pressure that we're seeing in wages. And wages, I don't want to specifically say union wages. It's wages in general.
Speaker Change: Take a look at how much of that is 1 time cost. You can see the 1-time costs in our reconciliations in the press release. So about half of that comes from the elimination of merger costs but the rest of that is been driven by productivity 1 of the big areas of productivity that we expect to see this year. Early in the year, particularly is going to be in sgna. Remember we are materially changing our ways of working. Uh, we've had several announcements on the opening of our new headquarters in India for technology, which were very excited about. We are also transitioning, um, many of our back-end accounting functions to an existing, uh, location that we have in the Philippines and that transition is also happening. So we are making several I call we call them internally ways of working moves.
Speaker Change: That are helping to offset some of the pressure that we're seeing in wages and wages that you're, I don't want to specifically, say, union wages this wages in general.
Sharon McCollum: Thanks.
Simeon Gutman: Good luck.
Speaker Change: Okay, thanks. Good luck.
Mark Carden: Our next question comes from the line of Mark Carden with UBS. Thanks so much for taking the questions. So on the pharmacy front, how did the contribution shake out from GLP-1s? And then for the growth outside of GLP-1s, is it being more driven by newer customers or more by your engaged? On the GLP-1 question, it's about half the pharmacy comp, so think about GLP-1 as half the comp. However, remember, it comes at an incredibly outsized average unit retail, and script growth, actual script growth outside of GLP-1 was also very strong.
Speaker Change: Thank you. Our next question, comes from line of Mark, karten with UBS. Please receive with your question.
Speaker Change: Thanks so much for taking the questions, so on the Pharmacy Front. How did the contribution? Check out from glp1? And then for the growth outside of glp1, is it being more driven by newer customers or more by your engaged existing customers?
Sharon McCollum: Susan, do you have something you'd like to add to that? Yeah, so, and Sharon touched on it. Clearly, the profitability is quite on the GLP-1 script itself, but the customer is quite valuable. What we found is there might be an initial dip when they start shopping with us in their grocery basket, but that quickly turns around and actually leans into items like supplements, lean proteins in our meat department, categories that are actually quite profitable for us as a company. Sharon mentioned our core script count X GLP-1 is very strong, and that's, again, exciting to us as customers continue to engage in our total ecosystem.
Susan Morris: That adds profitability, that adds long-term lifetime value, so we feel very good about where we're at.
Speaker Change: Think about glp1 as half the comp. However remember it comes in an incredibly outside average unit retail and script growth actual script growth outside of glp-1 was also very strong Susan. Do you have something you'd like to add to that? Yeah. So, um, and Sharon touched on it, clearly. The profitability is quite different on the glp-1, um, script itself. But the customer is quite valuable what we found is. There might be an initial dip when they start shopping with us in their in their, uh, grocery basket. But that quickly turns around and actually leans into items like supplements. Um, lean proteins in our meat department, uh, categories that are actually quite profitable for us as as a company. Sharon mentioned, our course group count. X glp1 is very strong and we're that's again exciting to us as customers. Continue to engage in our total ecosystem, that adds profitability that has long.
Sharon McCollum: That said, and I mentioned this earlier, we are very focused on productivity there. Sourcing, Increasing Automation, and of course the central field that I spoke about.
Speaker Change: Term lifetime value. Uh, so we feel very good about where we're at in the pharmacy space.
That's it. And I mentioned this earlier. Uh we are very focused on productivity there.
Speaker Change: Improving sourcing increasing Automation. And of course, the central field that I spoke of
Sharon McCollum: Great.
Sharon McCollum: And then on tariffs, I know that indirect impacts were a big unknown from an ingredient and a packaging standpoint in grocery and pharmacy. Now that we're a few months in, are you expecting this to be any more or less of a contributor to inflation over the course of the next few quarters relative to what you were expecting last week? Thank you. And yes, as we've mentioned before, well over 90% of the goods we source are domestically based. But to your point, ingredients are certainly playing a factor in our CPG partners and their cost of goods.
Speaker Change: Great. And then on tariffs, I know that indirect impacts were a big unknown from the ingredient and a packaging standpoint, and Grocery, and pharmacy. Now, now that we're a few months in, are you expecting us to be any more or less a contributor to inflation over the course of the next few quarters relative to what you're expecting last quarter. Thanks.
