Q2 2025 Albertsons Companies Inc Earnings Call

Speaker #1: Welcome to the Albertsons Companies, Inc. Second Quarter 2025 Earnings Conference Call. Thank you for standing by. All participants will be in listen-only mode until the Q&A session.

Operator: Welcome to the Albertsons Companies Inc. second quarter 2025 earnings conference call, and thank you for standing by. All participants will be in listen-only mode until the Q&A session. This call is being recorded. I would now like to hand the call over to Cody Perdue, Senior Vice President, Treasury, Investor Relations, and Risk Management. Please go ahead.

Speaker #1: This call is being recorded. I would now like to hand the call over to Cody Perdue, Senior Vice President of Treasury, Investor Relations, and Risk Management.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and thank you for joining us for the Albertsons Companies second quarter, 2025 earnings conference call. With me today are Susan Morris, our CEO, and Sharon McCollam, our President and CFO.

Cody Perdue: Good morning, and thank you for joining us for the Albertsons Companies Inc. second quarter 2025 earnings conference call. With me today are Susan Morris, our CEO, and Sharon McCollam, our President and CFO. Today, Susan will provide an overview of our business and the opportunities ahead before recapping the second quarter of 2025 and updating you on our progress against our strategic priorities. Sharon will provide the details related to our second quarter 2025 financial results and our outlook for the remainder of fiscal 2025 before handing it back to Susan for closing remarks. After management comments, we will conduct a Q&A session. 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.

Speaker #2: Today, Susan will provide an overview of our business and the opportunities ahead before recapping the second quarter of 2025 and updating you on our progress against our strategic priorities.

Speaker #2: Then, Sharon will provide the details related to our second quarter 2025 financial results and our outlook for the remainder of fiscal 2025 before handing it back to Susan for closing remarks.

Speaker #2: After management comments, we will conduct a Q&A session. I would like to remind you that management may make forward-looking statements within the meeting under the Federal Securities Laws.

Speaker #2: 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.

Cody Perdue: These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. 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. 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. With that, I will hand the call over to Susan.

Speaker #2: 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 #2: 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.

Speaker #2: And with that, I will hand the call over to Susan.

Speaker #3: Thanks, Cody. Good morning, everyone, and thanks for joining us today. Before we dive into our quarterly update on our strategic priorities, I want to take a moment to zoom out.

Susan Morris: Thanks, Cody. Good morning, everyone, and thanks for joining us today. Before we dive into our quarterly update on our strategic priorities, I want to take a moment to zoom out to reflect on who we are as a company, the foundation we've built, and the growth opportunities ahead. Albertsons Companies Inc. is operating from a position of strength, with compelling opportunities to drive customer and shareholder value, opportunities that are within reach and accelerating. Internally, our rally cry is a new day at Albertsons. It isn't a new day because the market or the competitive landscape has changed. It isn't a new day because our customer has changed. It is a new day because our mission is clear. A new day is not a slogan. It's a mindset.

Speaker #3: To reflect on who we are as a company, the foundation we've built, and the growth opportunities ahead. Albertsons is operating from a position of strength, with compelling opportunities to drive customer and shareholder value.

Speaker #3: Opportunities that are within reach and accelerating. Internally, our rallying cry is, 'A new day at Albertsons.' It isn't a new day because the market or the competitive landscape has changed.

Speaker #3: It isn't a new day because our customers have changed. It is a new day because our mission is clear. A new day is not a slogan.

Speaker #3: It's a mindset. It means that it's a new day to make bold decisions and to invest with purpose—driving long-term, sustainable growth across our boundaries.

Susan Morris: It means that it's a new day to make bold decisions and to invest with purpose, driving long-term sustainable growth across our banners. A new day to ignite the passion of our 280,000 associates and amplify customer centricity. A new day to leverage our strength, sharpen our competitive edge, and double down on the competitive moats that sustain our business. With this mindset as our foundation, I've spent the last five months as CEO conducting deep dives across every facet of our business. My goal is to identify how we can accelerate growth, add transformational leaders, leverage tech and AI to drive efficiency and speed to market, unlock areas of underperformance, and make smarter decisions about what we will build and own versus where we can partner to improve speed or optimize our capital allocation strategy. Through this work, several major themes have emerged. First, our banners.

Speaker #3: A new day to ignite the passion of our 280,000 associates and amplify customer centricity. A new day to leverage our strengths, sharpen our competitive edge, and double down on the competitive moats that sustain our business.

Speaker #3: With this mindset as our foundation, I've spent the last five months as CEO conducting deep dives across every facet of our business. My goal?

Speaker #3: To identify how we can accelerate growth, add transformational leaders, leverage tech and AI to drive efficiency and speed to market, unlock areas of underperformance, and make smarter decisions about what we will build and own versus where we can partner to improve speed or optimize our capital allocation strategy.

Speaker #3: And through this work, several major themes have emerged. First, our banners. These are not just names on storefronts; they're trusted brands deeply woven into the fabric of the communities that we serve.

Susan Morris: These are not just names on storefronts. They're trusted brands deeply woven into the fabric of the communities that we serve. For decades, they've stood for convenience, quality, care, and connection, and they continue to earn that trust every day. We have an incredible opportunity to leverage our national scale to even further embed ourselves in these communities as we capitalize on being locally great and nationally strong. Inside our stores, the core of our experience, we lead with fresh and deliver industry-leading service from our onsite butchers, where we deliver custom cuts to our customers in over 2,200 stores, to vaccinations, where we deliver more per store than any other pharmacy, to flash delivery, where if you change your mind and decide you want tacos for dinner tonight, we can have the ingredients to you within 30 minutes or less.

Speaker #3: For decades, they've stood for convenience, quality, care, and connection. And they continue to earn that trust every day. We have an incredible opportunity to leverage our national scale to further embed ourselves in these communities as we capitalize on being locally great and nationally strong.

Speaker #3: Inside our stores, the core of our experience: we lead with fresh and deliver industry-leading service from our on-site butchers, where we provide custom cuts to our customers in over 2,200 stores.

Speaker #3: To vaccinations, where we deliver more per store than any other pharmacy. To flash delivery, where, if you change your mind and decide you want tacos for dinner tonight, we can have the ingredients to you within 30 minutes or less.

Speaker #3: We are dedicated to delivering curated, personalized experiences each time a customer walks through our doors or engages with us digitally. In e-commerce, we've achieved a compounded annual growth rate (CAGR) of 24% over the last three fiscal years.

Susan Morris: We are about delivering curated, personalized experiences each time a customer walks through our doors or engages with us digitally. In e-commerce, we've grown at a compounded annual growth rate of 24% over the last three fiscal years. Our digital experience offers a fully integrated and increasingly personalized journey. We're not only selling food, we're simplifying meal planning, making shopping easier and more convenient. We are serving our customers how, when, and where they want to be served. Our stores are community hubs within minutes of the vast majority of our customers' homes, offering an on-demand and fresh assortment, trusted service, and local relevance that online-only competitors simply cannot replicate. Our in-store fulfillment model delivers fresher products faster, with greater flexibility across pickup, delivery, and in-store experiences.

Speaker #3: Our digital experience offers a fully integrated and increasingly personalized journey, where we're not only selling food, but also simplifying meal planning and making shopping easier and more convenient.

Speaker #3: We are serving our customers how, when, and where they want to be served. Our stores are community hubs, within minutes of the vast majority of our customers' homes, offering an on-demand and fresh assortment.

Speaker #3: Trusted service and local relevance that online-only competitors simply cannot replicate. Our in-store fulfillment model delivers fresher products, faster, with greater flexibility across pickup, delivery, and in-store experiences.

Speaker #3: We are a strong portfolio of brands, and we've invested in a unified national network powered by common systems, enabling us to harness our cloud-based centralized data, drive operational efficiencies at scale, and elevate the customer experience while remaining highly relevant to the preferences of customers in our local communities.

Susan Morris: We are a strong portfolio of brands, and we've invested in a unified national network powered by common systems, enabling us to harness our cloud-based centralized data, drive operational efficiencies at scale, and elevate the customer experience while remaining highly relevant to the preferences of customers in our local communities. I'm extremely excited by the early success we're seeing in leveraging these systems and utilizing our data with today's most advanced algorithms and tools. This foundation is also anchored by a $14.3 billion portfolio of owned real estate located in the most valuable and sought-after retail corridors in our markets. These irreplaceable assets, just appraised in July 2025, are not only among the most valuable in retail, but also operationally essential, supporting seamless customer access, optimized logistics, and fueling long-term growth by placing us exactly where our customers live, shop, and engage.

Speaker #3: I'm extremely excited by the early success we're seeing in leveraging these systems and utilizing our data with today's most advanced algorithms and tools. This foundation is also anchored by a $14.3 billion portfolio of owned real estate.

Speaker #3: Located in the most valuable and sought-after retail corridors in our markets, these irreplaceable assets, just appraised in July of 2025, are not only among the most valuable in retail but also operationally essential.

Speaker #3: Supporting seamless customer access, optimized logistics, and fueling long-term growth by placing us exactly where our customers live, shop, and engage. In addition to our core real estate portfolio, through the deep dives I've undertaken, we are actively evaluating our broader asset base, operating model, and market footprint to ensure that we are running as efficiently and as effectively as possible.

Susan Morris: In addition to our core real estate portfolio, through the deep dives I've undertaken, we are actively evaluating our broader asset base, operating model, and market footprint to ensure that we are running as efficiently and as effectively as possible. This includes making thoughtful, incremental decisions around where and how we want to grow, while at the same time evaluating underperforming stores and non-core assets to better align with our long-term priorities. Year to date, we've announced the closure of 29 stores and expect to open nine new stores by year-end. All of this creates a transformational foundation for long-term value creation. While this will not happen overnight, the opportunity in front of us gives us the confidence to take decisive action today to execute a $750 million accelerated share repurchase, representing an incremental 8% of our outstanding shares at current prices.

