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Presentation

Albertsons Companies, Inc. beats earnings expectations. Reported EPS is $0.46, expectations were $0.4.

Operator: Welcome to the Albertsons Companies Fourth Quarter and Fiscal Year-End 2024 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, Senior Vice President, Investor Relations, Treasury and Risk Management. Please go ahead.

Melissa Plaisance: Good morning and thank you for joining us for the Albertsons Companies fourth quarter and fiscal year-end 2024 earnings conference call. With me today from the company are Vivek Sankaran, our CEO; Susan Morris, our COO and CEO-Elect; and Sharon McCollam, our President and CFO. Today, Vivek will make a few parting comments on his retirement and then Susan will update you on our strategic priorities and our progress and path forward against them. Then Sharon will provide the details related to our fourth quarter 2024 financial results and our 2025 financial outlook before handing it back over to Susan for some closing remarks. After management comments, we will conduct a Q&A session. I’d 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 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’ll hand the call over to Vivek.

Vivek Sankaran: Thanks, Melissa. Good morning, everyone, and thank you for joining us today. First, let me say a few words about my upcoming retirement and Susan’s succession to the role of CEO. It has been an honor to serve as the Albertsons CEO and work alongside the best people in the industry. My tenure has spanned the COVID-19 pandemic, our initial public offering and our reemergence as a standalone company following our 2022 review of strategic alternatives. What I’m most proud of is that throughout this journey, we have stayed true to our customers, invested in strengthening our business and advancing our customers for life strategy. This strategy has firmly positioned the company for its next chapter of growth and value creation for our shareholders.

Within the few months since the termination of the merger, our mojo is back. We are executing once again like we used to and we have proof points and therefore more conviction to say that our strategy is right and working. Thank you for your support through all of it. For those of you who don’t already know Susan, let me introduce you. Susan is a homegrown talent, starting her career at Albertsons nearly 40 years ago at a store in the Denver market. During her tenure, she has taken on roles of increasing responsibility, including store operations, supply chain and merchandising. She has been the steward of our retail operations for my six years here. She has become one of the most influential leaders across the industry. She has extensive knowledge of all facets of the industry and our company, a strong track record of driving operational excellence and most importantly, a passion for serving our customers, our associates and our communities.

She has been a top partner with me since the day I arrived and an integral part of developing and leading our Customers for Life strategy. I’m delighted she is taking the reins and cannot wait to see the next great chapters of our company under her leadership. Susan, it’s all yours.

Susan Morris: Thanks, Vivek, for the introduction and for your partnership. Over the last six years, you’ve helped us reach a new level from which to grow. Turning to the fourth quarter, we’re pleased with our results, including ID sales growth of 2.3%, adjusted EBITDA of $855 million and adjusted earnings per share of $0.46. These results illustrate the proof points of our strategy that Vivek mentioned and were guided by the following priorities. Driving customer growth and engagement through digital connection growing our Albertsons Media Collective, enhancing the customer value proposition, modernizing capabilities through technology and driving transformational productivity. As we outlined last quarter, to engage customers, we’ve continued to invest in growth through four digital platforms.

These platforms are designed to drive increased sales, more deeply engage our most loyal customers, increase customer lifetime value and generate digital space and robust data for the Albertsons Media Collective. The first digital platform is E-commerce. E-commerce grew 24% in the fourth quarter and the full year with first party far outpacing third party growth. We operate our E-commerce business out of our stores, which allows us to leverage our rich asset base and proximity to our customers. It also enables full access to our merchandise assortment, a fast and convenient Drive Up and Go experience and robust delivery options. E-commerce penetration is now over 8% of grocery revenue with our top performing markets now over 10%. This growth is driven by award winning experiences in our fully integrated mobile app and the success of our five star certification program, which we discussed last quarter.

At over 8% of grocery revenue today, E-commerce penetration is still below our industry peers and is one of our biggest growth customer acquisition and customer retention opportunities for 2025 and beyond. The second digital platform is Loyalty. Loyalty membership grew by over 15% year-over-year in the fourth quarter to more than 45 million members and at the same time actively engaged customers increased 12%. Our new simplified Loyalty program is a key enabler of digital customer engagement and a rich source of data for the Albertsons Media Collective. Through the unified mobile app, it allows customers to get personalized deals, to earn points, and to have an extended period of time to redeem them for fuel and grocery rewards or automatic cash off their grocery bill.

