Albertsons Earnings: Competition and Soft Food Inflation Result in Tepid Top-Line Growth

We don’t plan to materially alter our $25 fair value estimate for no-moat Albertsons following the retailer’s mixed fiscal 2024 third-quarter results. Top-line performance looked strong on the surface as 2% identical sales growth outpaced our 1% forecast. However, growth was largely driven by the pharmacy business while sales of nonperishable and fresh food expanded less than 1%. Growth in Albertsons’ food categories continued to underperform broader food-at-home inflation, which posted average annual growth of 1.3% between September and November 2024. Given the uncertain economic backdrop, we wouldn’t be surprised to see the supermarket behemoth’s top line continue to trail growth in food inflation and sales from lower-priced peers, such as wide-moat Walmart, in the coming quarters. But longer term, we think Albertsons can post 2.0%-2.5% top-line growth, consistent with our outlook for the grocery industry.