Albertsons Companies, Inc.

Thank you for standing by. Welcome to the Albertsons Company's first quarter 2021 earnings conference call. All participants will be in listen-only mode until the Q&A session. This call is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to hand the call over to Melissa Plaisant, GVP, Treasurer and Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Albertsons Company's first quarter 2021 earnings conference call. With me today from the company are Vivek Shankaran, our president and CEO, and Bob Diamond, our CFO. Today, Vivek will share insights into our first quarter results, as well as review our progress against our strategic priorities. Bob will then provide the financial details of our first quarter, as well as updated full year 2021 outlook, before handing it back over to Vivek for some closing remarks. After management's comments, we will conduct a Q&A session. I would like to remind you that management may make statements during this call that are or could include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not limited to historical facts, but contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions, and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. These risks and uncertainties include those related to the COVID-19 pandemic. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are and will be contained from time to time in our SEC filings, including on forms 10-Q, 10-K, and 8-K. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events, or otherwise. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures, and the historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA. And with that, I will hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thanks for joining us today. We entered uncharted territory in Q1 with comparisons to last year's pandemic stock-up period and the gradual reopening of various geographies as vaccination rates accelerated and COVID-related restrictions were lifted. In this dynamic environment, we remained focused on executing our strategy. centered around deepening relationships with our customers and leveraging technology to run our business more efficiently and effectively. I am pleased to report that our results for the quarter exceeded our internal plans across all key metrics, increasing our confidence in the balance of this year. Our ID sales grew 16.5% on a two-year basis, and we continue to gain market share in food on a one-year basis and in MULO, which includes most food, drug, mass, club, dollar, and military on a two-year basis. In addition, we achieved EBITDA of, adjusted EBITDA of 1.3 billion and adjusted EPS of 89 cents a share ahead of our expectations. Against a backdrop of growth exceeding 200% in every quarter in fiscal 20, our digital initiatives continue to resonate with our customers. and we have retained the sales levels we achieved last year with digital sales virtually flat year-over-year in Q1, and a two-year stacked ID sales growth of 276%. With all the options we have in place, we have achieved 95% customer coverage with e-commerce, and retention has been strong. At the same time, we have seen a pickup in in-store transactions versus Q1 2020, and many of those incremental in-store shopping trips are focused on fresh. At the end of Q1 2021, we had 3.6 times the number of omnichannel households than we had two years ago in 2019. We've seen that as customers move into omnichannel, they also increase their spend in our stores, with a net growth of 17% per household spend in the quarter and a total spend rate of two times that of an exclusively in-store shopper. In fact, in Q1, with identified households, an average in-store only shopper sales were down, while the omnichannel customer sales were up year over year. We've grown our identified households by 8% year over year for the last 52 weeks, allowing us to better understand their needs so we can personalize our offerings for them and drive recurring and incremental spend. Membership in our Just For You loyalty program continued to accelerate and was up over 18% year-over-year in Q1 2021 to 26.7 million members. We also increased the number of actively engaged customers by almost 13%, and we have a 94% retention rate with engaged Just For You households. Remember that actively engaged customers spend four times more with us. In summary, Our strategy of building lasting relationships with customers through a combination of digital and in-store engagement is driving our top line. Overall, our strategy is focused on four priorities. In-store excellence, accelerating our digital and omni-channel capabilities, driving productivity, and strengthening our talent and culture. In-store excellence is demonstrated through the one-stop shopping experience we continue to provide for our customers, supported by the quality, variety, and depth of our fresh and own brand's offerings that give us a competitive advantage. In fresh, which has always been a strategic focus for us, we continue to see stickiness, giving us confidence that our strategy is working. The fresh department's sales growth outpaced center store by approximately 200 basis points on a two-year basis. with each of our fresh categories ahead of pre-pandemic levels, as customers continue to consume more meals at home. As our markets have opened up, we've seen customers shopping in our stores more often and continue to see fresh as a key driver for growth. Our own brand's portfolio also continues to appeal to our customers, with strong sales driven by the introduction of new innovative products, as well as our focus on Albertson's legacy divisions that were historically underpenetrated. Our Q1 sales penetration was 25.2%, up over 100 basis points from Q1 2020 when supply issues impacted sales. We continued to innovate, launching 318 new items in Q1 2021, many of which were Signature Farms bulk items, including trail mixes, various nuts and dried fruits, open nature almond butter, and signature select premium beef patties. We continue to expect to launch over 800 items this year. We're also proud of our own brand scheme that was named the Store Brand Magazine 2021 Game Changer as a private brand that revitalized the industry. We also continue to capitalize on demand for convenient and fresh meals as consumers come to us for food beyond the purchase of ingredients. We have begun the rollout of our Ready Meals, our Ready to Eat, Ready to Heat, and Ready to Cook Meals programs and expect to be in approximately 500 stores by our fiscal year end. Finally, we continue to invest in our stores. We opened five new stores and completed 33 upgrade and remodel projects during Q1 21. Our second priority is the acceleration of our digital and omni-channel capabilities. Digital is an important growth driver for us as we strive to provide an area of convenient shopping experiences for our customers. We added a net 320 new Doug locations, drive up and go locations in Q1 21, bringing our total to 1,740 and Doug sales grew 75% year over year. We now expect to have Doug in approximately 1,950 locations representing approximately 98% coverage by the end of the second quarter. As part of our growth plans in digital, we also remain focused on delivering a superior customer experience as well as improving profitability. For example, we continue to achieve on-time tilling and delivery rates in excess of 95%, demonstrating consistent on-time delivery and dug pickups. We began the rollout of our integrated loyalty and e-commerce app offerings, a connected customer experience through a single interface. We launched the new San Jose Berryessa MFC, and that plans for an additional six MFCs before the end of our fiscal year, bringing the total to nine MFCs. We sped up delivery times while reducing delivery cost per order by expanding our third-party delivery store network while also adding DoorDash one-hour delivery to our e-commerce options, which has been rolled out to nine divisions so far. We also implemented our enhanced picking software at all dug locations to help optimize and standardize picking processes, increasing picks per hour and enhancing order prioritization.