Since launching the simplified program, 20% of engaged households are now electing the new cash off option, reinforcing the customer desire for immediate value. In fiscal 2025, we will continue to simplify and expand the program to include integrated strategic partnerships that will offer even more value. The third digital platform is Pharmacy and Health. In the fourth quarter, Pharmacy revenue increased 18% year-over-year, driven by industry leading script and immunization growth, best-in-class customer satisfaction scores, and the ongoing integration of experiential health offerings in our Sincerely Health mobile app. Although the Pharmacy business is financially dilutive, cross shoppers between grocery and pharmacy are exceptionally valuable, contributing outsized customer lifetime value to the total store.

For this reason in fiscal 2025, we will continue to invest in our Pharmacy and Health platform to drive increased customer engagement and loyalty. We also expect growth in scripts and immunizations as Pharmacy competitors continue to close stores. The fourth digital platform is the integration of the mobile app for use in our stores. Launched in 2024, over 9 million customers have engaged with this in-store feature. When customers are in our stores, we want them to digitally engage with us, which requires us to raise the bar on store level execution. Our in-store geolocation mobile feature delivers real time coupons, helps shoppers locate products and assist customers with meal planning and generating shopping lists. In 2025, we expect to drive increased customer engagement through this platform by adding additional conveniences and value.

All these digital platforms are working together to generate deeper customer engagement, increase digital inventory and enrich our data to accelerate growth in the Albertsons Media Collective or AMC. In fiscal 2025, we will continue to significantly invest in improving endemic and non-endemic brand reach by building industry leading technologies to deliver an easy to use dynamic and transparent measurement model. These investments will also improve our ability to define shopper audiences, run targeted media campaigns, compress campaign measurement timelines, and deliver consistent omni execution across our digital and physical assets. In addition, we expect to build new partnerships that add even more digital inventory and capabilities to our media offerings.

We continue to expect AMC to grow faster than the retail media market and to be one of the largest sources of fuel for reinvestment into our core business. Turning now to our customer value proposition. Inflationary pressures have elevated our customers’ needs for value. To address these needs, we’re working with our vendor partners to strategically invest in price in certain categories and certain markets. We’ve also enhanced the breadth of our Loyalty offerings to provide immediate savings and greater value. Finally, we’re amplifying our own brands presence to drive profitable unit growth and increase share of wallet. We will increase innovation, more prominently feature existing owned brands and offer products at attractive entry price points.

We ended Q4 with sales penetration of 25.4% and believe with increased exposure and new product launches, we can increase our penetration to at least 30%. In Q4, we launched new items in our industry leading Open Nature Cauliflower Pizza line and in our Signature Select ice cream assortment. We also launched our first seasonally relevant Burst of Flavor campaign to a strong customer response. Each of these value creating initiatives are driving increased loyalty, greater digital and omni household engagement and higher transaction counts. Our next priority is the modernization of our capabilities through technology. Our North Star is to use technology in everything that we do. We’ve invested strategically to build best-in-class technology platforms with our core infrastructure in the cloud and a modernized scalable network.

Most recently, we built a real time comprehensive data platform designed to enable data science and artificial intelligence. This advanced technology platform on which we will continue to innovate, ours are E-commerce, store, pharmacy, supply chain, merchandising, and media collective operations and will allow us to leverage emerging AI technologies to accelerate our operational transformation going forward. This transformation includes empowering merchants to optimize pricing decisions, using our recommendation and look alike capabilities to provide customers personalized offers to complete their basket and capitalizing on in-store Vision AI to reduce inventory shrink and enhance product quality. The final priority is driving transformational productivity.

Our productivity engine is systematically improving the efficiency of our business and lowering our costs. From fiscal year 2025 through fiscal year 2027, we expect to ratably deliver $1.5 billion in productivity savings, which we plan to reinvest in our growth initiatives and our customer value proposition as well as to help offset inflationary headwinds. The largest of these initiatives is leveraging our consolidated scale to buy goods for resale. In fiscal 2025, we are accelerating national buying on a category by category basis, resulting in lower costs and easier, more efficient supplier relationships. The next of these initiatives is transforming our ways of working, including strategically consolidating divisions, rationalizing non-customer facing headcount and optimizing our onshore and offshore activities to not only reduce costs, but to accelerate innovation in technology and data analytics.