Speaker Change: um, based, but to your point in regards are certainly playing a factor in, um,
Sharon McCollum: We're starting to see increases in cost of goods moving ahead. And we've got a very rigorous process of first and foremost, quite frankly, just pushing back. We've worked hard and it shows in our price position as well that we've not passed through all of the inflation that we're seeing from a cost of goods perspective. Our first line of defense, though, is to push back with our vendor partners, deconstruct the cost increase and make sure that we're all in alignment of the rationale behind it. Looking for alternate sources of supply or other products that we can push if the tariffs become unwieldy.
Sharon McCollum: And then finally, in certain cases, if we have to, we'll pass them on to customers. But we're going to remain very close to the competitive set, especially on key items. When I start to think about commodity items that come through, which is something we do every day, by the way, you know, this is part of our DNA. We sell a lot of commodity driven items and we are very agile in the pricing process.
Our cpg partners, and, and, and their cost of goods. We're starting to see increases in in cost of goods, moving ahead. Um, and we've got a very rigorous process of first, and foremost, quite frankly, just pushing back. We've worked hard and it and it showed that our price position as well that we've not passed through all of the inflation that we're seeing from a cost of goods perspective. Um, our first line of defense though, is to push back with our vendor Partners deconstruct the cost increase, and make sure that we're all in alignment of the rationale behind it. Um, looking for alternate sources of Supply or other products that we can push, if, if the, uh, tariffs become unwieldy and then finally, in certain cases, if we have to, we'll pass them on to
Speaker Change: Customers. But we're going to remain very close to the competitive set, especially on key items when I start to think about, um, commodity items that come through, which is something we do every day.
Sharon McCollum: And Susan, I would just add to that, it is also having us take a look at what we are offering in our brand. So as we look forward and we look at the tariff, it may be that there comes a point where we decide that an expansion in our assortment and own brand is a great solution for our customer. And we're looking at that as well.
Speaker Change: You know, this is part of our DNA. Um, we sell a lot of combining driven items that we are very agile and the pricing process,
Speaker Change: And so then I would just add to that. It is also having us. Take a look at what we are offering and owned brands.
Speaker Change: So as we look forward and we look at the tariffs, it may be, that there comes a point where we decide that an expansion in our assortment and own brand is a great solution for our customer, and we're looking at that as well.
Sharon McCollum: Great, thanks so much and good luck. Thank you.
Speaker Change: Great. Thanks so much and good luck.
Kelly Bania: Our next question comes from the line of Kelly Bania with BMO Capital Markets. Hi, good morning, Susan and Sharon. Thanks for taking our questions. I wanted to go back to the sequential improvement in grocery units, it sounds like you were pleased with that. I just want to clarify, would you expect that to continue into Q2 and it's just a pharmacy dynamic there in Q2? I just wanted to understand really what underpins that confidence regarding the stronger second half IDs and what's the measure of that, is that more of a grocery unit dynamic? Yeah, Kelly, first and foremost, in Susan's prepared remarks, her statements about the sequential improvement in units, that is, and we were clear, it is grocery.
Speaker Change: Thank you. Our next question comes from line of Kelly Bania with BMO Capital markets. Please receive with your questions.
Hi, good morning, Susan and Sharon. Thanks for uh taking our questions.
Um, wanted to go back to the sequential.
Speaker Change: Improvement in grocery units. It sounds like you were pleased with that. Um, just want to clarify, would you expect that to continue into Q2 and it's just a pharmacy Dynamic there in Q2. Um,
Just wanted to um understand really what underpins that confidence regarding the stronger. Second half IDs and and what's the measure of that? Is that more of a grocery unit uh dynamic
Sharon McCollum: So when we are referring to this sequential improvement, and what we expect for the balance of the year, what is important, and one of our top priorities is growing units in grocery. Now, as we look for the rest of the year, we said last quarter, and we continue to believe that each quarter this year, we will continue to sequentially improve grocery units. We're making the investment in the margin. We are focused on driving those units. And as we get toward the back half of the year, when you think about the margin, remember what Susan said, the productivity will start to provide a tailwind to the investment in order to drive the units, but we are committed to driving units through the balance of the year.
