Albertsons Companies, Inc. today reported results for the first quarter of fiscal 2020, which ended June 20, 2020.
“I am inspired by the many ways my colleagues continue to step up to serve our customers and help our communities around the country during this time of need,” said Vivek Sankaran, President and Chief Executive Officer. “Their hard work and dedication have also allowed us to successfully navigate this extraordinary environment and we have accelerated our digital and eCommerce strategy to adapt to market conditions. We generated strong financial performance in the first quarter, including robust cash flow and enhanced liquidity, which support our continued investment to benefit our associates, customers, communities and stockholders.”
The importance of private brand at Albertsons’ was demonstrated in the First Quarter Earnings Call which was also held today. Sankaran paid special attention to the private brand portfolio.
“We are constantly focused on innovation and continuing to grow our own brands portfolio, which is another advantage for us,” Sankaran said. “This portfolio includes nine brands, over 12,000 products and was a $13 billion business in 2019, growing faster than our branded business and on average contributes a 1,000-basis point advantage in gross margin versus national brands.”
He said private brand has exhibited strong growth as a part of its overall sales growth in recent years and the plan is to grow private brand penetration from 25.4% in 2019 to 30% in the next few years.
According to Sankaran O Organics and Open Nature grew faster than Albertsons overall business in sales during the quarter, with a 31% and 28% increase, respectively.
In Q1, Albertsons introduced more than 400 new items in private brands, and Sankaran called out the latest ice cream flavors that include new flavors, but also a collection of non-dairy, plant-based flavors.
First Quarter of Fiscal 2020 Results
Sales and other revenue increased 21.4% to $22.8 billion during the 16 weeks ended June 20, 2020 (“first quarter of fiscal 2020”) compared to $18.7 billion during the 16 weeks ended June 15, 2019 (“first quarter of fiscal 2019”). The increase was driven by the Company’s 26.5% increase in identical sales, partially offset by a reduction in sales related to store closures and lower fuel sales. Identical sales benefited from our 276% growth in digital sales and an increase in store sales, both largely driven by the COVID-19 pandemic.
Gross profit margin increased to 29.8% during the first quarter of fiscal 2020 compared to 28.0% during the first quarter of fiscal 2019. Excluding the impact of fuel, gross profit margin increased 80 basis points compared to the first quarter of fiscal 2019, primarily due to a reduction in shrink expense as a percent of sales. Gross profit margin also benefited from lower promotional activity during most of the first quarter of fiscal 2020 before promotional activity started to increase in the last week of May and throughout June.
Selling and administrative expenses decreased to 25.4% of sales during the first quarter of fiscal 2020 compared to 26.4% of sales for the first quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales decreased 190 basis points. The decrease in selling and administrative expenses was primarily attributable to sales leverage driven by significantly higher identical sales. The improved selling and administrative rate included the Company’s incremental COVID-19 investments, including more than $275 million in appreciation pay to front-line associates, and the Company’s $53 million contribution to hunger relief and other investments related to supporting and protecting our associates and customers. In addition, the Company incurred incremental expenses related to the civil disruption in certain of our markets in late May and June.
Interest expense was $180.6 million during the first quarter of fiscal 2020 compared to $225.2 million during the first quarter of fiscal 2019. 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 first quarter of fiscal 2020 was 6.0% compared to 6.5% during the first quarter of fiscal 2019, excluding amortization and write-off of deferred financing costs and original issue discount.
Income tax expense was $201.9 million during the first quarter of fiscal 2020 compared to income tax expense of $15.7 million during the first quarter of fiscal 2019. The increase in income tax expense is the result of the increase in income before taxes.
Net income was $586.2 million during the first quarter of fiscal 2020 compared to net income of $49.0 million during the first quarter of fiscal 2019.
Adjusted EBITDA was $1,691.0 million, or 7.4% of sales, during the first quarter of fiscal 2020 compared to $876.8 million, or 4.7% of sales, during the first quarter of fiscal 2019. The increase in Adjusted EBITDA was primarily attributable to the Company’s 26.5% increase in identical sales and the improved sales leverage experienced in gross margin and selling and administrative expenses.