Albertsons Companies (NYSE:ACI) reported third-quarter fiscal 2025 results that management said reflected “disciplined execution” amid a mixed consumer backdrop that included a government shutdown and delayed SNAP funding. On the call, CEO Susan Morris and President and CFO Sharon McCollam highlighted growth in identical sales and digital, ongoing investments in value and technology, and an updated outlook for fiscal 2025 that incorporates headwinds tied to Medicare drug pricing changes.
Third-quarter results: identical sales up 2.4%, digital up 21%
Management said identical sales increased 2.4% in the quarter, with McCollam noting the government shutdown and delayed SNAP funding negatively impacted identical sales by approximately 10 to 20 basis points. Digital sales rose 21%, and digital penetration reached 9.5%, according to Morris.
On profitability, McCollam said gross margin was 27.4%, down 55 basis points year over year excluding fuel and LIFO. She attributed the decline to “the expected mixed-shift impact of digital and pharmacy” and targeted price investments, while adding that gross margin improved sequentially versus the second quarter as productivity benefits partially offset investments.
The selling and administrative expense rate was 24.9%, down 33 basis points year over year excluding fuel, which McCollam said reflected productivity initiatives and operating leverage.
Technology and AI: four “big bets” and early digital search lift
Morris framed the quarter as the first since the company declared “a new day at Albertsons,” pointing to “bold decisions” in technology and AI transformation. She said the company is partnering with Google, OpenAI, and Databricks and is enhancing speed to market through its global capability center in Bengaluru.
Morris outlined four primary focus areas for technology and AI:
- Digital customer experience: Morris said the company’s “Ask AI” search capability is delivering a 10% increase in basket size for customers using it.
- Merchandising intelligence: Management described plans to use AI-driven insights and automation to optimize pricing, promotions, and assortment decisions, with a goal of driving margin improvement.
- Labor forecasting and scheduling: Morris said the company is deploying generative AI tools to improve labor forecasting and scheduling, aiming to reduce costs and improve the associate experience.
- End-to-end supply chain: The company said it is applying AI demand forecasting, advanced analytics, and computer vision to improve forecasting accuracy, fulfillment quality, and on-shelf availability.
Digital fulfillment speed, pharmacy growth, and loyalty expansion
In e-commerce, Morris said the company’s store-based fulfillment model remains a “structural advantage.” She noted that during the quarter more than half of digital orders were delivered in three hours or less, and more than 95% of delivery households were eligible for flash delivery in as soon as 30 minutes.
Pharmacy and health was another key focus. Morris said pharmacy delivered an “outstanding quarter,” driven by immunizations, GLP-1 therapies, and core prescriptions. McCollam said pharmacy and health sales increased 18%.
During Q&A, management addressed the customer journey from grocery to pharmacy engagement. McCollam said many pharmacy customers are already shopping with Albertsons in grocery, and that deeper engagement tends to build over “a one to two-year journey,” with increased adoption of digital and loyalty features as customers expand across the ecosystem.
Loyalty membership grew 12% year over year to 49.8 million members, according to McCollam. Morris highlighted program simplification and said 40% of engaged households choose the cash-off option. Morris also noted a new offering with Uber One that provides members with exclusive benefits and savings.
Value investments, consumer behavior, and retail media
Management repeatedly emphasized “surgical” and data-driven price investments. Morris said unit trends improved sequentially versus the second quarter, attributing the improvement to targeted pricing actions and loyalty-led value. She also described efforts to “soften the pass-through of inflation” to customers.
In response to questions about competition, Morris said Albertsons is “by nature” a promotional merchant and expects promotional investments to continue, particularly as consumers remain price-sensitive. She also pointed to vendor funding and the company’s “buying better together” procurement efforts as part of its approach to supporting value.
Morris described a consumer environment with pressure across income cohorts:
- Lower-income shoppers: smaller baskets, more frequent trips, and prioritization of essentials.
- Middle-income shoppers: signs of softening, increased price sensitivity, and trade-down behavior in some categories.
- Higher-income shoppers: largely stable spending, but becoming more value-conscious.
Albertsons also discussed its Media Collective retail media business. Morris said on-site media delivered double-digit year-over-year growth in the third quarter and the company added transaction capability to off-site ad units to improve partner ROI and speed campaign activation.
Capital allocation, store actions, and updated fiscal 2025 outlook
McCollam reiterated capital allocation priorities: invest in the business, maintain and grow the dividend over time, opportunistically repurchase shares, and preserve balance sheet flexibility.
In the quarter, Albertsons spent $462 million in capital expenditures, opened two new stores, completed 23 remodels, and closed 16 underperforming locations. The company also paid a quarterly dividend of $0.15 per share, totaling $77 million, and continued a $750 million accelerated share repurchase program announced the prior quarter, which management expects to be complete in early 2026. McCollam said there was $1.3 billion remaining under the existing $2.75 billion authorization following completion of the ASR.
Net debt-to-adjusted EBITDA ended the quarter at 2.29x, according to McCollam. She also said the company refinanced $1.5 billion of existing indebtedness in two tranches—$700 million of 5.5% notes due 2031 and $800 million of 5.75% notes due 2034—with proceeds used to refinance a $750 million 2026 bond maturity and repay $750 million of revolving credit facility borrowings.
For fiscal 2025, Albertsons narrowed its identical sales outlook to 2.2% to 2.5%. McCollam said the update reflects the Inflation Reduction Act’s Medicare drug price negotiation program taking effect on January 1, 2026, which she said will reduce reported pharmacy sales with a “near neutral” profit impact. The company estimated a 65-70 basis point headwind to fourth-quarter identical sales (16-18 basis points for the full year) with no impact to adjusted EBITDA.
Updated fiscal 2025 guidance provided on the call included:
- Identical sales: 2.2% to 2.5%
- Adjusted EBITDA: $3.825 billion to $3.875 billion, including approximately $65 million in the fourth quarter related to the 53rd week
- Adjusted EPS: $2.08 to $2.16
- Effective tax rate: 23% to 24%
- Capital expenditures: $1.8 billion to $1.9 billion (unchanged)
Looking ahead, management reiterated confidence in its “algorithm” for fiscal 2026, emphasizing growth levers across pharmacy, digital, loyalty, retail media, and productivity initiatives. The company said it plans to share the “next evolution” of its customers-for-life strategy during its fourth-quarter update, including greater integration of data and AI and additional detail on merchandising and portfolio actions.
About Albertsons Companies (NYSE:ACI)
Albertsons Companies, Inc (NYSE: ACI) is one of the largest food and drug retailers in the United States, operating a diversified portfolio of grocery store banners. Founded in 1939 by Joe Albertson in Boise, Idaho, the company has grown through both organic expansion and strategic acquisitions. Its core business activities encompass the sale of fresh produce, meat, bakery items, deli offerings, pharmacy services, and general merchandise. The company’s retail operations are complemented by an in-house private-label program, featuring brands such as O Organics, Open Nature, and Lucerne, which cater to a range of customer preferences and price points.
Throughout its history, Albertsons Companies has pursued growth via mergers and partnerships.
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