Boise, Idaho-based supermarket giant Albertsons has posted earnings from continuing operations of US$220m, or US$0.54 per share, for its second quarter ended 1 August, up 13% year on year.
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Net earnings for Q2 reached US$253m, or US$0.62 per share, compared to a loss of US$151m, or US$0.37 loss per share, in the Q2 2001.
“The revitalisation of Albertsons continued in the Q2 as we delivered another double-digit earnings increase,” said Larry Johnston, chairman and CEO: “We believe our major restructuring programmes coupled with the implementation of key strategic initiatives established a strong foundation that helped us successfully navigate through a tough economic environment.”
The significant reduction in the total number of stores due to recent restructuring activities affected total sales in the Q2, which reached US$8.9bn, compared with US$9.2bn in the Q2 2001. Comparable-stores and identical-stores sales trends showed declines of 0.1% and 0.6%, respectively. Johnston said, “Indicative of the weak economic environment, sales deflation, as we measure it, weighed in at 0.5% for the Q2 and along with the sluggish economy was an obvious contributor to our same stores sales results.”
Cash flow from operations for the Q2 totalled US$587m, up 37%. Free cash flow was US$436m, up ten-fold from the prior year. During the quarter, Albertsons also bought back 2.7 million shares for almost US$76m, at an average cost of US$27.77 per share. “We have exercised our financial flexibility to enhance shareowner value at a time when the current stock price, in our opinion, does not reflect the value of our company,” said Johnston.
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By GlobalDataAlbertsons’ gross margin from continuing operations for the Q2 increased 96 basis points to 29.35%. “We are driving margin expansion by reducing controllable costs while also providing stronger service levels and full value to our customers. In addition, we are doing things both in the store and backstage that will ensure our continued competitive success,” said Peter Lynch, president and COO.
During the Q2, Albertsons saw continued positive results from its cost reduction efforts in key controllable categories. “On the cost front,” Johnston said, “During the Q2 we achieved our target of US$250m in annual cost reductions. With Phase Two of the restructuring now nearly completed, we are also well on our way to achieving an additional US$250m in cost savings by the Q2 2003, positioning us to reach our previously stated total cost reduction goal of US$500m.” Johnston continued, “Given the robust competitive environment as well as the continuing economic situation, we are announcing today a third round of cost controls targeting an additional US$250m, bringing our total cost reduction target to US$750m.”
Albertsons also invested in new stores and remodels during the quarter, adding 13 new combination food and drug stores, 9 new drugstores, and 11 new fuel centres, while also completing 44 store remodels, including dual-branded conversions. Restructuring activities continued with the closure of 53 supermarkets, 17 drugstores and 23 fuel centres. Albertsons also completed its dual-branded grocery and drug stores conversion in the Phoenix market. Albertsons ended the quarter with 1,562 supermarkets, 705 drugstores, and 174 fuel centres.
Looking forward, Johnston commented: “We believe we will achieve earnings of US$0.52 per share from continuing operations in the Q3 2002, a double digit increase versus the prior year. The economy may not have turned around as quickly as forecasted, but the strong new foundation we have built in this company allows us to remain confident in our 2002 EPS guidance of US$2.31, an increase of 12% from 2001.”
