Between multiple lawsuits, a failed merger, and steep competition with online grocers, Albertsons is not having an easy time of it lately.
The grocery giant recently settled a lawsuit over its alleged role in the opioid crisis, The Wall Street Journal reported. It also faces allegations that it price-gouged its buy-one-get-one-free deals, TheStreet reported.
And now a deep look into Albertsons’ annual report shows a company struggling to grow sales in one key area.
Albertsons’ rocky year
Albertsons posted a year-over-year rise in net sales for its most recent fiscal year. According to its latest filing, sales were up 3.5%.
But its financials paint a different story.
Albertsons’ full-year financials
- Albertsons operating income was down 50% following a failed merger with Kroger, its annual report shows.
- Net income fell three-quarters to $217.4 million compared to $958.6 million the prior year.
- Meanwhile, Albertsons’ debt has increased, with long-term debt and other liabilities rising 8% to $8.4 billion.
Albertsons took a huge hit from the opioid settlement, the annual report reveals, which could explain why its operating income was down.
But a further look at where sales are growing at Albertsons, and where they aren’t, shows an even more troubling trend.
Albertsons relies on this one sector
Albertsons increasingly relies on its pharmacies to drive sales and revenue. The 3.5% rise in sales was largely due to a 2% increase in identical sales, mostly from its pharmacies, according to Albertsons’ annual report.
The grocer operates more than 1,700 in-store pharmacies, with pharmacy sales accounting for 13.7% of total revenue. But unfortunately, even that market is under pressure.
Pharmacy sales were profitable despite pressure from the Inflation Reduction Act, which took effect in the last fiscal quarter, Albertsons CEO Susan Morris said during an earnings report call.
“This performance reinforces our confidence in our strategy to improve pharmacy stand-alone profitability, while also driving materially higher customer lifetime value among customers who shop both pharmacy and grocery,” Morris said.
The rule, which changed how Medicare pays for some medicines and aimed to reduce prescription drug prices, has had a huge impact on the pharmaceutical industry, according to a report from the Journal of Managed Care & Specialty Pharmacy.
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Albertsons’ dip in sales
Where Albertsons sees sales falling is in fresh produce. And for a company that specializes in groceries, that’s not a great sign.
Although nonperishable food and fresh produce still make up the bulk of its sales, overall growth was down from the year before.
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And while increasingly health-conscious Americans are driving up sales of fresh foods, foot traffic seems to be going to fresh-format grocery chains such as Sprouts and Trader Joe’s, which are seen as higher-quality, according to Placer.ai.
“While this pivot has been underway for several years, reflecting a broader post-pandemic focus on health and wellness, its recent acceleration coincides with the rise in GLP-1 use,” the data analytics platform wrote.
Still, one bright spot for Albertsons is e-commerce growth. Digital sales rose 21% in the last fiscal year, the company reported in a recent earnings report call. This could be attributed to its investment in technology and focus on delivery, as well as the closure of 35 physical stores in 2025.
“Our AI-enabled shopping assistance, already showing meaningful lift in basket size, continues to enhance personalization, and we see significant runway ahead as customer adoption increases,” Morris said during the call.
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