MW Albertsons warns of competition from larger retailers but downplays tariff impact

By Ciara Linnane and Bill Peters

'We're all seeing the pressures' from the biggest retailers and club stores, CEO says

Albertsons Cos.' stock slid on Tuesday after the grocery chain's outlook lagged Wall Street's expectations and the company warned of competition from bigger rivals, as retailers battle for shoppers feeling the effects of inflation and an escalating trade war.

Shares were down 8.2% on Tuesday. During Albertsons' $(ACI)$ earnings call, executives said that consumer behavior patterns seen over recent months - that is, the pursuit of cheaper alternatives - hadn't changed much.

They said that Albertsons stores were running sales on more items and that the company planned to take steps to keep some prices lower and amplify its own brands while investing in digital sales, its loyalty program, its in-store app and its pharmacies. But they noted that the biggest retailers and club stores were flexing their muscle.

"From a competitive perspective, I think like the rest of the industry, we're all seeing the pressures from mass and club stores value players," Susan Morris, the company's chief operations officer and incoming chief executive, said during the call.

Analysts have said that the past few years of cost-of-living increases have benefited the biggest chains - like Walmart Inc. $(WMT)$ and Costco Wholesale Corp. $(COST)$ - which have more flexibility to keep prices low. Warehouse-club foot traffic rose the week before U.S. President Donald Trump announced sweeping new tariffs early this month, some data showed, a possible sign more people were stocking up in preparation for the levies.

As far as the impact of Trump's tariffs, which have created turmoil in financial markets, Morris said Albertsons sources 90% of its products within the U.S., "so that's a very different position than some on the competitive front out there."

Still, there are impacts on certain ingredients that are sourced from areas subject to tariffs, she said.

"The situation, as you know, is very fluid," she said. "We're staying very close to it. We've deployed a task force to help us understand the complexities of this situation as it evolves, and we've got some very good plans in place to help mitigate the impacts accordingly."

Morris will take over as CEO on May 1, when the current CEO, Vivek Sankaran, is set to retire.

The company said it now expects fiscal 2025 adjusted earnings to range from $2.03 to $2.16 a share, well below the $2.28 FactSet consensus. It expects same-store sales to grow 1.5% to 2.5%, while FactSet was expecting a 1.8%. rise.

"While fiscal 2025 will be an investment year, beginning in fiscal 2026 we expect to drive growth consistent with our long-term algorithm of 2+% identical sales and adjusted Ebitda growth higher than identical sales growth," Morris said in prepared remarks.

Elsewhere, Albertsons said it was taking steps to cut costs, with plans to reinvest the savings in its growth plans. It said it was trying to make relationships with suppliers more efficient, while planning to consolidate company divisions and "rationalizing non-customer-facing headcount."

The Boise, Idaho-based company posted net income of $172 million, or 29 cents a share, for its fourth quarter, down from $250.5 million, or 43 cents a share, in the year-earlier period. Adjusted for one-time items, earnings per share came to 46 cents, ahead of the 41-cent FactSet consensus. Albertsons' fourth quarter ended on Feb. 22.

Sales rose to $18.79 billion from $18.34 billion a year ago, also ahead of the $18.64 billion FactSet consensus.

Same-store sales rose 2.3%, while FactSet, based on its analyst survey, was expecting a 1.8% rise. Same-store-sales growth was driven by strength in pharmacy, which has benefited from the popularity of GLP-1 drugs and store closures among rivals.

Albertsons sources 90% of its products within the U.S., 'so that's a very different position than some on the competitive front out there.'Susan Morris, Albertsons COO

Sankaran said the quarter ended with positive momentum. That momentum has occurred following the collapse of Albertsons' planned merger with bigger supermarket rival Kroger Co. $(KR)$. That deal fell apart after it was blocked by courts and regulators on concerns it would dampen competition in the grocery space in regions where both companies are active.

From the archives (December 2024): Albertsons is now suing Kroger for billions. That won't help it find another buyer, analysts say.

E-commerce grew 24% in the quarter and now accounts for more than 8% of Albertson's grocery revenue. The company's loyalty membership grew by more than 15% to more than 45 million customers in the quarter.

Pharmacy revenue grew by 18%, driven by growth in prescriptions and immunization and as the company continued to integrate offerings in its Health Mobile app.

On Albertsons' call, Morris acknowledged that the pharmacy business is financially dilutive, because it's a lower-margin business than grocery.

However, "cross-shoppers between grocery and pharmacy are exceptionally valuable, contributing outsized customer lifetime value to the total store," she said. "For this reason, in fiscal 2025, we will continue to invest in our pharmacy and health platform to drive increased customer engagement and loyalty."

Gross margin shrank to 27.4% in the quarter from 28% a year ago. That was due to the growth in pharmacy sales, as well as increases in delivery and handling costs related to the growth in digital sales.

Albertsons' stock has fallen 2% in the last 12 months, while the S&P 500 SPX has gained 6.8%.

-Ciara Linnane -Bill Peters

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April 15, 2025 14:27 ET (18:27 GMT)

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