Speaker Change: Yeah, Kelly first and foremost in Susan's prepared remarks per statement about the sequential Improvement in units that is and we were clear. It is grocery. So when we are referring to this sequential Improvement and what we expect for the balance of the year, what is important and 1 of our top priorities is growing units in grocery.
When you now if we look for the rest of the year, we said last quarter, and we continue um, to believe that each quarter this year, we will continue to sequentially improve grocery units. We're making the investment in the margins. We are focused on driving those units. And as we get toward the back, half of the year, when you think about the margins, that remember what Susan said?
Sharon McCollum: Susan, do you want to add to that? No, Sharon, I think you said it well. The primary purpose of the investments that we're making, yes, in price, yes, in loyalty, yes, in home rent, is literally all about driving that unit growth and driving those improvements. So we do expect it to We will be funding it, again, over time. As we mentioned, the investment and the tail list don't exactly line up, which again, though, fits the algorithm that we've shared. But that's what gives us the confidence. Your question was what gives us confidence. That is why we are confident.
Speaker Change: Investment in order to drive the units. But we are committed to driving units through the balance of the Year. Susan. Do you want to add to that? No. Sure. I think, I think you said it will the the
Primary purpose of the Investments that that we're making yes in price. Yes. In loyalty. Um, yes. In own Brands is literally all about driving that unit growth. That's driving those improvements. So we do expect it to continue. Um, we will be funding it again over time. As we mentioned those those, the investment in the, uh, the Tailwind. Don't, exactly line up. Um, which again, though, fits the algorithm that we've shared.
Speaker Change: But that's what gives us the confidence. Your question was, what gives us confidence? That is why we are confident
Sharon McCollum: That's helpful.
Sharon McCollum: And is there anything that you've learned as you've had these discussions with vendors in terms of more of a national buying process that makes you think about the opportunity over time and in any different way and sizing that up in terms of the impact that could have on productivity? Yeah, so just what we're learning as we go through the process is, there's an incredible opportunity for us, right. And as you think, we own our own manufacturing plants. So we understand that the more information that we can get, and the further out that we're out on forecasting for our own plants creates incredible efficiency.
Speaker Change: That's that's helpful. And and is there anything that you've learned as you've had these discussions with um vendors in terms of more of a national uh buying process that makes you think about the opportunity, you know, over time and in any different way um, and and sizing that up, in terms of the impact that could have on productivity
Speaker Change: Yeah, so just what we're learning is we go through the process is, there's an incredible opportunity.
Sharon McCollum: It's no different for our vendor partners who shared with us that their ability to forecast demand, which, by the way, we're also developing, have developed, and then there's more in development, various AI tools to help us. create stronger and further out demand planning signals, but it's just a complete unlock in terms of efficiencies for everybody. It also enables us to plan further ahead and align our media collective dollars along with our digital dollars. And of course, the cost of goods reductions that we'll see so that we can create a comprehensive program in-store online to drive more traffic and drive more units by creating this, again, this total package for the customers that we serve.
Speaker Change: Right? And and as you think we own our own manufacturing plants. So we understand that the more um, information that we can get and the further out that we're out on forecasting for our own plants, creating credible efficiencies for production. It's no different for our vendor Partners who shared with us that their ability to forecast, demand. Which by the way, we're also developing, um, a have developed and then there's more in development, various AI tools to help us, um,
Sharon McCollum: Our vendors, I think, you know, we're a large company and there are times when it's very efficient and effective for us to act locally and be very agile, but our vendors clearly recognize that there is a significant change in our thought processes that we're committed to doing this. And I'm excited about what that brings. And in the conversations, the goals that we have about driving units are completely aligned with our venture. So we are aligned, when you're aligned on the same business objective, it's very helpful and very constructive in those contexts. Yes, and to your point, Sharon, we have joint business plan goals that we put in place with most of the major CPGs.