Speaker #3: This includes making thoughtful incremental decisions around where and how we want to grow, while at the same time evaluating underperforming stores and non-core assets to better align with our long-term priorities.

Speaker #3: Year-to-date, we've announced the closure of 29 stores and expect to open 9 new stores by year-end. All of this creates a transformational foundation for long-term value creation.

Speaker #3: And while this will not happen overnight, the opportunity in front of us gives us the confidence to take decisive action today: to execute a $750 million accelerated share repurchase.

Speaker #3: Representing an incremental 8% of our outstanding shares at current prices, this reflects our conviction that our share price is very much underappreciated and does not fully reflect the strength of our foundation or the opportunities within our strategy to drive long-term shareholder value.

Susan Morris: This reflects our conviction that our share price is very much underappreciated and does not fully reflect the strength of our foundation or the opportunities within our strategy to drive long-term shareholder value. That is what a new day looks like. It is a day of confidence, a day of action, a day of growth. Now turning to our second quarter, our teams delivered solid results with adjusted ID sales growth of 2.2%, adjusted EBITDA of $848 million, and earnings per share of $0.44. These results are in line with our expectations and reflect steady execution against our five strategic priorities: driving growth and engagement through digital connection, growing our media collective, enhancing the customer value proposition, modernizing capabilities through technology, and driving transformational productivity. Together, these priorities are driving our current performance and positioning us to enter our long-term growth algorithm for fiscal 2026.

Speaker #3: That is what a new day looks like. It is a day of confidence, a day of action, a day of growth. Now, turning to our second quarter, our teams delivered solid results, with adjusted ID sales growth of 2.2%, adjusted EBITDA of $848 million, and earnings per share of $0.44.

Speaker #3: These results are in line with our expectations and reflect steady execution against our five strategic priorities: driving growth and engagement through digital connection, growing our media collective, enhancing the customer value proposition, modernizing capabilities through technology, and driving transformational productivity.

Speaker #3: Together, these priorities are driving our current performance and positioning us to enter our long-term growth algorithm for fiscal '26. Our four digital platforms continue to be key engines for customer acquisition, retention, and engagement.

Susan Morris: Our four digital platforms continue to be key engines for customer acquisition, retention, and engagement, driving measurable increases in sales and frequency amongst our most loyal shoppers. These platforms not only deepen relationships but also generate rich, actionable data that fuels the media collective's targeting capabilities and monetization strategies. This integrated ecosystem is accelerating our ability to innovate, optimize marketing spend, customer reach, and unlock new revenue streams. E-commerce remains a key growth driver, with 23% year-over-year growth this quarter and in line with our three-year CAGR. E-commerce growth isn't flattening at Albertsons Companies Inc. Grocery penetration is now well above 9%. Our first-party business, led by Drive Up and Go, continues to scale rapidly and represents the majority of e-commerce transactions and sales.

Speaker #3: Driving measurable increases in sales and frequency among our most loyal shoppers. These platforms not only deepen relationships but also generate rich, actionable data that fuels the media collective's targeting capabilities and monetization strategies.

Speaker #3: This integrated ecosystem is accelerating our ability to innovate, optimize marketing spend, customer reach, and unlock new revenue streams. E-commerce remains a key growth driver, with 23% year-over-year growth this quarter, in line with our three-year CAGR.

Speaker #3: E-commerce growth isn't flattening at ACI. Grocery penetration is now well above 9%. Our first-party business, led by driveupandgo, continues to scale rapidly and represents the majority of e-commerce transactions and sales.

Speaker #3: By leveraging our store-based fulfillment model, we operate from a network that places us closest to the customers we serve, giving us a structural advantage in last-mile fulfillment.

Susan Morris: By leveraging our store-based fulfillment model, we operate from a network that places us closest to the customers we serve, giving us a structural advantage in the last-mile fulfillment. This proximity, combined with our rich asset base, allows us to deliver a differentiated customer experience built on speed, service, convenience, quality, and assortment. At the same time, our digital investments, including AI-powered features, are driving engagement, customer acquisition, and retention. Loyalty continues to be a powerful driver of digital engagement and value creation, with membership growing 13% to more than 48 million in the second quarter. Program enhancements and simplification are fueling deeper engagement. Members are transacting more frequently, redeeming rewards more easily, spending more. Notably, nearly 40% of engaged households now choose the cash-off option, underscoring the appeal of immediate value.

Speaker #3: This proximity, combined with our rich asset base, allows us to deliver a differentiated customer experience built on speed, service, convenience, quality, and assortment. At the same time, our digital investments, including AI-powered features, are driving engagement, customer acquisition, and retention.

Speaker #3: Loyalty continues to be a powerful driver of digital engagement and value creation, with membership growing 13% to more than $48 million in the second quarter.

Speaker #3: Program enhancements and simplification are fueling deeper engagement. Members are transacting more frequently, redeeming rewards more easily, and spending more. Notably, nearly 40% of engaged households now choose the cash-off option, underscoring the appeal of immediate value.

Speaker #3: Loyalty also serves as a rich data source for emergence and media collectives, enabling targeted marketing and monetization. Most recently, we extended the value of our loyalty platform beyond groceries with the launch of For You Travel.

Susan Morris: Loyalty also serves as a rich data source for our merchants and media collective, enabling targeted marketing and monetization. Most recently, we extended the value of our loyalty platform beyond grocery with the launch of 4U Travel, a new partnership powered by Expedia that allows members to earn up to 10% cashback on travel bookings redeemable towards grocery purchases, further strengthening engagement and broadening the appeal of our platform. Pharmacy grew 19% year over year, fueled by continued strength in GLP-1, strong core prescription volume increases, and share gains from competitor store closures, all supported by our top-tier customer satisfaction. As we've consistently said, customers who engage across both grocery and pharmacy channels demonstrate materially higher value with increased visit frequency and broader spending across the store.

Speaker #3: A new partnership, powered by Expedia, allows members to earn up to 10% cash back on travel bookings, redeemable toward grocery purchases. This further strengthens engagement and broadens the appeal of our platform.

Speaker #3: Pharmacy grew 19% year-over-year, fueled by continued strength in GLP-1, strong core prescription volume increases, and share gains from competitor store closures, all supported by our top-tier customer satisfaction.

Speaker #3: As we've consistently said, customers who engage across both grocery and pharmacy channels demonstrate materially higher value, with increased visit frequency and broader spending across the store.

Speaker #3: To capture this opportunity, we're investing in personalized omnichannel pharmacy and health solutions that are driving new customer acquisition and converting single-channel shoppers into high-value cross-shoppers.

Susan Morris: To capture this opportunity, we're investing in personalized omnichannel pharmacy and health solutions that are driving new customer acquisition and converting single-channel shoppers into high-value cross-shoppers. As a key pillar of our customers for life strategy, scaling these pharmacy and health solutions profitably through higher margin services, central fill expansion, and innovative procurement and operational efficiencies is a top priority. In the integrated mobile app experience, we introduced the app as a Swiss Army knife of tools that simplified planning, shopping, saving, and more, whether customers shop in-store or online. Since then, we've enhanced it with advanced personalization and AI. Our newest feature, Ask AI, delivers a conversational search experience that helps customers build smarter baskets faster. It enables natural cross-category discovery and personalized recommendations. Customers no longer need to know exactly what they're looking for in our aisles or online.

Speaker #3: As a key pillar of our Customers-for-Life strategy, scaling these pharmacy and health solutions profitably to a higher margin, services central-fill expansion, and innovative procurement, as well as operational efficiencies, is a top priority.

Speaker #3: In the integrated mobile app experience, we introduced the app as a Swiss Army knife of tools that simplified planning, shopping, saving, and more—whether customers shop in-store or online.

Speaker #3: Since then, we've enhanced it with advanced personalization and AI. Our newest feature, AskAI, delivers a conversational search experience that helps customers build smarter baskets, faster.

Speaker #3: It enables natural, cross-category discovery and personalized recommendations. Customers no longer need to know exactly what they're looking for in our aisles or online. They can simply ask, 'What are healthy snacks for kids?' or say, 'My holiday party is tomorrow, and I'm not prepared.' AskAI will offer tailored ideas and guide them to relevant products.

Susan Morris: They can simply ask, "What are healthy snacks for kids?" or say, "My holiday party is tomorrow and I'm not prepared." Ask AI will offer tailored ideas and guide them to relevant products. Our media collective delivered strong momentum in the second quarter, significantly improving the year-over-year return on ad spend for our partners. This was driven by enhanced data quality, more precise targeting, and faster campaign measurement. Onsite digital ad inventory has grown meaningfully year to date, while improved speed to market has enabled advertisers to launch and optimize campaigns with much greater agility. Offsite, our media offerings are gaining traction. By leveraging real-time transaction data and integrating item-level sales reporting with platforms like Google, Meta, and Pinterest, we're delivering greater transparency and measurable performance across the customer journey.

Speaker #3: Our media collective delivered strong momentum in the second quarter, significantly improving the year-over-year return on ad spend for our partners. This was driven by enhanced data quality, more precise targeting, and faster campaign measurement.

Speaker #3: On-site digital ad inventory has grown meaningfully year-to-date. While improved speed to market has enabled advertisers to launch and optimize campaigns with much greater agility.

Speaker #3: Off-site, our media offerings are gaining traction. By leveraging real-time transaction data and integrating item-level sales reporting with platforms like Google, Meta, and Pinterest, we're delivering greater transparency and measurable performance across the customer journey.

Speaker #3: We've also advanced our full-funnel strategy through shoppable recipes, app integrations, connected TV, and new in-store digital signage, creating a seamless experience for customers and measurable value for our partners.

Susan Morris: We've also advanced our full funnel strategy through shoppable recipes, app integrations, connected TV, and new in-store digital signage, creating a seamless experience for customers and measurable value for our partners. Looking ahead, we remain focused on building innovative, customer-centric media solutions that drive growth for our partners and value for our business. In our customer value proposition, we continue to invest through a balanced approach of enhanced loyalty, incremental and personalized promotions, competitive pricing actions, and vendor funding. This includes surgical price investments in select categories and markets, along with dynamic management of cost inflation to help stretch customers' wallets. During the quarter, we made incremental shelf price investments in specific divisions, and while early in the journey, we're already seeing an inflection in unit sales growth.

