Albertsons Reports Q2 Fiscal 2026 Results and $2 Billion Savings Target

Albertsons Companies (NYSE: ACI ) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call. This content is powered APIs. 36 per share.

E-commerce sales grew by 11%, and pharmacy sales remained strong despite challenges from the Inflation Reduction Act and a shift from branded to generic products. The company plans to accelerate cost savings and productivity initiatives, targeting $2 billion in cost savings over the next three years, focusing on areas such as third-party spend and store execution. Albertsons is undergoing a comprehensive business review to enhance shareholder value, including evaluating its portfolio of banners and markets and considering strategic actions.

Management emphasized the need to simplify operations, improve decision-making, and enhance the customer value proposition, with plans to provide a detailed multi-year financial outlook by the Q4 earnings call. 2 billion in operating cash flow and $400 million in share repurchases during the first half of 2026. Full Transcript OPERATOR Greetings. Welcome to the Albertsons Companies second quarter fiscal 2026 earnings conference call.

All participants will be in a 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, Interim Chief Financial Officer of Albertsons Companies. Please go ahead.

Cody Perdue, Interim Chief Financial Officer Good morning and thank you for joining us. Before we get started, I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC.

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. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in this morning's earnings release. Now let me hand the call over to Susan Morris, the Chief Executive Officer of Albertsons Companies.

Susan Morris, Chief Executive Officer Thanks, Cody, and good morning. Thank you all for joining us. Today's call is going to be a little different. Before Cody and I review the quarter and tell you about the big steps we're taking to accelerate Albertsons' progress, I've asked our new Executive Chair, Meg Whitman, to provide you with some of her thoughts and observations.

Having access to Meg has allowed me to draw on the perspective of a veteran CEO who has grown companies, unlocked shareholder value, and managed an enormous array of challenges. Her insights are helping us refine our effort. I want you to hear Meg's early impressions about the company. After Meg speaks, I'll provide a recap of our second quarter results and an assessment of our performance, discussing the actions we're taking to improve the business.

Finally, Cody will cover our financial results in some more detail. So, Meg, please take it away. Meg Whitman, Executive Chair Thank you, Susan, and good morning everyone. I want to spend a few minutes this morning sharing my perspective as I begin my role as Executive Chair.

Over the past several weeks I've spent some time with management, directors, associates, and customers, and have been getting to know the business. While it's still early days, here are some observations. First, Albertsons has significant strengths. We operate strong local banners in many prime locations, serve millions of customers every week, generate substantial cash flow, and have talented associates who care deeply about serving their communities.

Our pharmacy business is robust and a crucial part of our customers' lives. We've built a strong e-commerce platform and see AI as critical to our success. We have a proud history, and we want to win. That all said, our performance has fallen short.

Sales and earnings growth have not met our expectations, market share trends have lagged, and despite many individual successes across the business, we're not delivering results consistent with the quality of our assets. We must turn things around. The first step is to take a hard look at the business, challenge assumptions, and decide what actions create the greatest value for customers and shareholders. That includes looking at opportunities to run the core business much better by improving the operational model and decision-making.

It also includes improving the cost structure, reducing price for customers, and resetting priorities for improved capital allocation. We must also take a close look at our portfolio of banners, markets, assets, and businesses, as well as at potential strategic actions we can take to enhance shareholder value. Susan and I agree that everything should be on the table as we figure out how Albertsons should be structured to better compete in the years ahead. As I've worked with Susan and her leadership team, one thing has become increasingly clear.

We must move faster to reduce costs, reinvest much of those savings into lower prices, improve the store experience for customers, grow traffic and share in core markets, drive ID sales and revenue, and improve returns for shareholders. Albertsons must become a simpler, more focused company that gets the basics right every day. I joined Albertsons because I believe the company has greater potential than its results have reflected, but dramatic improvement is needed now. Albertsons must move faster to change the trajectory of the business.

What I have seen in Susan and her team is a renewed commitment to create long-term, sustainable shareholder value, all while staying focused on Albertsons' customers and communities. I believe we will turn the corner. So with that, let me turn it back over to Susan. Susan Morris, Chief Executive Officer Thanks, Meg.

