Albertsons Earnings: Sales Look Uninspiring, Margins Pressured by Competition and Digital Ordering

We plan to lower our $26 fair value estimate on no-moat Albertsons by a low- to- mid-single-digit percentage following its fiscal 2024 second-quarter earnings release. The retailer’s results looked impressive at first glance as identical store sales improved 2.5%, exceeding our forecast for a 1.5% gain. However, similar to last quarter, top-line growth was entirely driven by the firm’s pharmacy business, while sales of nonperishable and fresh food held mostly flat. As such, Albertsons appears to have lost grocery market share in the quarter as its food sales trailed the 1% average annual growth in food at home inflation from June to August 2024. Commentary from several food retailers under our coverage suggests that shoppers have grown more value-conscious in recent quarters due to economic uncertainty and persistent inflationary pressures. As shoppers actively search for deals and retail competition intensifies, we expect Albertsons’ top line to continue underperforming lower-priced peers, such as wide-moat Walmart, which delivered 4% comparable sales growth in its May to July quarter.