Albertsons Companies, Inc. (the "Company") today reported results for the third quarter of fiscal 2019, which ended November 30, 2019.
Third Quarter of Fiscal 2019 Highlights
- Identical sales growth of 2.7%; marked the eighth consecutive quarter of identical sales growth
- Net income of $55 million
- Adjusted EBITDA of $634 million, slightly ahead of our expectations
- Own Brands sales penetration reached a new high of 25.6%
- Online home delivery and Drive Up and Go sales growth of 34%
- Just for U registrations and digital coupon redemptions up 25% and 31%, respectively
"Our identical sales momentum continued in the third quarter, as our core business continues to deliver strong growth," said Vivek Sankaran, President and Chief Executive Officer. "We are focused on providing our customers with an easy shopping experience, exciting merchandise and friendly customer service in our omni-channel shopping environment, and creating deep and lasting customer relationships."
"Our productivity and cost reduction initiatives are also beginning to take shape, which we intend to use to fund strategic growth investments, offset cost inflation and support earnings growth," added Sankaran.
Third Quarter of Fiscal 2019 Results
Sales and other revenue increased 1.9% to $14.1 billion during the 12 weeks ended November 30, 2019 ("third quarter of fiscal 2019") compared to $13.8 billion during the 12 weeks ended December 1, 2018 ("third quarter of fiscal 2018"). The increase was driven by the Company's 2.7% increase in identical sales, partially offset by a reduction in sales related to store closures since the third quarter of fiscal 2018 and lower fuel sales. Identical sales continued to benefit from our growth in online home delivery and Drive Up and Go sales and Own Brands sales growth.
Gross profit margin increased to 28.3% during the third quarter of fiscal 2019 compared to 27.8% during the third quarter of fiscal 2018. Excluding the impact of fuel, gross profit margin increased 40 basis points compared to the third quarter of fiscal 2018, primarily due to improved product mix, including increased Own Brands penetration and lower shrink expense, partially offset by higher rent expense related to sale leaseback transactions.
Selling and administrative expenses increased to 27.0% of sales during the third quarter of fiscal 2019 compared to 26.5% of sales for the third quarter of fiscal 2018. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales increased 40 basis points. The increase in selling and administrative expenses was primarily attributable to higher rent and occupancy costs and strategic investments in digital and technology initiatives.
Interest expense was $154.8 million during the third quarter of fiscal 2019 compared to $213.0 million during the third quarter of fiscal 2018. The decrease in interest expense was primarily attributable to lower average outstanding borrowings and lower average interest rates. The weighted average interest rate during the third quarter of fiscal 2019 was 6.3%, excluding amortization and write-off of deferred financing costs and original issue discount, compared to 6.5% during the third quarter of fiscal 2018.
Income tax expense was $12.9 million during the third quarter of fiscal 2019 compared to income tax benefit of $65.4 million during the third quarter of fiscal 2018.
Net income was $54.8 million during the third quarter of fiscal 2019 compared to net income of $45.6 million during the third quarter of fiscal 2018.
Adjusted EBITDA was $634.4 million, or 4.5% of sales, during the third quarter of fiscal 2019 compared to $649.7 million, or 4.7% of sales, during the third quarter of fiscal 2018. The slight decrease in Adjusted EBITDA was primarily attributable to strategic investments in digital and technology initiatives and higher rent and occupancy costs related to the sale leaseback transactions, offset by growth related to the Company's 2.7% increase in identical sales and continued improvements in shrink expense.
Year-To-Date Q3 2019 Results
Sales and other revenue increased 1.1% to $47.0 billion during the first 40 weeks of fiscal 2019 compared to $46.5 billion during the first 40 weeks of fiscal 2018. The increase in sales was driven by the Company's 2.1% increase in identical sales during the first 40 weeks of fiscal 2019, partially offset by a reduction in sales related to store closures and lower fuel sales.
Gross profit margin increased to 28.0% during the first 40 weeks of fiscal 2019 compared to 27.6% during the first 40 weeks of fiscal 2018. Excluding the impact of fuel, gross profit margin increased 30 basis points.
Selling and administrative expenses decreased to 26.7% of sales during the first 40 weeks of fiscal 2019 compared to 26.9% of sales during the first 40 weeks of fiscal 2018. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 30 basis points.
Interest expense was $557.5 million during the first 40 weeks of fiscal 2019 compared to $662.5 million for the first 40 weeks of fiscal 2018. The decrease in interest expense primarily reflects lower average outstanding borrowings and lower average interest rates.
Adjusted EBITDA was $2,078.8 million, or 4.4% of sales, during the first 40 weeks of fiscal 2019 compared to $2,014.1 million, or 4.3% of sales, during the first 40 weeks of fiscal 2018. The increase in Adjusted EBITDA was primarily attributable to the Company's increase in identical sales and higher gross profit margin due in part to higher fuel margin and continued improvements in shrink expense, partially offset by incremental rent expense from sale leaseback transactions, higher employee wage and benefit costs and strategic investments in digital and technology initiatives.
Liquidity, Capital Investments and Strategic Transactions
Net cash provided by operating activities was $1,387.0 million during the first 40 weeks of fiscal 2019 compared to $1,069.1 million during the first 40 weeks of fiscal 2018. The increase in cash flow from operations compared to last year was primarily due to improvements in Adjusted EBITDA, lower acquisition and integration costs, lower interest payments and lower contributions to defined benefit pension plans and post-retirement benefit plans, partially offset by changes in working capital and an increase in income taxes paid primarily related to the Company's sale leaseback transactions.
During the first 40 weeks of fiscal 2019, the Company spent approximately $1.1 billion in capital expenditures, which included investments in strategic technology, the completion of 153 remodel projects and the opening of 12 new stores.
Financing Updates
On November 22, 2019, the Company completed the issuance of $750.0 million of principal amount of 4.625% Senior Unsecured Notes which will mature on January 15, 2027 (the "2027 Notes"). Net proceeds from the sale of the 2027 Notes were used to repay approximately $743 million of the Company's term loans.
Since the beginning of fiscal 2019, the Company has reduced the amount of its outstanding debt by over $1.8 billion. As of the end of the third quarter of fiscal 2019, the Company's total net debt to Adjusted EBITDA ratio was 3.0x compared to 3.9x as of the end of the third quarter of fiscal 2018.