In our supply chain, we are continuing to invest in automation and the rollout of our new warehouse management system. By the end of 2025, we expect 30% of our distribution volume to be automated. And we’re piloting innovative new technologies to expand our menu of options for future warehouse automation. We also expect our new warehouse management system to be fully implemented company wide by year-end. All of these initiatives lower our cost to serve and improve our end-to-end data analytic capabilities, resulting in better in-stock conditions and a differentiated level of quality and fresh. And finally in-store operations in fiscal 2025, we’re leveraging new store replenishment, shrink management and labor productivity tools to drive enhanced efficiency and improved customer experience and deeper associate engagement.

We’re also continuing to expand utilization of AI technology in our produce departments to drive increased freshness, higher sales, and better net promoter scores. I would now like to talk about the support we provide to the communities that we serve. In 2024, along with the Albertsons Companies Foundation, we contributed more than $435 million in food and financial support. This includes $40 million to our nursing neighbors program to ensure those living in our communities and those impacted by disasters have enough to eat. In addition, on March 10th, we announced a new goal to enable 1.5 billion meals through 2030, supporting our efforts to help end the cycle of hunger. I will now hand it over to Sharon for an overview of our fourth quarter and to provide guidance on our expectations for fiscal year 2025.

Sharon McCollam: Thank you, Susan, and good morning, everyone. It’s great to be here with you today. As Susan shared, we are pleased with our fourth quarter results. The investments we are making are delivering transformational capabilities and affirm our confidence in our Customers for Life strategy. What I’ll do now is provide additional color on our financials for the fourth quarter, and then I will discuss our 2025 outlook and provide an update on our capital allocation priorities. We grew ID sales 2.3% in the fourth quarter, fueled by an 18% increase in Pharmacy and a 24% increase in digital sales. The digital increase continues to be driven by strong growth in first party sales. Our Q4 gross margin was 27.4%. Excluding fuel and LIFO expense, the gross margin decreased 45 basis points compared to Q4 last year.

Strong growth in Pharmacy sales, which carries an overall lower gross margin rate and incremental digital volume related delivery and handling costs related to the 24% increase in digital sales drove this decrease, but was partially offset by productivity initiatives. In the fourth quarter, we also made incremental investments in our customer value proposition, which were funded by the benefits from our productivity initiatives, which included reductions in shrink expense. Our selling and administrative expense rate was 25.7% this quarter. Excluding fuel, the SG&A rate decreased five basis points compared to last year. This decrease was primarily driven by lower merger related costs and leveraging of employee costs and depreciation, partially offset by increased business transformation costs.

Our selling and administrative expenses also benefited from our productivity initiatives. Interest expense net decreased $7.5 million to $101.5 million during Q4 ’24. This reduction was primarily driven by lower outstanding debt. Income tax expense in the fourth quarter was $46.4 million a 21.3% effective tax rate compared to a 20.4% effective tax rate in Q4 of last year. And as mentioned in the highlights, Q4 ’24 adjusted EBITDA was $855 million compared to $916 million last year. And adjusted EPS was $0.46 per diluted share compared to $0.54 in the fourth quarter of 2023. Turning now to the balance sheet and cash flow. Capital expenditures of $485 million in the fourth quarter were driven primarily by investments in the modernization of our store fleet and our digital technology platforms.

In fiscal year ’24, we opened 11 new stores and remodeled 127 stores. We also returned approximately $87 million to our shareholders through common stock dividend. Additionally, we repurchased 83 million of common stock during Q4 ’24 under our $2 billion share repurchase authorization. Net debt leverage at the end of the fourth quarter was 1.9 times and the balance sheet remains strong. I’ll now discuss our 2025 outlook. As a reminder, fiscal ’25 is a 53 week year. Looking forward to fiscal ’25, we do so with continued confidence in our Customers for Life strategy and our ability to execute against it. To drive incremental growth, we are deepening customer engagement through our digital platforms, enhancing our value proposition and modernizing our capabilities through technology.

We are also continuing to drive our productivity agenda to fuel this growth and offset inflationary headwinds. Throughout fiscal ’25, we will continue to invest in our Customers for Life strategy, including accelerate investments in digital growth, the Albertsons Media Collective and in Health and Pharmacy. We will also continue to surgically invest in our customer value proposition and elevate the customer experience. We expect these investments will continue to drive outside growth in our Digital and Pharmacy businesses, which will result in increased future customer lifetime value, but create short-term margin headwinds. With that as our backdrop and excluding the impact of tariffs and other potential market dislocations, we are assuming the following in our outlook.

