The Rodney Dangerfield grocer (ACI)
Like the late actor, Albertsons’ Q2 results did not get any respect. Q1 EPS was $1.35 vs. consensus of $1.32. ID sales increased 26.5% with March +47%, and April and May up 21%. In comparison, Kroger’s March SSS increased 30%, and April and May increased 20%. Albertsons said ID sales continue to be up mid-teens% in Q2. Management did not provide more detailed guidance beyond expecting EBITDA to be $3.7B or better this year.
There was a lot of attention to the conference call to management’s comments about promotions in late May and June. Albertsons’ gross margins expanded 80bps, ex. Fuel is driven by a lower shrink, topping Kroger’s 44bps of gross margin expansion. Kroger also said on its conference call that “we continue to invest in promotions.” It is a reminder that food retail is one of the most competitive sectors in the consumer sector. Albertsons has other headwinds and tailwinds in gross margins, so promotions should not be viewed in isolation. Albertsons’ SG&A leveraged 190bps while Kroger’s OG&A deleveraged 50bps. EBITDA margins expanded 270bps, and the flow-through on incremental sales was 20%. We expect the valuation gap to narrow before it is added to the S&P 500 next year. Albertsons is a Best Idea Long. We have additional thoughts in a separate note as well as a pre-IPO Black Book - for webcast and materials: CLICK HERE
Traffic to grocers slips in states adding restrictions (ACI)
Traffic to supermarkets has fallen dramatically in both California and Florida, two states that added restrictions to bars and restaurants at the beginning of July. Traffic to Florida supermarkets dropped LDD% last week after nearly reaching flat YOY over the 4th of July weekend, as seen in the following chart. In California, traffic to supermarkets was down 27% last week after reaching a pandemic best of -16% for the 4th of July. Albertsons said yesterday that traffic to its stores remains down, but ticket is up significantly.
Googlers to remain working from home (SYY)
Google is the first major US corporation to formalize an extended work from home policy. Google said it would keep employees home until at least next July. Google’s benefits, like free food, are generally well above the workplace standard. However, it does influence the benefits companies that compete against it for talent offer, especially in the technology fields. Google’s policy affects nearly 200,000 full time and contract employees. The decision to extend the start date was made in part to give employees flexibility in changing their residences to accommodate things like children’s schools. Google had previously told employees to expect a return to the office in January. Supermarkets benefit from the additional meals that employees working from home will purchase. Google’s decision also negatively impacts foodservice distributors because the company provided employees free meals throughout the day.