Before discussing where we're headed, I'd like to briefly address the quarter's results. 36 per share. On the top line, ID sales in our core grocery business sequentially improved versus the first quarter by approximately 20 basis points. At the same time, pharmacy script count growth remained strong despite increasing sales headwinds related to the Inflation Reduction Act and an ongoing shift from branded to generic.

E-commerce continued to deliver double-digit growth of 11% during the quarter. Let me characterize the quarter by saying we saw some early signs of improvement. Some of our cost takeout and in-store execution began to yield results in the quarter. Those gains, however, need to be accelerated to offset continued pressure in our core retail operations.

The reality right now is that the economy is tough for many of our customers, fuel prices are elevated, and inflation remains stubbornly high for our customers and in our P&L. Traffic and units are below where they need to be, and our overall performance does not reflect the quality of our assets or the capabilities of our team. Simply put, we're not satisfied with the results and the current trajectory of our business. Over time, we launched a number of initiatives for good reasons and with the right intentions.

Upon reflection, however, too many initiatives, processes, and layers of complexity have built up, slowing the organization and increasing the costs of running our business. I take responsibility for some of that complexity. We recognize the need to simplify how we work, sharpen accountability, and move with greater speed and discipline to deliver better results. Going forward, our focus will be much narrower, our resources will be concentrated on the right projects that most accelerate our results, and our expectations and accountability for results will be significantly higher.

We must deliver more consistently for our customers. Price matters, promotions matter, freshness matters, convenience, selection, and customer service matter. Our job going forward is to deliver all of those things better than we do today. Over the last several years, we've invested in e-commerce capabilities, loyalty, pharmacy, retail media, Own Brands, and fresh differentiation.

Those are important investments that have increased the value to our customers. Now we must double down on the basics. Our stores must provide the products our customers want at prices they want to see in the places and formats they love. Going forward, we're evaluating every customer-facing investment against three outcomes: a stronger customer value proposition, improved traffic and units, and sustainable market share gain.

Those outcomes will increasingly guide how we allocate resources and measure success. 5 to $2 billion over the next three years. I believe there's more room to run there and at a faster pace. Last quarter we also announced ACI Edge.

ACI Edge began with two major structural changes: moving from 11 divisions to four regions and centralizing center-store merchandising. We will accelerate ACI Edge to improve buying and find savings we can pass back to customers more aggressively. As we evaluate opportunities to accelerate cost savings and productivity, two areas stand out early. The first is third-party spend for goods for resale and goods not for resale, where we believe there are meaningful opportunities to simplify, consolidate, and reduce costs across the organization.

The second is store execution. We will improve inventory discipline. We will reduce shrink, and we will recommit to running our stores at the highest standards, which includes providing the best training to our associates. These steps and more, taken together, will improve the customer experience and ultimately our business results.

Finally, we're taking a disciplined look at our portfolio. Albertsons has strong businesses, strong banners, and valuable assets. But not all assets create the same value. Going forward, we'll be more focused.

We'll invest where we have a clear path to win. We'll exit areas that are underperforming. Before I hand it over to Cody, let me leave you with this thought. There is significant potential in our business, but our performance has not reflected that potential.

Our responsibility now is to close that gap, and to close it fast. That means simplifying our organization, improving decision-making and execution, allocating capital with further discipline, and delivering more consistently for customers. Most of all, it means tackling even harder a cost structure that we can no longer afford. We must reduce our cost of doing business more aggressively to better serve our customers and shareholders.

With that, I'll turn it over to Cody. Cody Perdue, Interim Chief Financial Officer Thanks, Susan, and good morning everyone. Before I discuss the quarter, I'd like to reinforce a few of the themes Meg and Susan have shared. Right now we are focused on a simple question: How do we create a stronger, more competitive and more valuable Albertsons Companies?