ID sales growth in the range of 1.5% to 2.5%, assuming inflation in the range of 1.5% to 2%. Adjusted EBITDA in the range of $3.8 billion to $3.9 billion including the investments I just shared, partially offset by our productivity improvements and including approximately $65 million in adjusted EBITDA related to our 53rd week. Adjusted EPS in the range of $2.03 to $2.16 including $0.03 related to the company’s 53rd week. The effective income tax rate is expected to be in the range of 23.5% to 24.5% and capital expenditures in the range of $1.7 billion to $1.9 billion. Looking beyond fiscal ’25, we expect to leverage the investments we make this year to drive growth consistent with our long-term algorithm of 2% plus identical sales and EBITDA growth higher than that in fiscal ’26 and beyond.

Before I hand it back to Susan for some closing comments, I’d like to spend a moment on capital allocation. First and foremost, we will continue investing in our business to drive long-term sustainable growth. We also plan to maintain our quarterly dividend and seek to grow it over time. And finally, we plan to return excess cash to our shareholders through opportunistic share repurchases. As a reminder, in December of ’24, our Board authorized a $2 billion share repurchase program. Since that time, and as of today, we have completed over $100 million in share repurchases and have approximately $1.9 billion available for repurchase under that program, which we expect to complete during the next three years. Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long-term sustainable shareholder value.

I will now hand the call back to Susan for closing comments.

Susan Morris: Thank you, Sharon. Our Customers for Life strategy is working. We’re growing digitally engaged customers, omnichannel households, loyalty members and increasing customer traffic. Our stores are operating more effectively and efficiently as new technologies take hold and we’re proactively reducing our costs. Our productivity programs are creating fuel for investments and are an offset to inflationary headwinds. We believe all of this puts us in a strong position to continue to transform the business and serve our customers even better. As we look forward to the balance of fiscal 2025 and beyond, we are excited about the investments that we’ve made in our core business and new sources of revenue and in our tech-enabled capabilities.

We expect to continue our investments going forward, including enhancements to our value proposition for our customers. As a result of these investments, we expect gradual and incremental improvement in top line trends in our grocery business in the second half of 2025, ultimately driving growth in line with our long-term algorithm of 2% plus identical sales and adjusted EBITDA growing higher than that in fiscal year ’26. In closing, I am thrilled to be taking the helm of our company during this transformational time in our Customers for Life strategy. None of our success would be possible without the support of our 285,000 associates who worked tirelessly to make it all happen. Over the next weeks and months, Sharon and I look forward to engaging further with all of you in the investment community and thank you for your support.

I would also like to thank Melissa Plaisance, who will be retiring next month after 35 years with the company. On behalf of all of us, we want to acknowledge her contributions to our success, including the relationships that she has developed with all of you. Melissa, you will be greatly missed. Cody Perdue, who you all know, will be assuming her responsibilities. We will now open up the call for questions.

Operator: Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your questions.

Leah Jordan: Thank you. Good morning. Thanks for taking my question. Just given the price investments you’ve made in the quarter and plan to make for this year, just seeing if you could provide an update on how you view your price gaps today, maybe what you’re seeing in the competitive environment? And just given the dynamic consumer environment overall, just has anything changed in your view on the breadth and depth of investments that you need to make throughout the year?

Susan Morris: Hi, Leah. Thanks for the question. So I would say a couple of different things. So first of all I am going to address the second part of your question first. We have not seen a dramatic shift in the recent months from consumer behavior. As we’ve mentioned before that we’re seeing a shift towards value, they’re clearly more responsive to promotion. When we listen to the voice of our internal customers, we recognize that our SNAP customers are feeling more pressure. And the customers in general are thinking about their budgets and how to optimize them, maybe eating out less and making different choices, shopping our own brands, those kinds of things. With regards to the pricing question, first and foremost, we have a very different price position across the multiple markets that we operate in.

And as we think about our investments, we are taking a very surgical approach to how we are making those adjustments surgical by category and by market. To be honest, we’ve been actually investing in price over the last several quarters very thoughtfully, using the new tools and technology that we’ve developed over the last few years that help us understand elasticity, help us make the best decisions that will optimize value for the customer, but also support the sales and margin goals that we’re trying to achieve.