Create stronger and uh, further out demand planning signals but it's it's just a complete unlock. Um, in terms of efficiencies for everybody, it also enables us to plan further ahead and align, our media, Collective dollars along with our digital dollars and, of course, the, the cost of goods. Reductions that we'll see. So that we can create a comprehensive uh, program in store online, uh, to drive more traffic and drive more units by creating this. Again, this total package for the customers that we serve our vendors. I think, um, you know, we, we are a large company and there are times when it's very efficient and effective for us to act locally and be very agile. Um, but our vendors clearly recognize that there is a significant change in our thought processes that were committed to doing this. And um, I'm excited about what that brings for the future. And in the conversations, the
Speaker Change: Goals that we have about driving units are completely aligned with our vendors.
Sharon McCollum: So again, we're aligned on the same targets. We're leaning in together. And I really am excited about what will come in the second Thank you.
So, we are aligned, when you're aligned on the same business objective, it's very helpful and very constructive in those conversations. Yes. And to your point, sure, we have joint business plan goals that we put in place with most of the major cpgs. So, again, we're aligned on the same targets, um, we're leaning in together. And I, I really am excited about what will come in the second half of the year.
Michael Montani: Our next question comes from the line of Michael Montani with Evercore ISI. Please proceed. Yes, hi, good morning. Thanks for taking the question. I just wanted to ask one on guidance and then one on the trends for the consumer. So, on the guidance front, there was about a 40 or 50 bit increase in ID sales, but then obviously EPS did not change.
Thank you. Our next question comes from the line of Michael montani with evercore, isi, please proceed with your question.
Sharon McCollum: So, I just wanted to confirm, is that due to the nature of the ID sales being stronger in pharma, or was there incremental investments either in price or labor as you do the union contract negotiations that caused that? Yes, so I think I think it's a blend of some of the things that you just described. Yes, some of the growth in our pharmacy growth continues to be outsized. Right.
Speaker Change: Uh, yes. Hi, good morning. Thanks for taking the question. Uh, just wanted to ask, uh, 1 on guidance and then 1 on the, uh, trends for the consumer. So, on the guidance front, there was about a 40 or 50 bit increase in ID sales, uh, but then obviously EPS did not change. So, I just wanted to confirm, is that due to the nature of the ID sales, being stronger in Pharma or was there incremental Investments, either in price or labor. As you do, the Union contract negotiations that caused that
Sharon McCollum: And that's great, because we love that customer, we love that relationship, but there is an impact on profitability there. Sharon, is there anything that you would add from... I think that throughout the year, we expect us in the total comp guidance for 2025. Pharmacy is going to be the biggest driver of Cog4Sales growth for the year. We are continuing, you can know what that business is doing, Mike, and we continue to believe that we are going to continue to take share from pharmacy.
Speaker Change: Yes, so so I think, I think it's a blend of some of the things that you just described. Um yes some of the, the growth in our Pharmacy growth continues to be outside, right? And and that's great because we we love that customer, we love that relationship but there is an impact, um, on profitability there, um,
Speaker Change: Sharon, is there anything that you would add from?
Sharon McCullum: I think that throughout the year, we expect this in the total comp guidance for 2025
Sharon McCollum: on the grocery side. you will see that each quarter we expect to see gradual and incremental improvement in units. And that will through the year, bring the grocery comp as a slightly bigger percentage of the total.
Sharon McCullum: Pharmacy is going to be the biggest driver of Cox for sales growth for the year. They're continuing, you know what that business is doing Mike? And we continue to believe that we are going to continue to take. Share from Pharmacy.
on the
grocery side.
Michael Montani: But on the top line, you're going to see a bit the increase that we put in the guidance for 2025 that is far Okay, thanks for clarifying that. And then, just in terms of the consumer trends, as it relates to kind of better for you product, natural, organic, and otherwise, what percent of the mix is that for you today? You know, how is that trending? And I guess, is there any surprises that you're seeing with respect to GLP-1 absorption and then, you know, how that's impacting consumer buying behavior?
The total, but on the top line, you're going to see a bit the increase that we put in the guides.
Sharon McCullum: For 2025, that is Pharmacy.