Speaker #3: Looking ahead, we remain focused on building innovative, customer-centric media solutions that drive growth for our partners and value for our business. In our customer value proposition, we continue to invest through a balanced approach of enhanced loyalty, incremental and personalized promotions, competitive pricing actions, and vendor funding. This includes surgical price investments in select categories and markets, along with dynamic management of cost inflation to help stretch customers' wallets.

Speaker #3: During the quarter, we made incremental shelf price investments in specific divisions. While early in the journey, we're already seeing an inflection in unit sales growth.

Speaker #3: We continue to strengthen our own brand's portfolio this quarter, introducing new offerings across multiple categories that deliver exceptional value to our customers. These enhancements are driving customer engagement and loyalty, while also contributing to margin accretion through improved mix and merchandising.

Susan Morris: We continue to strengthen our own brand's portfolio this quarter, introducing new offerings across multiple categories that deliver exceptional value to our customers. These enhancements are driving customer engagement and loyalty, while also contributing to margin accretion through improved mix and merchandising. As we elevate the visibility and appeal of our own brands, we believe we can drive outsized growth in this critical area of our business, reinforcing our competitive advantage and long-term profitability as we drive penetration from 25% to 30% over time. Technology remains central to our long-term growth strategy. As we shared last quarter, our technology-first approach is enabling us to innovate faster, operate more efficiently, and deliver greater value at a lower cost. We're energized by the progress we're making as we embed technology across every part of our business.

Speaker #3: As we elevate the visibility and appeal of our own brands, we believe we can drive outsized growth in this critical area of our business, reinforcing our competitive advantage and long-term profitability as we drive penetration from 25% to 30% over time.

Speaker #3: Technology remains central to our long-term growth strategy. As we shared last quarter, our technology-first approach is enabling us to innovate faster, operate more efficiently, and deliver greater value at a lower cost.

Speaker #3: We're energized by the progress we're making as we embed technology across every part of our business. Our modern, cloud-native platform continues to power key operations across e-commerce, stores, pharmacy, supply chain, merchandising, and retail media.

Susan Morris: Our modern cloud-native platform continues to power key operations across e-commerce, stores, pharmacy, supply chain, merchandising, and retail media. It also positions us to rapidly scale emerging technologies like AI. We are actively deploying AI agents to enhance core business functions, including cogeneration, price and promotion, personalization, and customer care and experience like Ask AI, unlocking new levels of speed, precision, and productivity. Looking ahead, we see technology innovation as a key enabler of both margin expansion and customer experience differentiation, and we remain very focused on building capabilities that drive long-term sustainable value creation. Driving transformational productivity is not just a priority, it's an imperative. As we navigate a dynamic operating environment, it's critical that we unlock sustainable efficiencies to reinvest in our strategic growth initiatives, offset inflationary headwinds, including annual union labor cost increases.

Speaker #3: It also positions us to rapidly scale emerging technologies like AI. We are actively deploying AI agents to enhance core business functions, including code generation, pricing and promotion, personalization, and customer care and experience, like AskAI, unlocking new levels of speed, precision, and productivity.

Speaker #3: Looking ahead, we see technology innovation as a key enabler of both margin expansion and customer experience differentiation. We remain very focused on building capabilities that drive long-term sustainable value creation.

Susan Morris: As previously shared, from fiscal 2025 through fiscal year 2027, we expect our productivity engine to deliver $1.5 billion in savings and are on track to achieve the 2025 savings. Our productivity savings are tightly integrated with our technology modernization strategy, which includes AI and data analytics to enhance decision-making and operational agility, automation across the supply chain to optimize costs, improve speed, and support business continuity, shrink in labor management tools, including Vision AI and electronic shelf labels to drive store-level efficiency and accountability. We're also making meaningful progress in reducing existing overhead and expanding our global capabilities with continued investment in our India Technology and Innovation Center and scaled back office operations in Manila. These hubs are accelerating our ability to deliver productivity at scale while also enhancing operational support capabilities. One of our most significant opportunities continues to be leveraging our consolidated scale to improve purchasing efficiency.

Susan Morris: Through national buying strategies and more streamlined supplier relationships, we are driving better cost outcomes and consistency across our network. At the same time, we are completely transforming our merchandising organization end to end, structurally building a house of merchants empowered by AI. We're also reimagining our assortment strategy and upgrading our tools and processes to drive more effective execution and stronger results, including a partnership with OpenAI to use agentic AI to power merchandising intelligence. This transformation is designed to unlock the full potential of our talent and scale, enhance customer relevance, and deliver improved financial performance. Sharon, over to you.

Sharon McCollam: Thank you, Susan, and good morning, everyone. It's great to be here with you today. As Susan shared, it is a new day at Albertsons Companies Inc. Under her leadership, a right-to-win energy is mounting across the company, and the pace of change at both the division and national levels is accelerating. We are also seeing our investments in digital loyalty, e-commerce, pharmacy, and retail media taking hold and adding to our competitive war chest. With this said, these opportunities in front of us have remained underappreciated in our equity story, and there is clear dislocation between our stock price and the underlying value of our business. Before I dive into our Q2 financials, I want to talk about capital allocation.

With this said, these opportunities in front of us have remained underappreciated in our equity story, and there is a clear dislocation between our stock price and the underlying value of our business.

So, before I dive into our Q2 financials, I want to talk about capital allocation.

Sharon McCollam: With the strength of our balance sheet and our belief that our stock is undervalued, we announced two capital allocation actions this morning to quickly return value to our shareholders. First, we increased our existing share repurchase authorization from $2 billion to $2.75 billion. Under this new authorization, today we announced and executed a $750 million accelerated share repurchase on top of an already repurchased $600 million in shares since the beginning of the fiscal year. Combined, assuming today's share price for the ASR, these repurchases represent over 12% of our beginning-of-the-year outstanding shares, with a remaining authorization for future repurchases of $1.3 billion. This $750 million accelerated share repurchase is immediately accretive, and including it, our net debt to adjusted EBITDA ratio will be 2.2 times versus 2 times at the end of the second quarter, still well within a range that gives us significant operational flexibility.

With the strength of our balance sheet and our belief that our stock is undervalued, we announced two capital allocation actions this morning to quickly return value to our shareholders. First, we increased our existing share repurchase authorization from $2 billion to $2.75 billion.

Under this new authorization, today we announced and executed a $750 million accelerated share purchase, on top of an already repurchased $600 million in shares since the beginning of the fiscal year.

Combined, assuming today's share price for the ASR, these repurchases represent over 12% of our beginning of the year outstanding shares, with a remaining authorization for future repurchases of $1.3 billion.

This $750 million accelerated Cherry purchase is immediately accretive and including it.

We will be 2.2 times versus 2 times at the end of the second quarter, still well within a range that gives us significant operational flexibility.

Sharon McCollam: Turning now to our second quarter results, I'll start with identical sales. Adjusted identical sales grew 2.2% this quarter, adjusted for a 12 basis point negative impact related to the three-week Colorado labor dispute in 47 stores. This 2.2% increase was driven by strong growth in pharmacy and a 23% increase in digital sales. Pharmacy, in particular, outperformed even our own expectations, driven by ongoing growth in GLP-1 prescriptions and share gains from the standalone pharmacy channel. We also saw encouraging growth in areas where we made surgical investments like fresh. As Susan mentioned earlier, where we invested, we saw improving unit trends. Gross margin in the second quarter was 27%. Excluding fuel and LIFO, gross margin decreased 63 basis points versus last year. Importantly, it improved sequentially from Q1 on a year-over-year basis. The ongoing makeshift toward digital and pharmacy drove the significant majority of this decline.

Turning now to our second-quarter results, I'll start with identical sales.

Adjusted identical sales increased by 2.2% this quarter, adjusted for a 12 basis point negative impact related to the 3-week labor dispute in 47 Colorado stores. This 2.2% increase was driven by strong growth in Pharmacy and a 23% increase in digital sales.

Pharmacy, in particular, outperformed even our own expectations, driven by ongoing growth in GLP wants and share gains from the Standalone Pharmacy Channel.

We also saw encouraging growth in areas where we made surgical investments, like Fresh.

As Susan mentioned earlier, where we invested, we saw improving unit trends.

Gross margin in the second quarter was 27%. Excluding fuel, the lipo gross margin decreased 63 basis points versus last year. However, it improved sequentially from Q1 on a year-over-year basis.

Sharon McCollam: Incremental investments in our customer value proposition, however, were substantially offset by gains from our productivity initiatives. Also driven by productivity, we saw a 50 basis point improvement in our selling and administrative expense rate compared to last year, excluding fuel. That is on the same trend as last quarter and reflects the benefits of leveraging employee costs and lower merger-related expenses. We expect continued discipline in the selling and administrative expense rate in the back half of 2025 and beyond. Interest expense picked up slightly in Q2, $105 million this quarter versus $103 million last year. The increase was mainly due to costs associated with the refinancing and maturity extension to 2030 of our $4 billion asset-based credit facility, which was completed during the second quarter.

The ongoing shift toward digital and pharmacy drove the significant majority of this decline.

Incremental investments in our customer value proposition, however, were substantially offset by gains from our productivity initiatives.

Also, driven by productivity, we saw a 50-basis-point improvement in our selling and administrative expense rate compared to last year, excluding fuel.

That's on the same trend as last quarter and reflects the benefits of leveraging employee costs and lower merger-related expenses.

We expect continued discipline in the selling and administrative expense rate in the back half of 2025 and Beyond.

Interest expense picked up slightly in Q2, with $105 million this quarter versus $103 million last year.

The increase was mainly due to costs associated with the refinancing and maturity extension to 2030 of our $4 billion asset-based credit facility, which was completed during the second quarter.

