Company Reports

We will discontinue analyst coverage of Albertsons on or about Sept. 1. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

With a network of about 2,300 stores, Albertsons is one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets; a year later, it pursued an acquisition of Safeway. Now, with stores spanning 34 states and a more than $76 billion top line (excluding fuel) that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. The grocery industry benefits from steady demand, as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

Albertsons' first-quarter identical sales increased 2.8%, led by pharmacy (up 20%) and e-commerce (up 25%). But shares drifted 5% lower during July 15 trading, as gross margins decreased to 27.1% from 27.8%, driven by continued promotional investment.

With a network of about 2,300 stores, Albertsons is one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets; a year later, it pursued an acquisition of Safeway. Now, with stores spanning 34 states and a more than $76 billion top line (excluding fuel) that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. The grocery industry benefits from steady demand, as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

with a network of over 2,200 stores, Albertsons is one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets; a year later, it pursued an acquisition of Safeway. Now, with stores spanning 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. The grocery industry benefits from steady demand, as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

Albertsons capped off fiscal 2024 with 2.3% identical sales growth in the quarter. The retailer also posted an adjusted operating margin of 2.2%, down 30 basis points from the prior year.

We plan to maintain our $25 fair value estimate and Standard Capital Allocation Rating on no-moat Albertsons following the firm’s announcement that CEO Vivek Sankaran plans to retire in May 2025. While we look favorably upon Sankaran’s six-year tenure as CEO, the final two years proved tumultuous as he oversaw the pending merger with no-moat Kroger, which was ultimately terminated in December 2024. While the nixed merger offers clarity to the nation’s second-largest supermarket chain, we acknowledge that Sankaran’s planned departure comes at a time in which the firm continues to face stringent competitive pressure from low-price peers such as wide-moat Walmart and wide-moat Costco.

No-moat Albertsons, with its network of over 2,200 stores, operates as one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets, and just a year later pursued an acquisition of Safeway. Now, with stores spanning across 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. We also note that the grocery industry benefits from steady demand as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

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.

The proposed $25 billion merger between no-moat supermarket behemoths Kroger and Albertsons was dealt a blow when the US District Court for the District of Oregon sided with the Federal Trade Commission in granting a preliminary injunction on Dec. 10. While the decision strikes us as unsurprising, we note that the ruling simply paused the merger rather than nixing it altogether. However, on Dec. 11, the potential combination was put to rest as Albertsons terminated its merger agreement and filed a lawsuit against Kroger.

No-moat Albertsons, with its network of over 2,200 stores, operates as one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets, and just a year later pursued an acquisition of Safeway. Now, with stores spanning across 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. We also note that the grocery industry benefits from steady demand as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

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.

No-moat Albertsons, with its network of over 2,200 stores, operates as one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets, and just a year later pursued an acquisition of Safeway. Now, with stores spanning across 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. We also note that the grocery industry benefits from steady demand as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

No-moat Albertsons delivered lackluster first-quarter results that were weighed down by weak food sales and elevated operating expenses. We plan to slightly reduce our $27 fair value estimate as we expect intensifying retail competition to weigh on top-line gains and profits in coming quarters.

No-moat Albertsons, with its network of over 2,200 stores, operates as one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets, and just a year later pursued an acquisition of Safeway. Now, with stores spanning across 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. We also note that the grocery industry benefits from steady demand as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

No-moat Albertsons’ fiscal fourth-quarter results reflected the grocery industry’s tough competitive landscape as identical sales growth of 1% underperformed our 2% estimate. Sales ticked up for the quarter primarily due to strength in the firm’s pharmacy business, while its nonperishable and fresh food categories (over 80% of sales) posted a low-single-digit decline. The 28% gross margin (up 20 basis points annually) was impressive at first glance, but gross margin contracted nearly 60 basis points, excluding favorable inventory accounting effects and fuel, amid higher fulfillment costs related to digital orders and an unfavorable sales mix (pharmacy sales typically carry a lower margin). Ongoing investments in digital fulfillment and delivery capabilities also contributed to a 60-basis-point reduction in fourth-quarter adjusted operating margin to 2.5%. We surmise that less-pronounced food inflation has prompted grocery stores’ pricing gains in recent quarters to abate, and we expect promotional activity to increase as stores compete for customer traffic to drive growth. Because Albertsons lacks a durable cost advantage over lower-priced peers like wide-moat Walmart and Costco, we maintain our forecast for weak comparable sales growth and slight operating margin degradation in fiscal 2024. We do not plan to materially alter our $28 fair value estimate and currently view the shares as undervalued.

We raise our fair value estimate on no-moat Albertsons to $28 per share, from $27, primarily due to a slight increase to our stage two growth outlook (we model flat earnings before interest growth compared with a 2% decline previously). We currently view shares as undervalued and credit Albertsons’ management team for prioritizing operational improvements at the store and supply chain level while balancing investments in its digital fulfillment capabilities, helping to drive modest margin expansion in recent years.

No-moat Albertsons, with its network of over 2,200 stores, operates as one of the largest grocery retailers in the United States. After purchasing over 600 Albertsons stores in 2006, Cerberus Capital Management expanded its footprint through its 2013 deal with Supervalu to acquire nearly 900 supermarkets, and just a year later pursued an acquisition of Safeway. Now, with stores spanning across 34 states and a more than $75 billion top line that gives the firm a strong standing with suppliers, Albertsons’ presence in US communities appears well entrenched. We also note that the grocery industry benefits from steady demand as food-at-home spending per capita typically increases at a low-single-digit pace, helping to limit mismatches in industrywide supply and demand and thus providing some stability to Albertsons’ financial outlook.

After reviewing narrow-moat Kroger and no-moat Albertsons' planned merger for over a year, the US Federal Trade Commission ultimately deemed the nearly $25 billion deal anticompetitive and sued on Feb. 26 to block it. We have long held that the merger would face insurmountable regulatory scrutiny, thus to us, the decision was not unexpected. While the timing of future litigation and the ultimate court ruling remain uncertain, we still view the proposed deal as unlikely to close, and we do not plan to alter our $53 and $27 per share fair value estimates for Kroger and Albertsons, respectively.

We continue to believe that the long-term environment for the grocery sector will feature intense price competition, high customer expectations, and more costly fulfillment (particularly delivery). With wide-moat companies like Walmart and Amazon battling for national supremacy, traditional grocery leader Kroger building a highly automated delivery fulfillment network with Ocado, and the hard discounters boosting their presence, we believe Albertsons will be hard-pressed to defend its returns on invested capital (14% on average in fiscal 2020-22, but only 7% on average in fiscal 2018-19; includes goodwill). Additionally, we are skeptical that Kroger’s proposed acquisition of Albertsons will achieve regulatory approval.