From a financial perspective, we believe that starts from two distinct points. First, Albertsons Companies continues to have meaningful strengths. We operate strong local brands, serve millions of customers, generate significant cash flow, and have businesses and capabilities that are performing well. However, those strengths are not translating into the financial results we want to see.

Part of the reason for that is the economic challenges many of our customers face, with higher fuel prices at the top of the list. But there is also much more we can do to build a stronger business. While we have delivered growth in parts of the business, we have not generated the level of sales growth, earnings growth and shareholder return we believe we can and should produce. That reality is driving the work currently underway.

We believe this business can perform better than it does today. Our goal is to lock in on a few priorities that are the best identical sales and revenue drivers. With that, let me turn to our second quarter results. 8%.

Consistent with recent quarters, we saw continued strength across several areas of the business. 5%. Pharmacy identical sales continued to grow, supported by continued prescription growth. At the same time, we continued to face multiple sales headwinds in the quarter, including in our pharmacy 120 basis points related to the Inflation Reduction Act and an incremental 30 basis point headwind related to the ongoing brand-to-generic mix shift, a 30 basis point unit impact related to the Cyclospora outbreak, which broadly impacted produce sales, and 30 basis points related to the continued cycling of egg deflation.

In total, these headwinds were approximately 210 basis points to our total reported identical sales. All that said, customer engagement across our loyalty ecosystem remains strong, with active membership, personalized offers and digital engagement continuing to provide important competitive advantages. 8%, a decline of 17 basis points year over year excluding fuel and LIFO. The decrease in gross margin rate was primarily driven by the mix shift impact of outsized growth in e-commerce as well as higher shrink primarily associated with the Cyclospora outbreak.

We continued to make surgical investments in price funded by productivity initiatives. The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. In SG&A, our dollar spend was relatively flat on a year over year basis, reflecting the benefits of our productivity initiatives. On a rate basis, selling and administrative expense rate excluding the impact of fuel increased 38 basis points year over year.

The increase in the SG&A rate was primarily attributable to sales deleveraging resulting from lower identical sales, including the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q2 interest expense increased $20 million to $125 million compared to $105 million last year due to higher borrowings and slightly higher average rates. 36 per diluted share. In sum, these results demonstrate the resilience of our business and our ability to generate meaningful profitability and cash flow.

They continue to underscore the opportunity we believe exists to improve both growth and returns over time. Our business continues to generate meaningful cash flow and maintain a strong financial foundation. 2 billion. Capital expenditures totaled approximately $900 million, including 38 remodels and the opening of seven new stores, and continued investment in our digital and tech platforms.

And ultimately, free cash flow was more than $300 million. 4 times. These results provide the flexibility to continue investing in the business while maintaining a disciplined approach to capital allocation. 7 billion remaining against our $2 billion share repurchase authorization that was refreshed in April of this year.

17 this morning. Our overall capital allocation objective is clear: allocate capital where it can create the greatest long-term value for shareholders. Although the business performed in line with our revised guidance expectations during the second quarter, we do not believe it is prudent today to provide an incremental update to our financial outlook. Instead, we believe the better path is to look closely at the business, establish clear priorities and come back to investors with a comprehensive plan and multi-year financial outlook.

By our fourth quarter earnings call, we will provide a refreshed customer strategy, a significantly expanded productivity and cost reduction program including opportunities in goods for resale and goods not for resale, shrink reduction and other simplification initiatives, a framework for pricing improvements that will attract more customers, portfolio optimization actions, and finally, an updated capital allocation framework. All of that will come together with a clear set of metrics and KPIs and, as I mentioned, a fully vetted financial outlook that will allow you to track our progress with precision.

We also plan to host an Investor Day in spring 2027 to further detail the plans outlined above. Ultimately, the goal is to establish a roadmap that improves execution, strengthens our competitive position, increases returns and creates greater long-term value for shareholders. With that, I'll turn the call back to Susan. Susan Morris, Chief Executive Officer Thank you, Cody.

Before we move to questions, let me leave you with one final thought. Albertsons Companies is now fully engaged in a turnaround. The company has strong assets, talented associates and significant potential.