Sharon McCollam: Finally, adjusted EBITDA in Q2 was $848 million, and adjusted EPS was $0.44 per diluted share, in line with our expectations and reflective of the strategic investments we're making for long-term growth. I'd now like to give you a quick update on our year-to-date labor negotiations. In fiscal 2025, we had 120,000 associates up for renewal. To date, we've successfully reached agreements covering more than 107,000 of those associates. Now let's walk through our updated 2025 financial outlook. As Susan said, we remain focused on our five strategic priorities. Through the balance of fiscal 2025, we will continue to invest in our customer value proposition, customer experience, digital growth, the media collective, and health and pharmacy. These investments are expected to enhance our customer value proposition and drive outside growth in digital and pharmacy, both of which drive higher future customer lifetime value.

Finally, adjusted EBITDA for Q2 was $848 million, and adjusted EPS was $0.44 per diluted share, in line with our expectations and reflective of the strategic investments we’re making for long-term growth.

I'd now like to give you a quick update on our year-to-date labor negotiations.

Fiscal 25, we have 120,000 associates up for renewal today. We've successfully reached agreements covering more than 107,000 of those associates.

Now, let's walk through our updated 2025 financial outlook.

At Susan said, we remain focused on our five strategic priorities.

In the balance of fiscal 2025, we will continue to invest in our customer value proposition, customer experience, digital growth, the Media Collective, and health and pharmacy.

These investments are expected to enhance our customer value proposition and drive outside road in digital and pharmacy, both of which...

Sharon McCollam: We will also continue to focus on our productivity agenda to fuel this growth and offset inflationary headwinds. With that as our backdrop, we are updating our fiscal 2025 outlook as follows. We are increasing the lower end of our identical sales range and now expect it to be in the range of 2.2% to 2.75%. This assumes ongoing outsized growth in pharmacy and digital, as well as continued surgical price investments in grocery to accelerate unit inflection. We continue to expect adjusted EBITDA to be in the range of $3.8 to $3.9 billion, unchanged from last quarter, including the approximate $65 million in adjusted EBITDA in the fourth quarter related to our 53rd week. We are increasing, however, our adjusted EPS to a range of $2.06 to $2.19, reflecting the 2025 accretion of the $750 million accelerated share repurchase announced today.

Drive higher future customer lifetime value.

We will also continue to focus on our productivity agenda to fuel this growth and offset inflationary headwinds.

With that as our backdrop, we are updating our fiscal 2025 outlook as follows.

We are increasing the lower ends of our identical sales range and now expect to be in the range of 2.2% to 2.75%.

This assumes ongoing outsized growth in pharmacy and digital, as well as continued surgical price investments in groceries to accelerate unit inflection.

We continue to expect adjusted EBITDA to be in the range of $3.8 to $3.9 billion, unchanged from last quarter, including the approximate $65 million in adjusted EBITDA in the fourth quarter related to our 53rd week.

Sharon McCollam: The effective income tax rate is expected to be in the range of 23.5% to 24.5%, unchanged from last quarter. We do, however, expect a cash flow benefit in the range of $125 to $150 million in 2025 from recent tax legislation. Capital expenditures are expected to be in the increased range of $1.8 to $1.9 billion as we accelerate our investment in digital and automation. Finally, as it relates to tariffs, tariffs have not had a material impact on our financial performance yet this year, as 90% of the products we sell are sourced domestically, insulating us from global trade volatility. Beyond that, we have and are taking proactive steps to mitigate cost exposure, leveraging sourcing and supplier partnerships to minimize the downstream impact to both our margins and our customers. With that, I'll hand it back to Susan for closing remarks.

We are increasing, however, our adjusted EPS to range from $2.16 to $2.19, reflecting the 2025 accretion of the $750 million Accelerated Sherry purchase announced today.

The effective income tax rate is expected to be in the range of 23 and a half to 24, and a half percent on Chase from last 4.

We do, however, expect a cash flow benefit in the range of $125 million to $150 million in 2025 from recent tax legislation.

Increased range of $1.8 to $1.9 billion as we accelerate our investment in digital and automation.

And finally, as it relates to tariffs.

Tariffs have not had a material impact on our financial performance. This year, 90% of the products we sell are sourced domestically, insulating us from global trade volatility.

Beyond that, we have been and are taking proactive steps to mitigate cost exposure by leveraging sourcing and supplier partnerships to minimize the downstream impact on both our margins and our customers.

And with that, I'll hand it back to Susan for closing remarks.

Susan Morris: Thank you, Sharon. In closing, this is a new day at Albertsons Companies Inc., and we're operating from a position of strength. We are executing with clarity, discipline, and momentum. Our strategy is working, and it's delivering measurable results. Our owned real estate portfolio, our trusted local banners, and our locally great and nationally strong operating model give us a strong foundational competitive advantage, one that we are leveraging to drive long-term sustainable growth. We are also deepening engagement through our customer-focused associate connections, digital platforms, expanding our reach through loyalty and e-commerce, and unlocking new revenue streams through our growing media business. At the same time, we're modernizing our capabilities with scalable technology, driving transformational productivity, and making strategic investments that will enhance our customer value proposition.

Thank you, Sharon. In closing, this is a new day at Albertsons, and we're operating from a position of strength.

We are executing with clarity, discipline, and momentum. Our strategy is working and it's delivering measurable results. Our owned real estate portfolio, our trusted local banners, and our locally great and nationally strong operating model give us a strong foundational competitive advantage that we are leveraging to drive long-term sustainable growth.

We are also deepening engagement with our customer-focused associate connections, digital platforms, and expanding our reach through loyalty and e-commerce, while unlocking new revenue streams through our growing media business. At the same time, we're modernizing our capabilities with scalable technology, driving transformational productivity, and making strategic investments that will enhance our customer value proposition.

Susan Morris: We are confident in our ability to deliver on our fiscal 2025 commitments and even more excited about the opportunities ahead as we enter our long-term growth algorithm in fiscal 2026 and beyond. To our 280,000 associates, thank you. Your passion, resilience, and commitment to our customers is what will fuel our next chapter. You are the heartbeat of our company, the architects of our customer experience, and the driving force behind our transformation. We look forward to continuing to create value for our customers, our communities, and our shareholders. We'll now open the call for questions.

We are confident in our ability to deliver on our fiscal 2025, commitments, and even more excited about the opportunities ahead, as we enter our long-term growth algorithm in fiscal, 26 and Beyond to our 280,000 Associates. Thank you, your passion, resilience and commitment to. Our customers is, what will fuel our next chapter? You are the heartbeat of our company, The Architects of our customer experience and the driving force behind our transformation.

We look forward to continuing to create value for our customers, our communities, and our shareholders.

We'll now open the call for questions.

Operator: Thank you. If you'd like to ask your question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Edward Joseph Kelly with Wells Fargo. Please proceed with your question.

Thank you. If you'd like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press *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.

To allow for as many questions as possible. We ask that you each keep to 1 question and 1 follow-up. Thank you.

Our first question comes from the line of Edward Kelly with Wells Fargo, please proceed with your question.

[Analyst]: Yeah, hi. Good morning, everyone, and thank you for the update. Clearly, you're expressing your confidence in the business and the return of Algo in 2026 with the accelerated share repurchase. I was curious if you could take a step back for us and revisit the building blocks of returning to Algo next year and what is driving that incremental confidence that we're hearing today. I mean, 2025 is certainly an investment year, and it's a choppy investment year. Just curious around that confidence in the building blocks for next year.

Yeah, hi, good morning everyone and thank you for the update. Uh, clearly, you know, you were expressing your confidence in the business and the return of the algo in 26 with the ASR. Um, I was curious if you could maybe, you know, take a step back for us and, um, you know, maybe revisit the building blocks of returning to algo, uh, next year. And, um, you know what is driving that uh, incremental confidence that we're hearing today. I mean, 25 certain year and, you know, it's a choppy investment year so, um, you know, just curious around, um, you know, around that around that confidence in the building blocks for next year.

Susan Morris: Good morning, Ed. First and foremost, what I would say is it's really sticking to the five priorities that we've laid forth: driving our customer growth through our digital connections, growth in our media collective, enhancing the customer value proposition, modernizing our capabilities through technology, and driving transformational productivity. Within each of those, we're seeing strong proof points of success. As an example, I think about the customer value proposition. With great intention, we've invested surgically in key markets, and we're seeing a positive inflection in units there. We're starting to see the returns. In addition to that, we've made deeper investments in promotions, in loyalty, and personalization. We're seeing those customers engage with us at a deeper level and more frequently. From a productivity perspective, we've spoken of the $1.5 billion in productivity. We are on track for those savings in 2025. Most of that is coming from SG&A.

Good morning. It's so sure. First and foremost, what I would say is, it's, it's really sticking to the 5 Pryor that we've laid forth, driving our customer growth through our digital connections.

Gross intermediate Collective, enhancing the customer value proposition, modernizing our capabilities through technology and driving transformational productivity and within each of those we're seeing strong proof points.

Of success.

As an example, I think about the customer value proposition.

With great intention, we've invested surgically in key markets, and we're seeing a positive inspection in units. There, we're starting to see the returns.

In addition to that, we've made deeper investments in promotions, in loyalty and personalization. And again, we're seeing those customers engage with us at a deeper level and more frequently.

Susan Morris: As we look forward into the future, we'll start to see that coming from gross margin expansion.

From a productivity perspective. Uh, We've we've spoken of the 1 and a half billion dollars in productivity. We are on track for those savings, um, in 2025 most of that is coming from STNA. And as we look forward to the future, we'll start to see that coming from gross margin expansion.

[Analyst]: Just a follow-up on all this. I mean, from a pricing standpoint, obviously, you've been investing in price. You know you're starting to get some result associated with that, but it's been pretty surgical. How are you thinking about the outlook for price investment as you continue forward? I'm curious, from a price competition standpoint, have you seen price competition increase at all? I think overall, I guess what I'm trying to ask here is that I think investors are worried that we may see a more accelerated investment from a pricing standpoint. I'm just curious as to how you see that playing out as things move forward here.

