Albertsons Sinks as Cost Pressures Dim Shine of Sales Surge

(Bloomberg) -- Albertsons Cos. fell the most in a month as higher labor and logistics costs complicate the grocer’s effort to cash in on rising revenue. 

Wage increases and hiring tied to increased sales of fresh products pushed up employee expenses, Albertsons said Tuesday as it reported quarterly earnings. While higher prices charged to consumers helped boost revenue, inflation weighed on profitability because the company is absorbing some of the costs instead of passing them all on to shoppers -- much as Walmart Inc. and Target Corp. have said they are doing. 

“We have to stay competitive every day to win and retain our customers,” Albertsons Chief Financial Officer Sharon McCollam said on a conference call with analysts. 

The results underscore the challenges facing supermarkets as cost increases threaten to outlast a pandemic-era shift to more home-cooked meals and a temporary revenue boost from administering Covid-19 vaccines. Albertsons also said it logged higher supply-chain costs, echoing comments from other retailers on Tuesday including Urban Outfitters Inc. and American Eagle Outfitters Inc.

The shares fell 5.2% to $30.24 at 12:34 p.m. in New York after sliding as much as 11% for the biggest intraday decline since Dec. 8. Albertsons advanced 92% during the 12 months ending Monday, the biggest gain on a Russell 1000 index of consumer staples companies. 

‘Real’ Inflation

In a reflection of cost pressures, Albertsons’ gross margin rose just 0.1 percentage point from a year earlier after excluding the impact of fuel price swings. The Boise, Idaho-based company expects the inflation rate to remain elevated through March before “hopefully” moderating, said Chief Executive Officer Vivek Sankaran. 

He and his counterparts at Kroger Co. and Publix Super Markets Inc. got a scolding last month from Senator Elizabeth Warren, a Massachusetts Democrat, who questioned their executive-compensation packages and decisions to raise prices. But “cost inflation is absolutely real,” Sankaran told analysts on the earnings call. 

Suppliers “are seeing it in ingredients, packaging, transportation, labor and we are seeing it in our own business,” he said. 

Albertsons declined to quantify the sales boost it got from administering Covid-19 vaccines. In any event, that effect is likely to ebb as “vaccine tailwinds fade,” Rupesh Parikh, an analyst at Oppenheimer & Co., said in a note to clients. 

Adjusted net income climbed to 79 cents a share in the fiscal third quarter, which ended Dec. 4, Albertsons said. That topped the highest of 21 analyst estimates compiled by Bloomberg. Revenue increased 8.6% to $16.7 billion. Analysts had expected $16.1 billion. 

Same-store sales, a key metric for retailers, advanced 5.2%, easily exceeding Wall Street’s prediction of 2.9%. During the fiscal year as a whole, revenue on that basis will decline no more than 1.2%, Albertsons said, improving its previous forecast for a drop of as much as 3.5%. 

Albertsons also raised its full-year profit outlook to as much as $2.95 a share, compared with a previous forecast of no more than $2.60. Analysts had expected $2.64. 

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