Albertsons Companies, Inc.

Welcome to the Albertsons Company's second quarter 2021 earnings conference call, and thank you for standing by. All participants will be in listen-only mode until the Q&A session. This call is being recorded. I would like to hand the call over to Melissa Plaisance, GVP, Treasury and Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the Albertsons Company's second quarter 2021 earnings conference call. With me today from the company are Vivek Shankaran, our CEO, and Sharon McCollum, our new president and CFO. Today, Vivek will share insights into our second quarter results, as well as review our progress against our strategic priorities. Sharon will then go into the financial details of our second quarter, as well as our updated full year 2021 outlook, before handing it back over to Vivek for some closing remarks. After the prepared remarks, 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. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements are and will be contained from time to time in our SEC filings, including on forms 10Q, 10K, and 8K. 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'll hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thanks for joining us today. Before we get started, I would like to introduce Sharon McCollum to any of you that do not know her in her new role as President and CFO at Albertsons Companies. She will lead all areas of finance, IT, real estate, strategy, corporate development, and supply chain. As many of you know, Sharon officially joined us on September 7th and now has just over six weeks under her belt. She came out of retirement to join us on our transformation journey, and her prior experience at Best Buy and with the digital transformation of Williams-Sonoma will help us as we move forward. We are very excited that she has joined our team, and I look forward to working with her to accelerate our transformation. We also want to congratulate Bob Diamond on his retirement and thank him for his seven years of service with Albertsons, and especially for his contributions to our successful IPO last year. Let me now turn to our second quarter results. I'm pleased to report that our results for the quarter exceeded our internal plans across all key metrics, increasing our confidence in the business going forward. Our ID sales increased 1.5% in Q2 and 15.3% on a two-year stack basis. We continued to gain market share in food on a one- and two-year basis, and in MULO, we are up on a two-year basis and down only slightly on a one-year basis. In addition, we achieved adjusted EBITDA of $965 million and adjusted EPS of 64 cents per share, ahead of our expectations. Again, this quarter, against a backdrop of digital sales growth exceeding 200% in every quarter of 2020, the benefits of our digital and omnichannel investments continue to resonate with our customers. In the quarter, Digital sales increased 5% year-over-year and increased 248% on a two-year stack basis. Our drive-up-and-go and home delivery capabilities, reaching 95% of our customers, increased omnichannel households by over four times versus Q2 2019, and retention has been strong. Omnichannel household growth is a key initiative, as these customers spend three times more than any in-store-only shopper. We also continue to drive year-over-year growth in identified households, another key initiative that is foundational to better understanding our customers through data analytics and allowing us to improve our offerings to drive recurring and incremental spend. In our Just For You loyalty program, ongoing benefit enhancements continue to accelerate membership growth, which increased 17% year-over-year to 27.5 million members. Within the program, the number of actively engaged members increased by almost 9%. Actively engaged members are those that are redeeming rewards such as fuel or grocery rewards in the current quarter. In addition, we had a 93% retention rate with actively engaged members in Q2. Remember that actively engaged members spent approximately four times more with us. We also saw better than expected in-store results as traffic in our stores continued to increase versus Q2 2020. We believe the increased traffic is being driven by our ongoing efforts to protect the health and safety of our employees, customers, and communities, and the higher vaccination rates that are helping customers become more comfortable in returning to stores. These results reflect the momentum we are seeing through the execution of our transformation strategy across all channels. the consumer backdrop remains strong throughout the quarter. I will now take a few minutes to walk through the pillars of our transformation strategy that help drive these results and provide you with an update on our progress. These pillars include in-store excellence, accelerating our digital and omnichannel capabilities, increasing productivity, and strengthening our talent and culture. In-store excellence has been elevated by providing the right assortment in each local market, using digital tools to enhance replenishment and in-stock conditions, encouraging friendly customer service, and enhancing speed and ease of checkout through frictionless and contactless payments. I will briefly touch on recent progress on two elements of our assortment, fresh and own brands. In fresh, our efforts to differentiate our offerings have generated elevated demand. with fresh growth outpacing center store by approximately 250 basis points year over year. Sales in each of our fresh categories remain ahead of pre-pandemic levels, as customers continue to consume more meals at home. In own brands, the introduction of new products, as well as the rollout of own brands into Albertson's legacy divisions, has generated strong growth. Our Q2 sales penetration was 25.2%, up approximately 60 basis points from Q2 20. During the quarter, we launched 85 new products, including ready-to-eat meals, refrigerated signature reserve pastas, and several all-organics coffee items. Year-to-date, we have launched over 400 new own-brands items and are on track to reach our goal of launching over 800 items this fiscal year. Finally, we continue to invest in stores. Through the first half of the year, we opened seven new stores and completed 76 upgrade and remodel projects. Our next priority is the acceleration of our digital and omnichannel capabilities. Digital transformation is an imperative in our growth strategy, as we aim to provide an array of convenient shopping experience for our customers. To this end, we have expanded our drive-up-and-go locations to over 1,900 and expect to reach approximately 2,000 locations by year-end. Underlying the rollout of our digital and omnichannel capabilities is our focus for delivering a superior customer experience, as well as improving profitability over time. For example, in drive-up-and-go, our average wait time for pickup is now down to three minutes. In delivery, We continued to speed up delivery times while reducing delivery cost per order by expanding our third party delivery store network. And we added DoorDash one hour delivery to all divisions with a catalog of 40,000 plus products. And we also announced Double Dash, allowing customers to combine delivery of a restaurant meal and a grocery delivery in one trip. In micro fulfillment centers, We are improving our productivity in our three existing MFCs, and we have plans for an additional four MFCs before the end of our fiscal year, bringing the total to seven. This is two less than previously estimated, as the launch of two locations has moved into fiscal year 22, primarily as a result of delays in construction. In loyalty, our integrated loyalty e-commerce app is now fully rolled out and offers a connected customer experience with redesigned rewards and other new features. To partially offset all of these investments and cost inflation, our third priority is driving productivity. During the quarter, we continued to eliminate waste and improve efficiencies to enhance promotional effectiveness, reductions in indirect spend, labor efficiency, and ongoing efforts to reduce shrink. We continue to expect to achieve the targeted $1.5 billion in annual gross savings by the end of fiscal year 2022. Our fourth priority is strengthening our talent and culture and supporting the communities we serve. We continue to add talent throughout the company at both the corporate and division level, including the recent appointment of Sharon, our outreach through job fairs for retail and distribution employees, and the training we've put in place to assist in the success of our new employees and enhance retention. Our pharmacy team continues to serve our communities with an array of services, including the COVID and flu vaccines. To date, the pharmacy team has administered over 7.5 million COVID vaccine doses. In support of our associates that were impacted and the communities we serve, Albertson's companies donated $500,000 to help provide food to those impacted by Hurricane Ida and the California wildfires. We also continue to take actions related to ESG and sustainability. We recently published our fiscal 2020 ESG report, which is available on our company website. As the next step from our recently refreshed materiality assessment, We will soon release a comprehensive set of goals in areas including climate action, diversity, equity, and inclusion, waste reduction and circularity, and community stewardship. And now I will turn to Sharon to provide remarks and cover the details of our second quarter of financial results and outlook.