Gross margin statement (ACI)
Albertsons reported FQ3 EPS of $.87 vs. consensus of $.68. Although adjusted earnings excluded $64.5M of LIFO expense and $33M of stock compensation in addition to $31M of business transformation and merger-related costs. ID sales grew 7.9% driven by inflation vs. consensus expectations of 4.8%. Digital sales grew 33%.
Gross margins contracted 70bps YOY and were 20bps below consensus expectations. Excluding fuel and the LIFO expense, gross margins contracted 47bps due to higher product, shrink, and supply chain costs, as well as fewer COVID vaccines. SG&A costs were 29bps lower YOY ex. fuel due to productivity initiatives, sales leverage partially offset by higher wages, and e-commerce costs.
Adjusted EBITDA margins were 10bps higher YOY. The lengthy merger review poses a risk of executive flight. In order to retain employees in the period of uncertainty the company approved a $100M program to incentivize certain employees to stay until at least six months after the closing of the merger or October 2025.
Albertsons has reported two quarters above expectations since the merger announcement. Upside from gross margins would probably not be helpful politically while the FTC is reviewing the merger, so a significant 70bps decline seems purposeful. Albertsons is behind Kroger and the mass retailers in its online offering. E-commerce is one of the larger areas of synergies in the proposed merger.
Dry January Participants (BUD, STZ)
According to Morning Consult participation in Dry January fell 4% points to 15% this year. Participants cited health benefits as the reason for cutting back while cost savings were the second most common motivation at 73% of participants. The beer companies could certainly use fewer people skipping the entire month of January. Non-alcoholic beer sales would not make up the difference. Non or low-alcohol products only represent 1% of beverage alcohol volume share, but grew 15% last year.
Growth at the premium end (NAPA, STZ)
Preliminary market data from IWSR shows that beer, cider, wine, spirits, and RTDs all grew in 2022 in the premium and above price tiers. Total volumes mostly declined with wine down 2%, beer down 2%, cider down 4%, but spirits grew 2% and RTDs grew slightly. The premium tiers grew for wine up 6%, beer up 4%, cider up 11%, spirits up 13%, and RTDs up 38%. Continued growth at the higher end is why most of the beverage alcohol companies are concentrating their products there and why consumers are reducing their volumes.