How are you thinking about? Um, you know, the outlook for Price investment as you continue forward, I'm curious from a price competition standpoint. Have you seen price competition? You know, increased in all? And I think overall I guess what? I'm trying to ask here is that I think, you know, investors are worried that um you know, we may see a more accelerated investment uh from a pricing standpoint. Um, so I'm just curious as to how you see that playing out uh as things move forward here.

Susan Morris: We're very pleased with the price investment so far, as I mentioned. I can't underscore enough that they are incredibly surgical by category, by market. We've got an aggressive agenda laid forth on pricing, but we also recognize the fact that we are striving to offset it with increased vendor funds and with other sources of productivity. This is a very measured exercise, very surgical. We don't anticipate making any brash moves. It's all built into our plan. It seems to be working. We're very pleased with the initial results.

We're very pleased with the price investment so far as I mentioned and I can't I can't underscore enough that they are incredibly cervical by category by market.

We’ve got an aggressive agenda laid forth on pricing, but we also recognize the fact that we are striving to offset it.

Sharon McCollam: Ed, I would just add to that that so many of these pricing surveys do not capture the personalized discounts that the customers receive through our loyalty programs, gas rewards. They are even converting those rewards into cash, which, when they're checking out, they are getting cash off as they walk out of the store. We think that that is a very powerful way to leave the store when you've just had your bill reduced. When you take that into consideration, the customers are receiving great value through those programs. When we think about that, we also have to think about the acceleration that we are moving forward with with own brands. One of the biggest things we will do to bring value to our customers is to continue to invest and grow our penetration of own brands.

With increased vendor funds and with other sources of productivity. So this is a very measured exercise, very surgical. Um, we don't anticipate making any Brash moves, it's all built into our plan and again it seems to be working. Um we're we're very pleased with the initial results.

And Ed I would just add to that. That so many of these pricing surveys do not capture the personalized discounts that the customers receive through our loyalty programs, gas rewards, and the now they're even converting um those rewards Into Cash which when they're checking out, they are getting cash off as they walk out.

Store. We think that it is a very powerful way to leave the store when you've just had your bill reduced.

When you take that into consideration, the customers are receiving great value through those programs. And when we think about that, we also have to think about the acceleration that we are moving forward with own brands. One of the biggest things we will do to bring value to our customers is to continue to invest and grow our penetration of owned brands.

[Analyst]: Great. Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Rupesh Dhinoj Parikh with Oppenheimer & Company. Please proceed with your question.

[Analyst]: Good morning, and thanks for taking my questions. Just going back to gross margin dynamics for the balance of the year, just curious the puts and takes for the backup. Anything change versus what you saw in the first half of the year?

Thank you. Our next question comes from the line of rupesh Parikh with Oppenheimer & Company. Please proceed with your question.

Good morning, and thanks for taking my questions. So, just going back to, I guess, just gross margin Dynamics, uh, for the balance of the year, just curious, the puts and takes for the backup. Um, anything changed versus what you saw in the first half, first, half of the year,

Sharon McCollam: We don't see any significant real change in the margin. The makeshift, we expect that to continue. As a reminder, those are our highest customer lifetime value customers in RX and e-commerce. We expect that to continue. What you saw in the second quarter is how our productivity funded a significant amount of the surgical price investment. We expect that also to continue. When I look at Q2 and I look at the full year, I would expect that margin to be very similar, with the main explanation of the variance year over year to be makeshift.

We don't see um any significant real change in the margin. Um the mixed shift. Um we expect that to continue as a reminder. Those are our highest customer lifetime, value customers in RX in Ecom so that we expect to continue. And what you saw is in the second quarter is how our productivity

Funded a significant amount of the surgical price investment, so we expect that also to continue. When I look at Q2 and I look at the full year, I would expect that margin to be very similar, with the main explanation of the variance year-over-year being mix shift.

[Analyst]: Great. Maybe my follow-up question, just given a lot of concerns out there on the consumer backdrop, just curious what you guys saw with your consumer during this past quarter and your expectations for the balance of the year.

Right? And then maybe my follow-up question, just given a lot of concerns out there on the consumer backdrop. Just curious what you guys saw with your consumer during this past quarter and then your expectations for the balance of the year.

Susan Morris: Sure. What we've seen from the consumer is a continued focus on value, a shift to trading down maybe at smaller package sizes, a focus on own brand products, hence why we believe we have an incredible upside opportunity, increasing our penetration well above 25%. We see an increased usage in coupons. We see them sticking closer to their shopping list, maybe not buying that extra item, that extra bottle of whatever. They're kind of shortening their list and sticking to it. On the other side of it, too, we're still seeing a lot of impacts from healthier eating, whether it's just I think it's an overall awareness of making better choices, categories like functional beverage, protein shakes, protein-enhanced milks, and those kinds of things, supplements. All of those continue to grow.

Sure. So, what we've seen from the consumer is a continued focus on value. There's a shift to trading down, which may include smaller package sizes and a focus on own brands. Hence, we believe we have an incredible upside opportunity to increase our penetration well above 25%. We also see an increase in the usage of coupons.

Um, we see them sticking closer to their shopping list, maybe not buying that extra.

Item that extra bottle of whatever. They're kind of shortening their list and sticking to it.

On the other side of it too, we're still seeing a lot of impacts from healthier eating.

Whether it's, um, just I think it's an overall awareness of making better choices.

Uh, categories like functional beverage, protein shakes, and protein enhanced.

Susan Morris: We're seeing a nice, and what we enjoy about that is those are the categories that also include things like fresh meat, fresh produce, and they're margin accretive for us. We see some positives there. The pressure continues, and we're working very hard to give the customers what they want by market in a way that fits their budget. We also offer tools through our app to help them create lists that fit within their budget, that meet their health and wellness needs, and ease and simplify sort of the mental load of shopping in today's environment.

Milks and those kinds of supplements continue to grow.

Uh, we're seeing, um, a nice and what we enjoy about that is those are the categories that also include things like fresh meat, uh, fresh produce, and their margin creative for us. So we see some positives there, the pressure continues. Um, and we're working very hard to give the customers what they want by market in a way that fits their budget.

We also offer tools.

Through our app.

To help them create lists.

And wellness needs. Um, and, and, and ease and simplify sort of the mental load of shopping in today's environment.

[Analyst]: Great. Thank you for all the color.

Great. Thank you for all the color.

Operator: Thank you. Our next question comes from the line of Mark David Carden with UBS. Please proceed with your question.

Thank you. Our next question comes from the line of Mark Karten with UBS. Please proceed with your question.

[Analyst]: Good morning. Thanks so much for taking the question. Just on the full-year guidance, you're boosting your top line but maintaining your EBITDA expectations. I just wanted to get some color on the primary driver of the gap there and how much of that is related to any incremental price investments versus conservatism or anything else. Thank you.

Good morning. Thanks so much for taking the questions. So so to start just on a full year, guidance your your boosting your top line but maintaining your EA expectations, just wanted to to get some color on the primary driver of the Gap there and how much of that is related to any incremental Price investments versus conservatism or or anything else? Thank you.

Sharon McCollam: The increase in the sales range in the guidance is primarily due to the performance in Q2, which was driven by pharmacy. We expect the only volatility in the ID sales to be driven by ongoing growth in the pharmacy. It's an area that we are taking share, and we are continuing to capitalize on the benefits we can get from those new customers. As it relates to the adjusted EBITDA, because we expect that to come from pharmacy, it doesn't have a significant impact on adjusted EBITDA.

The increase in the sales range in the guidance is primarily due to the performance in Q2, which was driven by Pharmacy. We expect the volatility in the ID sales to be driven by ongoing growth in the Pharmacy. It's an area that we are taking share in, and we are continuing to capitalize on the benefits we can get from those new customers.

As it relates to the adjusted IBA dock. Because the we expect that to come from Pharmacy, it doesn't have a significant impact on adjusted even thought.

[Analyst]: That's great. As a follow-up, just on the pharmacy cross-selling front, are you seeing any deviations in the spending lifts from customers using GLP-1? In other words, is it having any impact on your ability to see as much of a sales lift for those specific customers as you have seen in the past over time?

That's great. And then as a follow-up, just on the Pharmacy, cross-selling Front. Are you seeing any deviations? Just in the spending lifts from customers, using glp ones, just in other words, is it having any impact on your ability to to see as much of a sales rep, for those specific customers? But as you guys have seen in the past over time,

Susan Morris: Sure, Mark. What we typically see with the GLP-1 customers is that there might be an initial dip in their purchase size, but we see that recover fairly quickly. If they do continue to expand their basket once again, as I mentioned, they are leaning into some of the categories: protein supplements, chicken, beef, fresh vegetables. What we love about that is, again, they're very margin accretive for us and get the customer shopping the entire store, expanding the breadth of categories that they're shopping with us. There may be an initial impact, but we quickly see recovery from that.

So, what we typically see with the GLP customers is that there might be an additional, excuse me, an additional dip.

In their purchase size. But we see that recover fairly quickly and then if they do, um, continue to expand their basket. Once again, as I mentioned, they are leaning into some of the categories, um, and protein supplements. Um,

Thicken beef, fresh vegetables. And what we love about that is, again, they're very margin accretive for us, and we have customers shopping the entire store, expanding the breadth of categories that they're shopping with us. So there may be an initial impact, but we quickly see recovery from that.

[Analyst]: Great. Thanks so much for that.

Great. Thanks so much.

Operator: Thank you. Our next question comes from the line of Leah Dianne Jordan with Goldman Sachs. Please proceed with your question.