Susan Morris: Thank you. Sure, so Mike, what we're seeing, and we call it NOSHI, Natural Organic Specialty Health and Ethnic Products, and those categories are growing for us, and it's interesting as you start to break it down, I think there's a few things at play. Certainly trends and better-for-you products are strong. Also interesting, though, the influence that we see from specialty items like premium sparkling water is one of our top growth categories. It's fascinating to watch. This one, oh, I had to double check the numbers, but cottage cheese is actually a strong growth category. Yes, some of that's from the focus on protein, lower carbs, perhaps GLP-1 users, and then, just being totally frank, TikTok is driving some of that.
Speaker Change: Okay, thanks for clarifying that and then just in terms of the consumer Trends um as it relates to kind of better for you product um natural organic and otherwise what percent of the mix is that for you today? You know, how is that trending? And I guess is there any surprises that you're seeing with respect to glp1 absorption? And then you know how that's impacting consumer buying Behavior.
Speaker Change: Sure so so Mike what we're seeing in we we have a we call it noi natural, organic specialty, health, and ethnic products and those categories are are growing for us and uh what it it and it's interesting as you start to break it down, I think there's a few things in play. Certainly trends for you. Uh sorry. Certainly Trends in better for you. Products are strong.
The the influence that we see from specialty items like premium sparkling water, is 1 of our top growth categories. It's it's fascinating to watch. Um this 1. Oh I had to double check the numbers but Cottage.
Speaker Change: Cheese.
Susan Morris: So we're leaning into those categories. They do lend themselves, those categories pair well with some of what we see for GLP-1 customers, but it goes well beyond just the GLP user. We're definitely seeing overall trends focusing on health and well-being, and that works perfectly for us as one of our five priorities is driving the customer value proposition and creating an environment, an ecosystem that brings customers into brick and mortar, into digital, into pharmacy and health.
Speaker Change: Is is actually a strong growth category. Yes, some of that's from the focus on protein uh, lower carbs, perhaps tp1 users and then just being totally Frank Tik Tok. Um, it is is, is driving some of that. Um, so, so, we're leaning into those categories, they do lend themselves. Um, those categories pair well, with some of what we see for glp1 customers, but I it it goes well beyond, just the DLP user. We're definitely seeing overall Trends focusing on health and well-being and that works perfectly for us as as, as 1 of our fine priorities, um, is, is, is driving, um, a the customer value proposition and creating a an environment, an ecosystem that that brings customers into brick and mortar into digital into Pharmacy and health.
Susan Morris: Thank you.
Speaker Change: Got it. Thank you.
Speaker Change: Thank you.
Robbie Ohmes: Our final question this morning comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Thank you. Our final question. This morning comes from the line of Robbie ohms, with Bank of America. Please proceed with your question.
Kendall Toscano: Hi, this is Kendall Toscano on for Robbie. Thanks for seeking my question. I just have a follow-up in terms of the percent of your customers that are cross-shopping grocery and pharmacy today versus how much higher you think that number could go over time. And basically just trying to get a sense of after four years of pharmacy growth in the double-digit range, which has obviously been a huge sales driver but a headwind to profitability, are we nearing a point where pharmacy could eventually start to normalize, or the growth rate could start to normalize? Thanks.
Speaker Change: Hi. This is Kendall Tuscana on for Robbie, thanks for taking my question.
Speaker Change: Um just have a follow-up in terms of the percent of your customers that are cross shop and Grocery and Pharmacy today versus how much higher you think that number could go over time and basically, just trying to get a sense of after 4 years of Pharmacy, growth in the double digit range um which is obviously been a huge sales driver. But a headwind to profitability, are we nearing a point uh, where Pharmacy could eventually?
Start to normalize or the growth rate could start to normalize.
Speaker Change: Thanks.
Susan Morris: Hi, Kendall. So what we're seeing is, you know, yes, of course, the cross shopping between pharmacy and grocery is pivotal for us. We do have very strong pharmacy growth. And I mentioned a lot of that is core pharmacy business. Just a side note there as well, in that core pharmacy business, we continue to strive for profitability, stronger profitability, increasing our generics mix, improving offerings, such as test and treat, immunizations, those kinds of things. And again, creating that linkage between store and pharmacy is critical. From the pharmacy business, here's what I see. There's been a serious, I mean, you guys see the information out there, there's been a serious decline in the availability of doors for customers to go to take care of their pharmacy needs.
