Q3 earnings results (ACI)
Albertsons reported EPS of $.79 vs. the $.59 consensus estimate. ID sales increased 5.2% vs. the consensus estimate of 1.4%. ID sales were essentially in line with CPI for the three months of ~5.4%. Digital sales grew 9% aided by the continued rollout of digital offerings.
Gross margins ex. fuel expanded 40bps in line with expectations driven by leverage, productivity initiatives, COVID-19 vaccines, and a favorable mix partially offset by inflationary pressures and higher supply chain costs. Private brand penetration increased 15bps YOY to 25.1%, a modest improvement considering the inflationary pressures consumers are seeing. Management noted the increased penetration was greatest in floral, deli, and foodservice which are departments with a lower brand mix. SG&A leveraged 20bps ex. fuel due to lower COVID-19 costs and productivity initiatives partially offset by higher employee costs, depreciation, and digital spending.
Management raised EPS guidance for the year from $2.50-2.60 to $2.90-2.95. ID sales expectations were raised from -2.5% to -3.5% to -0.8% to -1.2%. The guidance implies ID sales of 3 to 4.5% for Q4 which is conservative given the accelerating inflationary trends in food. During the quarter the company retired $330M of outstanding notes, reducing annual interest expense by $18M. The difficult comparisons, peak Omicron cases, inflationary pressures, and down trending food at-home consumption will lead for next year to be another year of EPS declines. Albertsons is on our short list.
Return to the office delayed (KR)
According to Kastle Office Systems, the average office occupancy of the top ten cities in the U.S. was 27.9% for the week ended December 15. Door swipes surged more than 10% points but did not reach the level two weeks prior, as seen in the chart below. The Texas cities had the largest recovery in the past week while Washington D.C., San Francisco, and the New York metro area were the most depressed.
The return to the office will determine how permanent the food consumption shift is from on-premise to off-premise. The omicron variant and the year-end holidays combined to send the vast majority of office workers home. Many companies have given up on trying to provide an office return date, but many workers desire a dedicated workspace outside the home. WeWork (covered by Rob Simone) has seen the number of desks rented globally increase to 66,000 in December from 55,000 in November and 43,000 in October. The physical occupancy rate reached 63% at the end of December, up from 56% at the end of Q3.
Positioned for growth in grocery (RGF)
The management team from Real Good Foods presented yesterday at the ICR conference. They said they have been able to show grocers that their products do not take share from the frozen section, but grow the basket. Management explained that in 2022 growth in the IRI measured channels will capture the majority of the company’s growth. In 2021 most of the growth was in the unmeasured channels which was an overhang for the shares. With new distribution gains set to commence in Q2, the scanner data will accelerate and be a positive catalyst for the shares with frequent updates highlighting the company’s growth. The company provided a sales update with the most recent scanner data seen below. The company's new manufacturing capabilities are ready to meet the demand growth as well.