Thank you. Our next question, comes from line of Leah, Jordan with

[Analyst]: Good morning. Thank you for taking my question. I just wanted to ask about the updated comp guide and see if you could talk about what's embedded regarding the cadence in the back half. Has anything changed in your view on how you're thinking about inflation versus tonnage? Maybe on the pharmacy piece, is there anything to think through on the time shift with vaccines and how that could drive the comp in the third quarter versus the fourth quarter? Thank you.

good morning. Thank you for taking my question. Um, I just wanted to ask about the updated comp guide and and see if you could talk about what's embedded, uh, regarding the Cadence in the back, half has anything changed in your view on how you're thinking about inflation versus tonnage and then maybe on the pharmacy piece. I mean, is there anything to think through on the timing shift, uh, with vaccines, and how that could drive drive the comp in the third quarter versus the fourth quarter? Thank you.

Sharon McCollam: Yes. As we think about the comp, pharmacy will drive higher comp in Q3 than we think it will drive in Q4 for the very reasons that you just mentioned regarding vaccination and the ongoing market share gains we're getting from the closure of other pharmacies. We're picking up those customers and are thrilled to do so. From that perspective, Leah, I expect there to continue to be momentum coming from pharmacy. We also expect to see continued growth in e-commerce. From a difference between the two quarters, I don't think it's materially different between the two quarters.

Yes.

5 higher cop in Q3. Um, then we think it will drive in Q4 for the very reasons that you just mentioned regarding vaccinations and the ongoing market share gains. We're getting from the closure of other pharmacies. We're picking up those customers and are thrilled to do so. So from that perspective, Leah, I expect there to continue to be, uh, momentum coming from Pharmacy. We also expect to see continued growth in e-commerce.

and from a,

A difference between the 2 quarters. I don't think it's materially different um, between the 2 quarters.

Susan Morris: Sharon, I would just add to that from a pharmacy perspective as well. The delay in vaccines maybe had a slight impact at the end of Q2, but that actually accelerated at the beginning of Q3. A credit to our pharmacy teams who, once the vaccines were released, we were out there in full force and are pretty excited about what we're seeing in vaccine growth this year.

Sure. And I'll be just add to the

from a pharmacy perspective as well.

The delay in vaccines maybe had a slight impact at the end of Q2, but that actually accelerated at the beginning of Q3. A credit to our phy teams, who once the vaccines were released, we were out there in full force. We are pretty excited about what we're seeing in terms of investment growth this year.

[Analyst]: Okay. That's helpful. Just on productivity, you guys are driving nice improvement on SG&A leverage, better than we were expecting. I think, Susan, you highlighted a number of items in the prepared remarks that can drive that. I think AI, automation, reducing overhead, among others. As you think about that long list of opportunities, which are the ones that are circled near-term versus longer-term within the three-year plan? As we think about this year, what about cost savings, right? How much of a relative magnitude shift is that in the back half versus the front half?

Okay, that's helpful and then just on productivity. I mean you guys are driving nice Improvement on sgna, Leverage, you know better than we were expecting. I think Susan, you highlighted a number of items in the prepared remarks that that can drive that I think AI automation reducing overhead among others. But but just as you think about that long list of opportunities, I guess which are the ones that are circled, you know, near-term versus longer term within the 3 year plan. And then, as we think about this year um, what about

In the back, half versus the front half.

Susan Morris: Sure. With regards to the productivity side, what we're seeing first and foremost, and I think I said it earlier, is the bulk of the savings in 2025 are SG&A related. This is us looking end-to-end across the organization, understanding where we made the tough decision to lay off close to 1,000 individuals this year. We're also looking behind the scenes on processes where we can automate, eliminate, or simplify them, and looking at what we can take to our offshore businesses, again, for cost savings, but also to enhance our capabilities. As we look forward, we'll start to see greater improvement in margin expansion, as I mentioned. This is where we'll start to see the impacts of our buying better together, leveraging our national size and scale to secure better costs of goods.

Sure. So, so with regards to to the proximity side, uh, what we're seeing first and foremost and I I think I said earlier is for the bulk of the Savings in 2025 or sdna related and This Is Us looking end to end across the organization um, understanding where, you know and we

Made the tough decision to lay off.

Close to a thousand individuals this year. We're also looking behind the scenes at processes where we can automate, eliminate, and simplify them, and looking at what we can take to our offshore businesses.

again to, for cost savings but also to

Advance our capabilities. As we look forward, we'll start to see greater improvement in margin expansion, as I mentioned. This is where we'll start to see the impacts of our buying Better Together.

Susan Morris: By the way, partnered with that is technology. There are tools that were launched or that are in process, I should say, with OpenAI as one example, to help us improve our category strategies, to help us make better decisions faster, and to leverage the vast amount of data that we have to secure stronger negotiations with our vendor partners.

Leveraging. Our national size and scale um to secure a better cost of goods. And oh by the way, partnered with that is technology.

[Analyst]: Sharon, would you like to add?

So there's tools that were that were launched or that are in process. I should say with open AI as 1 example, to help us improve our category strategies to help us make better decisions, faster, and to leverage the amount of the vast amount of data that we have to secure stronger negotiations with our vendor partners.

Sharon McCollam: Leah, I would just add to that. During the second quarter, we did open our technology innovation center in India, and we successfully moved a large piece of our back-office accounting and finance functions to Manila. That Manila operation, just to remind you guys, has been there about 20 years. It is an established entity for us. We are very pleased with how these moves have gone. They've been really seamless, honestly. We will continue to balance onshore and offshore going forward.

And Leah. I would just add to that, uh, during the second quarter. Um, we did open our Technology Innovation Center in India and we successfully, um,

Moved our a large piece of our back office accounting and finance functions, uh, to Manila, um, that Manila operates and just to remind you guys has been there about 20 years. So it's an established, um, entity for us. And we are very pleased with how these moves have gone, and they've been really seamless. Honestly, and we will continue to balance onshore and offshore going forward.

[Analyst]: Very helpful. Thank you.

Very helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Paul Lawrence Lejuez with Citigroup. Please proceed with your question.

Thank you. Our next question comes from the line of Paul Leger with City City Group. Please proceed with your question.

[Analyst]: Hey, thanks, guys. I'm curious, within your productivity initiatives, how much you are focused on shrink, and I guess both theft and spoilage or waste. Where do the levels sit today versus history, and how do you look at the opportunity to improve those items, reducing theft, reducing waste as a potential driver of stronger profitability in the future? Just a quick follow-up on the pharmacy business. I'm curious if you can talk about how much of that sales growth is being driven by existing versus new customers. I think you cited gaining some market share from closing competitors, and I'm just curious how that would break down existing versus new. Thanks.

Hey, thanks guys. Um, curious within your productivity initiatives. Uh, how much you are focused on, uh, shrink and I guess both Seth and and spoilage or or waste. And where did the levels, uh, sit today versus history and how do you look at the opportunity to improve those items? Uh, reducing theft reducing waste or the potential driver of stronger profitability in the future and then just

Quick follow-up, uh, on on the pharmacy business. Uh, curious if you can talk about how much of that sales growth, is being driven by existing versus new customers. I think you cited, uh, gaining, some market share from, uh, from closing, uh, competitors. And, and just curious, how that would break down existing versus new. Thanks,

Susan Morris: Sure. Thanks, Paul. With regard to shrink, we are seeing improvements year over year, and much of that is driven by improvements in operational effectiveness, just being frank. A lot of it is being driven by tools and technology. As an example, we've now got AI camera systems over our registers to understand, you know, when perhaps items aren't being scanned properly at the self-checkouts or even by our own clerks. We've got improved tools and processes in order management and also in production planning, leveraging history and leveraging current trends to give us best-in-class order sizes and production planning lists so we can optimize for sales, but also manage our shrink levels. From the pharmacy perspective, on the GLP-1 side, we are seeing, of course, the lion's share of growth comes from GLP-1s. Also, our core pharmacy business, our core script growth is doing quite well.

Sure, thanks Paul. So with regard to shrink,

Uh, improvements year-over-year and most of that is driven by improvements in operational. Effectiveness, just being frank and uh but a lot of it is being driven by tools and Technology as an example. We've now got AI uh cameras systems over our registers to understand. You know, when when perhaps

Are being scanned properly at the self checkouts or even by our own clerks. We've got improved tools and processes in order management and also in production planning leveraging, history, leveraging current trends to give us

best-in-class.

Order sizes and production planning lists so we can optimize for sales, but also manage our shrink levels.

Susan Morris: We are one example of where we're doing well outside of GLP-1s. Speaking of vaccines earlier today, we are three times our market share in vaccines versus our normal share in pharmacy. We are working very hard to find outsized growth and profitability to help our bottom line and our top line.

From the the pharmacy perspective on the glp-1 side, we are seeing, of course, the Lion Share of growth comes from glp1. Also, our core Pharmacy business, our core script growth it, um, is is doing quite well.

Sharon McCollam: During the quarter, we did see a significant number of new customers come into the brand. Remember that they don't have to be completely new to us. It is possible that when a Walgreens or a CVS closes, a customer that is currently grocery shopping at Albertsons Companies Inc. may be filling their prescriptions there because of the health plan they may be associated with or another reason that may be unbeknownst to us. We are bringing in customers that are in grocery today that are coming into pharmacy. We are bringing customers in the store that have not shopped in grocery in our stores, which is our biggest opportunity. We are seeing all of the above. Always keep in mind, the majority of our pharmacy sales will always come from grocery customers in our stores today that then convert to becoming pharmacy customers.

We are 1 example of of where we're doing well outside of DLP ones are speaking of vaccines earlier. Today we are 3 times our market share in vaccines versus our normal share in Pharmacy. So we're working very hard to find outsized growth and profitability to help our bottom line and our Top Line.

May be Associated or another reason that it may be unbeknownst to us. So, we are bringing in customers that are in grocery today, that are coming into Pharmacy. We are bringing customers in the store that have not shopped in grocery, in our stores, which is our biggest opportunity. But we are seeing all of the above, but always keep in mind, the majority of our Pharmacy. Sales will always come from grocery customers in our stores today.

That then converts to becoming pharmacy customers.

[Analyst]: Thank you. Good luck.