Speaker Change: Hi Kendall. So so what we're seeing is, you know, yes, of course, the Cross Shopping, um, between Pharmacy. And and grocery is is pivotal for us. Um, we do have very strong Pharmacy growth and I mentioned a lot of that is core Pharmacy business. Just a side note there as well in that core Pharmacy business. Um, we continue to strive for profitability, um, stronger profitability. Increasing our generic mix improving offering, um, such as test and treat immunization those kinds of things, um, and then and again, creating that linkage between store and Pharmacy is critical.
Speaker Change: um,
Susan Morris: We think that's critical. And I believe that we're well-positioned with the steps that we've made, both from an acquisition perspective, meaning acquiring scripts from outside, hiring the amazing pharmacists and techs that are out there looking for work. We need more and more of that support. So we're leveraging that and becoming, I think we're becoming, that helps become an essential choice for customers. I can get my groceries there, I can meet my pharmacy needs in an environment where the doors are shrinking, right? We have less and less opportunity in certain markets, less choices for customers, and we're happy to be there for them.
from a, i the pharmacy business. I, here's what I see, uh, there's been a serious. I mean, you guys see the information out there. There's been a, a, a series decline in the availability of of doors for customers to go to take care of their Pharmacy needs. We think that's critical and I believe that we're well positioned with this, the steps that we've made both from an acquisition perspective, meaning acquiring scripts from outside hiring, um, um, the amazing pharmacist and texts that are out there and they're looking for work, we we need more and more of that support. So, so we're leveraging that and becoming, um, you know, I think we're becoming that helps becoming an essential choice for customers. I can get my groceries there, I can meet my Pharmacy needs in an environment where the doors are shrinking. Right? We have less and less opportunity.
Susan Morris: So I actually see it as a competitive advantage for us moving ahead with the investments that we've made in pharmacy. And so again, just, I can't repeat also enough the fact that we are striving to improve the profitability there. Again, recognizing that that customer's total value when we engage them in both center store as well as pharmacy is tremendous for us. We love those customers, we want to.
Sharon McCollum: And Susan, I would only add also, we have invested significantly in the customer experience in pharmacy, integrating it into the total company app, and being able to serve that customer, including, we talked last quarter, now being able to pick up your prescription at the same time that you're picking up your drive up and go order. And as we continue to create the linkage and the ease of shopping between the pharmacy customer and the grocery customer, we believe that that does provide incremental opportunity for us as we move forward through the year and into next year.
Speaker Change: In certain markets, um, less choices for customers or we're, we're happy to be there for them. So I I actually see it as a, a moat and a competitive Advantage for us, moving ahead with the Investments that we've made in Pharmacy. And, uh, so again, uh, just I can't repeat. Also the enough, the fact that we are striving to improve the profitability there. Um, again, recognizing that, that customers total value when we engage them in both Center store, as well as Pharmacy is tremendous for us. We, we love those customers, we want to serve them.
Speaker Change: and Susan, I would only add also
Speaker Change: We have invested.
Susan Morris: So, these investments we're making on the digital side and linking them together with everything we're doing in pharmacy and health, and then the mobile app for use in the stores, we think that that is also going to make a significant difference with these cross-shopping customers. Thank you.
Speaker Change: Total company app and being able to serve that customer including we talked last quarter. Um, now being able to pick up your prescription at the same time that you're picking up your drive up and go order. And as we continue to create the linkage and the ease of shopping between the pharmacy customer and the grocery customer, we believe that that does provide incremental opportunity for us as we move forward, um, through the year and into next year. So these Investments we're making on the digital side and linking them together with everything we're doing in Pharmacy and health and then the mobile app for use in the stores. We think that that is also going to make a significant difference with these Cross Shopping customers.
Speaker Change: Thank you.
Susan Morris: Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Morris for any final Just thank you everybody for the time today. We're excited about the year to come and thank you to our associates that make all of this happen. Thank you.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session. I'll turn the floor back to Miss Morris for any final comments.
Susan Morris: Just, thank you everybody for the time. Today, we're excited about the year to come and uh, thank you to our Associates that make all of this happen.
Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Susan Morris: Thank you, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.