Investors are selling off Albertsons (ACI, Financial) shares after the grocery chain provided disappointing FY26 earnings guidance. Despite surpassing Q4 earnings and revenue expectations and achieving healthy identical sales growth, the midpoint of ACI's FY26 comp guidance exceeded estimates. However, after a +10% increase earlier this year and concerns over weakening consumer confidence due to dynamic tariff policies, the market reacted negatively.
Since December, Albertsons has been in the news for terminating its merger with Kroger (KR, Financial) after legal challenges. Following this, ACI approved a $2.0 billion repurchase plan, about 16% of its market cap, and increased its quarterly dividend by 25%. In April, ACI announced that COO Susan Morris would become CEO on May 1, replacing the retiring Vivek Sankaran. This leadership change initially triggered a sell-off, but ACI's addition to the S&P MidCap 400 offset the negative sentiment.
- Today's downbeat outlook pushed ACI stock toward 2025 lows. The company forecasted adjusted EPS of $2.03-2.16, below analyst expectations, due to investments in its Customer for Life strategy aimed at achieving +2% comps with adjusted EBITDA growth outpacing comp growth.
- ACI's investments focus on enhancing digital platforms, modernizing stores, strengthening partner relationships to address inflation, and boosting private labels for profitability. The company aims to improve shopper audience targeting and media campaigns, with management warning of a short-term margin impact.
- Despite the earnings outlook, other metrics were strong. Q4 e-commerce sales surged 24% year-over-year, outpacing overall revenue growth of 2.5% to $18.8 billion and identical sales growth of +2.3%. Loyalty members increased by 15% year-over-year to 45.6 million, driven by ACI's mobile app offering personalized deals and rewards. ACI expects solid FY26 comps of +1.5-2.5%, aligning with its long-term strategy.
- Regarding tariffs, over 90% of ACI's products are sourced domestically, but the company is vigilant about potential impacts from tariff-affected ingredients. A task force is in place to navigate these complexities and mitigate adverse effects.
Overall, Albertsons delivered a solid Q4 report, highlighting strong demand and its business's defensive nature. However, investors are concerned about the earnings impact from the Customer for Life strategy, prompting profit-taking.