Operator: Thank you. Our next question comes from the line of Jacob Aiken-Phillips with Melius Research. Please proceed with your question.

Thank you. Our next question, comes from the line of Jacob. Aiken, Phillips, with Millie's research. Please receive with your question.

[Analyst]: Good morning. I wanted to talk about e-commerce. I'm just curious, like I think last quarter you said it was nearing breakeven, and there's some mixture of towards e-commerce with pressure in gross margins. Over the long term, how do you balance the structural labor and capital requirements of, you know, direct delivery and immediacy versus cost efficiencies?

Uh, good morning.

So I I wanted to talk about e-commerce. I'm just curious. Like so I think last quarter you said it was nearing break even and there's a mixture of towards e-commerce. Just pressuring and grows margins but over the long term, how are you?

Balanced the structural labor and capital requirements of Direct Delivery and immediacy versus cost efficiencies.

Susan Morris: Jacob, thanks for the question. With regards to e-commerce, yes, we're getting closer to breakeven, to profitability there. There are a few items at play. First and foremost, our business continues to grow exponentially. We're very excited about that. We're proud of that. At the same time, we've been leveraging technology, data, information to optimize the picking path for our shoppers within our stores, whether it's picking one order at a time, picking multiple orders at a time, giving them a pathway to shop up and down the aisles to create productivity. You mentioned the capital allocation side of things. As we look at this exponential growth, when we go through our remodel process, as we're building new stores, we're continually evaluating the space that we're allocating to our e-commerce operations and making the right decisions to expand.

Jacob. Thanks for the question. So with regards to e-commerce. Uh, yes, we're getting closer to break even to profitability there and there's a few, uh, items that play, first and foremost. Our business continues to grow exponentially. We're very excited about that. We're proud of that. And at the same time, we've been leveraging, technology data information to optimize the picking path.

For our Shoppers within our stores, uh, whether it's picking 1 order time, picking multiple orders at a time, giving them a pathway to chop up and down the aisle, to create productivity. Uh, we're you, you mentioned the, uh, Capital allocation side of things.

And as we look at this exponential growth,

When we go through our, our remodel process as we're building new stores, we're continually evaluating the space.

Susan Morris: We're also able to go back and retrofit certain stores, perhaps adding refrigeration, adding hot food holding so that we can give customers what they want when they want it. That part of the process is essential to us because, again, we don't know what high looks like. We expect it to continue to grow in the future. The beauty of our model is our 2,270-ish stores are located in the neighborhoods where our customers are shopping. We've solved for the last mile sheerly by our proximity to the customers that we serve. That helps us with the profitability side. More importantly, it helps us on the customer experience side. You're getting product that was picked for you fresh, right? You can custom order a cut of meat. We can write "Happy Birthday" on a cake for you.

That we're allocating to our e-commerce operations and making the right decisions to expand. We're also able to go back and retrofit certain stores perhaps adding Refrigeration adding hot food holding so that we can get the customers what they want when they want it. Uh, that part of the process um is is essential to us because again, we we don't know what high looks like. We expect it to continue to grow in the future, the beauty of our model.

Susan Morris: You're getting those products from the stores that other shoppers are shopping and up as quickly as in 30 minutes if you'd like, or next day if that's what's most convenient for you. Our proximity is really a huge advantage for us as a company.

Sharon McCollam: Jacob, I'll just add to that, when you think about the fact that we actually believed that the winner in e-commerce would be in the last mile, who successfully delivered the best and highest quality fresh product in the last mile. We built our e-commerce model with that in mind. We have been, from the date that we actually started e-commerce, using our stores as fulfillment centers in order to achieve that. As part of that, we have evolved proprietary systems to support the entire picking distribution process in our stores and continue to engineer those capabilities in those systems to drive the highest levels of efficiency, which is why we can sit here today and say we are getting very close to near breakeven in the e-commerce business.

Is our 2270 in stores, are located in the neighborhoods where our customers are shopping. We've solved for the last miles, surely by our proximity to the customers that we serve, so that that helps us with the profitability side. And maybe more importantly, it helps us on the customer experience side. You're getting product that was picked for you fresh, right? You can, you can custom order a cut of meat. We can write happy birthday on a cake for you, but you're getting those products from the store that other Shoppers are shopping and up in as quickly as in 30 minutes if you'd like or next day, if that's what's most convenient for you. But our proximity is really a huge Advantage for us as a company.

And Jacob, I'll just add to that that when you think about the fact that we actually believed that the winner in e-commerce would be in The Last Mile, who successfully delivered the best and highest quality fresh product in The Last Mile and we built our e-commerce model with that in mind. So we have been from the date that we actually started. E-commerce, we have been using our stores as fulfillment centers in order to achieve that

As part of that.

We have evolved proprietary systems to support the entire picking distribution process in our stores and continue to engineer those.

Capabilities in those systems to drive the highest levels of efficiency, which is why we can sit here today and say, we are getting very close to near break even in the e-commerce business.

[Analyst]: Thanks. That's very helpful. I appreciate all the comments on using AI, the partnership with OpenAI. It's a big theme right now, obviously. I wonder if you could take a step back and talk about how you're managing integration across the organization of some of these cutting-edge tools, like what use cases you've mentioned, what are the guardrails, and how you see you evolving over the next few years?

Thanks, that that's very helpful. And then so I appreciate all the comments on like, using Ai and partnership with open AI. Um, it's a big theme right now, obviously, I wonder if you could, like, take a step back and talk about how you're managing like in integration across the organization of these, some of these Cutting Edge tools, like what use cases, you've mentioned some, where the guard rails, and how you see your evolving over the next few years.

Susan Morris: Sure. Honestly, one of the most effective methods that we have for deploying new technologies across 285,000 associates is they help us build the solution. You mentioned OpenAI. We actually have division merchants. Yes, our corporate team's engaged, of course, and our national tech team. We're actually using some of our merchants that work in the divisions today that are closest to the stores to help us build these tools. They're incredibly intuitive. They're meant to take work away. As an example, we have an incredible amount of data available to us. It can actually become very complicated to be able to get answers. By leveraging AI tools, we're able to simply ask business questions. Hey, why were my ice cream sales up yesterday? What were the key items that I sold the most of? Why was I down?

Sure. So honestly 1 of the most effective um methods that we have for deploying new technologies across

285,000 Associates, is they help us build the solution?

So yes, our corporate teams engaged, of course, and our national Tech Team, but we're actually using some of our Merchants that work in the divisions today that are closest to the stores to help us build these tools. So, they're incredibly intuitive. Um, they're, they're meant to take work away as an example, you know, we, uh,

Susan Morris: With the agentic AI, we're able to actually get information back at a really rapid pace, accurate information back. We're able to then action upon that information as opposed to spending all the time digging into it. When I think about what we've done with AI at store level, Affresh, it's a tool that we use for order writing in our fresh departments. That tool was literally created in partnership with one or two store managers, department managers in produce, helped us write that tool so that it was very intuitive to the actions that they were taking today, but of course, sped up the process and added to that multidimensional data that we're looking for. It's really getting the team involved and building the tools that they will use in the future. That's part of our success in this space.

We have an incredible amount of data available to us. It can actually become very, um, complicated to be able to get answers by leveraging AI tools. We're able to Simply ask business questions. Hey, why why, why were my ice cream sales up yesterday? What were the key items that I sold the most ever or, why was I down? And with the agentic AI, we're able to actually get

Information. Back at a

Really rapid Pace after it is information back and we're able to then action upon that information as opposed to spending all the time digging into it. Uh, what I think about what we've done with, uh, AI at store level

Of fresh. It's a tool that we use for order riding in our fresh departments that tool was literally created in partnership with 1 1 or 2 store. Managers, uh, department managers and produce helped us. Write that tool so that it was very intuitive to the actions that they were taking today. But of course, sped up the process and added a that multi-dimensional data that we're looking for. It's really getting the team involved and building the tools that they will use in the future. That's part of our success in this space.

Sharon McCollam: We're also using it extensively in the real estate side of our business. It can help us assess the performance across our banners, markets, and formats. It provides clear visibility into where we're the strongest and where the opportunities exist. We're also training the AI agents to perform advanced geospatial-type analytics. That's mapping competitive proximity, trade areas, and market dynamics, and we can do that in real time. These are extremely valuable insights for us as we continue to focus on future growth, new locations, and in Susan's deep dive that she talked about, it's been one of the foundational tools that she's been looking at to look at all of our assets, non-core assets, etc.

We're also using it um extensively in the real estate side of our business. Um, we are use, it can help us assess the performance across our banners markets formats. It provides clear visibility into where we're the strongest and where the opportunities exist. And we're also training the AI agents to perform Advanced geospatial type analytics, you know, that's mapping competitive proximity trade areas and market dynamics and we can do that in real time and these are extremely valuable insights for us as we continue to focus on future growth, new locations. And in Susan's Deep dive that she talked about it's been 1 of the foundational tools that she's been looking at to look at all of our assets, non-core assets Etc.

[Analyst]: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of Simeon Ari Gutman with Morgan Stanley. Please proceed with your question.

Thank you. Our next question comes from the line of sine Gutman with Morgan Stanley. Please proceed with your question.

[Analyst]: Hi, Susan. Hi, Sharon. Thanks for the question. My first question, it's on the ASR. Susan, since you've joined, you've kind of opened the posture of reinvesting a little bit more. You know the business is still undercomping the industry. Thinking about spending on stores or something related to digital, how did you weigh that versus repurchasing the stock or frankly even paying down some debt?

Hi Susan. Hi Sharon, thanks for the question. My first question is on the ASR. So, Susan, since you've joined, you've kind of opened the posture of reinvesting a little bit more, and you know the business is still under comping the industry. So, thinking about spending on stores or...

or something related to digital, you know, how did you weigh that versus repurchasing the stock or frankly even paying down some debt

Susan Morris: Hi, Simeon. One does not preclude the other. The ASR does not prevent us from continuing our capital expenditures as planned. We've got a very aggressive agenda there in terms of remodels, new stores, driving technology improvements. We've also left ourselves, and Sharon can speak to this, dry powder. We are interested in growing in many ways, organically, but also through acquisition. We've left ourselves some room to be able to accomplish whatever we need from a capital perspective, an acquisition perspective, or whatever else might come our way. Sharon?

