Albertsons (ACI, Financial) saw a significant drop in its stock price, down 5%, following the release of its Q1 results. The grocery chain reported a 2.5% year-over-year revenue increase to $24.89 billion, slightly surpassing expectations, driven by a 2.8% rise in identical sales. However, its EPS only beat estimates by a penny, marking one of its narrowest beats in over five years. On a positive note, Albertsons raised its guidance for identical sales growth to 2.00-2.75% from 1.50-2.50%.
- Revenue growth in Q1 was fueled by robust identical sales, particularly through its digital platforms. E-commerce surged 25% year-over-year, comprising 9% of total grocery revenue, while its pharmacy and health platform grew by 20%.
- The early increase in identical sales guidance indicates strong confidence from Albertsons. Companies typically avoid raising full-year guidance early to maintain flexibility for future quarters.
- The rise in guidance is also supported by Albertsons' productivity agenda, aimed at generating $1.5 billion in savings by FY25-27 to counter inflationary pressures.
- Despite the FY25 guidance increase, management warned that Q2 identical sales might fall at the lower end of expectations, with a gradual pickup anticipated in the second half of FY25.
- The competitive landscape remains challenging, with increased promotional activities from competitors. Albertsons is focusing on loyalty programs, which grew 14% year-over-year, but faces pressure from mass club stores like Costco (COST, Financial) and Walmart (WMT, Financial).
Despite the positive sales growth and guidance revision, the stock's decline is likely due to the narrow EPS beat. Additionally, aggressive pricing strategies from competitors may pose challenges for Albertsons in the future.