Sharon McCollam: Yes. Simeon, in our prepared remarks, we said it. With our adjusted EBITDA ratio at 2.2, it leaves us ample opportunity and tremendous flexibility. We do not see the ASR as having any impact on any of the strategic initiatives that we've been talking about.

This is not preclude the others so the ASR does not prevent us from continuing our Capital expenditures as planned. Uh, We've and and we've got a very aggressive agenda there in terms of remodels new stores, um, driving technology improvements. Uh, We've also left ourselves in Sharon can speak to this dry powder. Uh, we are interested in growing in many ways organically, but also, you know, through acquisition. So we've left ourselves, some room to be able to accomplish, uh, whatever we need from a capital perspective, and acquisition perspective or whatever else might come our way. Sharon? Yeah. And and Simeon are not prepared remarks. We said it um with our adjusted, evb ratio at 2.2. It leaves us 8 in a bowl um opportunity. Um and tremendous.

Flexibility. So we don't see the ASR as having any impact on any of the Strategic initiatives that we've been talking about.

[Analyst]: Thanks for that. One follow-up. The e-commerce growth digital was excellent. Can you talk about the drivers of it? Can you remind us, does this pharmacy growth factor into that, or is that just, I guess, grocery orders?

For that, and then, um, one follow-up: the e-commerce growth digital was excellent. Can you talk about the drivers of it? And can you remind us, does this pharmacy growth factor into that? Or is that just, uh, I guess, grocery orders?

Susan Morris: Thank you for the question. Pharmacy growth is separate. This is truly just the rest of the store growth. Some of the key factors there are, first and foremost, our five-star certification program. This is really just ensuring that our associates are delivering the customer experience that we expect, that they're meeting productivity timelines, and that they're delivering the quality our customers are looking for. I have to say, our team is doing a phenomenal job in that space. The other side of it is, as we looked at the improvements that our team has been making on the app, your ability to create lists, your ability to add items from recipes, your ability to seek recipes, and be able to look at your app as sort of a one-stop shop solution for all your needs in your shopping experience with us.

Yeah, so so thank you for the question Pharmacy growth is separate. So this is truly just uh, the rest of the store growth and some of the key factors, there are first and foremost are 5 Star certification program. And this is really just ensuring that our Associates are delivering the customer experience that we expect, that their meeting productivity timelines, um, that they're delivering a quality, our customers are looking for, and I have to say our team is doing a phenomenal job in that space.

The other side of it is as we look at, uh, the improvements that our team has been making on the app.

Susan Morris: By the way, that's for e-commerce, but that's also true for online.

Create lists, your ability to add items, um, from recipes to your ability, to seek recipes and and be able to look at your app is sort of a 1-stop shop, shop solution for all your needs in your shopping experience with us, by the way, that's for e-commerce, but that's also true for online.

[Analyst]: Thank you. Good luck.

Thank you. Good luck.

Susan Morris: Thank you.

Thank you.

Operator: Thank you. Our next question comes from the line of John Edward Heinbockel with Guggenheim Partners. Please proceed with your question.

Thank you. Our next question comes from the line of John Hine buckle with Guggenheim Partners, please proceed with your question.

[Analyst]: Hey, Susan. You mentioned sort of looking at assets and non-core assets. How do you think about those? What are sort of non-core? When I think about store assets, you've got markets with dual banners, right, multiple banners. How do you think about that in terms of possible banner consolidation? When you look at markets where you might lack share, is there a real thought of exiting some markets, or do you try to gain requisite share through selective M&A? How do you look at the portfolio?

Hey Susan. Can you you you mentioned um, sort of looking at assets and non-core assets.

How do you think about those? You know what are sort of non-core. And then when I think about store assets...

You've got markets with dual banners. Uh, write multiple banners. How do you think about that, uh, in terms of possible Banner consolidation?

And when you look at markets where you might lack share, you know, is there, is there a real thought of you know, exiting some markets or do you? Um do you try to gain uh requisite, share through, you know, selective m&a?

How do you look at the portfolio?

Susan Morris: Yeah, sure. Thanks, John. As we look at our assets, first and foremost, one of the things that Sharon just mentioned, our real estate team is doing a phenomenal job of aggregating data for us to be able to look at our fleet across the entire country, overlay that on top of customer growth, an influx of population growth, looking at where we perform strongest with our customers, where the brands resonate best, and so forth. We are looking across the entire organization, and that's helping us identify, first and foremost, where are we doing well, where do we want to double down, how can we either, again, grow organically, or we're looking for fill-ins.

Sure. So think

a little job of aggregating data for us to be able to look at our our Fleet across the entire country. Uh, overlay that on top of

Susan Morris: One of our top priorities is saying, as we see growth across the entire organization, where are those markets where we've got a strong fleet, we need to double down and buy or build more, or adjacent opportunities where there might be a fill-in. We're a company built of acquisitions. It's what we do. We're very good at it, and looking for those strategic fill-ins is really important to us. From a banner perspective, we've been what we call flipping banners for years. That's where we look at a market and say, we've got two or three banners. Which ones are performing the best, which ones resonate most with the customers that we serve? The Northwest is one example where I can think of where we've flipped many of our stores from Albertsons to Safeway as an example. In Southern California, we've flipped stores from Vons to Pavilions.

Customer, uh, growth, you know, in an influx of population growth, uh, looking at where we perform strongest with our customers, where the brands resonate best and so forth. So we're, we're looking across the entire organization and that's helping us. Identify first and foremost. Where do we, where are we doing? Well, where do we want to double down? Um, how can we either again, grow organically, or we're looking for fillings, you know, 1 of our top priorities is saying, is we see growth across the entire organization. Where are those markets? Where we've got a strong suite? We need to double down and, and buy, or build more, or adjacent opportunities where there might be a fill in, uh, uh, you know, we're a banner, a company built of Acquisitions, it's what we do, we're very good at it. And looking for those strategic fillers is really important to us.

Susan Morris: We are using this data and information that we have to make very surgical decisions, strategic decisions on how we can improve the fleet moving forward.

From a banner perspective. Uh We've gosh we've been what we call flipping banners for years. Um that's where we look at a market and say gosh, we've got 2 or 3 banners, which ones are performing the best which ones resonate Mo. Most with the customers that we serve. The Northwest is 1 example, where I can think of um where we've flipped, many of our stores from Albertsons to Safeway as an example. Um, in Southern California, we've flipped stores from bonds to Pavilions so we're using this data and information that we have to make very surgical decisions, strategic decisions on how we can improve the fleet moving forward.

[Analyst]: Maybe a quick follow-up. Just remind us, as part of the secular algo on top line, food volume, I think the plan is to be modestly positive. Correct me if I'm wrong with that. When do you think you inflect to that point? Is it next year, or is that too early? I guess, is pharmacy, you would think pharmacy alone could play a big role in getting to positive?

And then maybe a quick follow-up. Um, just remind us, is part of the secular algo on Topline?

Food volume. I think, uh, the plan is to be modestly positive. Um, correct me if I'm wrong with that. When do you think you inflict to that point?

You know, is it next year? Was that too early? And I guess is Pharmacy—uh, you would think Pharmacy alone could play a big uh role in getting to positive.

Sharon McCollam: John, what we previously said is that as we enter 2026 into the algo, it is our expectation that we are getting to near flat units. If the industry continues to decline, of course, we will still continue to move forward. I think within that 2+%, we believe that could be an inflection point for us. If not, it will move into 2026, depending on what happens with the industry. We still believe, regardless, that we will be in the algo in 2026 at 2+% comp. It may come a little bit differently. One of the things to keep in mind with that is that as we move forward with pharmacy, the scale that we have been able to take or grow is allowing us to do things that we were not able to do before to improve profitability in pharmacy.

On what we've previously seen.

For expectation, we are getting to near flat units. Now, if the industry continues to decline, of course, we will still continue to move forward. And I think within that $2 plus.

Sharon McCollam: I do not want us getting overly excited about the pharmacy business profitability. As we all know, today, it is actually diluted to adjusted EBITDA. Everything we can do, like central fill, like vendor negotiations on drugs, direct negotiations, will help improve incrementally that pharmacy contribution. We do expect that to happen over time. Additionally, when you think about it, in e-commerce, as we get closer to break even in e-commerce, every additional order helps lever into a different EBITDA.

Um, we believe that that could be an inflection point for us, if not, it will move into 26 depending on what happens with the industry. But we still believe regardless that we will be in the algo in 2026 at 2 plus percent comp. It may come a little bit differently and 1 of the things to keep in mind with that is that as we move forward with Pharmacy, the scale that we have been able to take our or grow is allowing us to do things that we were not able to do before to improve profitability in Pharmacy. I don't

Want us getting overly?

Operator: We're expecting the identical sales growth of 2% plus, or 2% plus, and then adjusted EBITDA slightly better than that. Based on everything we've talked about here today and the priorities and everything Susan shared, we are very confident in our ability to get there for 2026.

Cody Perdue: Thank you.

Into a dusty of a dash. So, we're expecting the identical sales growth of $2 million, plus or $2 million plus, and then adjust the VA slightly better than that. So, based on everything we've talked about here today and the priorities and everything Susan shared, we are very confident in our ability to get there for 2026.

Thank you.

Susan Morris: Great. Thank you all so much for your questions. We appreciate your time, and we look forward to talking to you over the next couple of days.

Great. Thank you all so much for your questions. We appreciate your time and we look forward to talking to you over the next couple of days.

Sharon McCollam: Thank you. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Thank you ladies and gentlemen. This concludes today's conference call, you may disconnect your lines at this time. Thank you for your participation.