Leah Jordan: Great. Thank you. That’s very helpful. And then I just had one quick follow-up around the comments around the buybacks. I noticed you made buybacks in the quarter. It sounds like some activity has continued maybe even a little bit quarter-to-date. So I guess curious have you assumed anything with buybacks within the guide? And then how are you thinking it about it as a lever for this year? Thank you.

Sharon McCollam: Leah, in the guidance, what we’ve assumed is, in our prepared remarks, we said we will be repurchasing that $1.9 billion over the next three years. And if you spread that radically over that time frame, that equate to approximately $0.06 of accretion in EPS each year if you bought it that way, but that gives you the math.

Leah Jordan: Great. Thank you. Very helpful.

Operator: Our next question is from the line of Mark Carden with UBS. Please proceed with your question.

Mark Carden: Good morning. Thanks so much for taking the questions. So to start, I want to ask one on tariffs. Just as it stands, what proportion of your cost of goods you import at this stage? And how do you think about the impact of tariffs once you back out USMCA exempt goods, understanding again that it’s very fluid?

Susan Morris: Good morning, Mark. Thanks for the question. So for us for Albertsons Companies, we procure more than 90% of our products domestically, so that’s a very different position than some of the competitive set out there. We also recognize, though, that even in those domestic purchases, there are impacts from ingredients that are sourced from tariff impacted areas. The situation, as you know, is very fluid. We’re seeing very close to it. We’ve deployed a task force to help us understand the complexities of the situation as it evolves. And we’ve got some very good plans in place to help mitigate the impacts accordingly.

Mark Carden: Great. That’s helpful. And then how are you thinking about demand growth with your Albertsons Media Collective initiative in the year ahead? And are you seeing any hesitancy and advertiser spend just given the macro?

Susan Morris: So to date, as you may know, we are rather nascent in our Media Collective opportunity, which and actually to date, we’re still delivering upsized growth compared to the market in media. So we’re very optimistic about our abilities to achieve the goals that we’ve set forth for 2025.

Mark Carden: Great. Thanks so much and good luck.

Susan Morris: Thank you.

Operator: Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your questions.

Edward Kelly: Yes, hi. Good morning, everyone. I wanted to ask about the ’25 guidance and the investment. And I was hoping that you could provide maybe just some additional color around the key buckets of investment that you are planning to attack in ’25. The magnitude of the investment around those areas. And then how do we think about the cadence of EBITDA growth or EBITDA throughout the year, Susan, I think you maybe mentioned something at the end about progressing towards the algo as the year rolls on. So I’m just kind of curious around that as well?

Susan Morris: Sure. Thanks, Ed, for the question. So as we think about the investment, it’s multifaceted, right? So clearly there’s the conversation we just had around price, which we think is a very surgical opportunity. And it’s already begun by the way, in many respects across the organization in select markets. The other elements are around investing, continuing to invest in growing our digital and loyalty business, important parts of our growth algorithm. And when you think about the ecosystem that we talk about, the more we can engage customers and loyalty in our digital platforms in pharmacy and of course, in our stores, there’s 2x, 3x, 4x value for those customers as they go through work through that cycle. The investments will be as I think about how they occur throughout the year, the timing of the investments will not necessarily let me things.

When I think about the investments, the cadence will be thoughtful throughout the year, recognizing the fact that some of the benefits that we have through the media collective through productivity and so forth may not directly align with the timing of the investments, and that’s part of the reason as we shared our expectations for the year, and we expect to leave 2025 with stronger growth and building towards our long-term algorithm of IDs at 2% plus and EBITDA growth higher than that in 2026. Sharon, would you add anything to that?

Sharon McCollam: No, I think that’s absolutely right. When you think about it, it’s going to be these accelerated investments we’re making in digital growth, obviously, the Media Collective is a main focus for us this year. And then in health and pharmacy and the customer value proposition, that pulls all that together through the digital platforms is going to be what will bring us to the back half of ’25 and allow us to enter that algorithm in ’26.

Edward Kelly: Okay. And then maybe just a follow-up, and maybe this is for you, Sharon, I don’t know. But as you think about Q1, obviously, the backdrop has been rather uncertain, especially from a consumer standpoint. I’m just kind of curious as to how we should think about Q1. I don’t know if you can share anything around what you’re seeing from the standpoint of IDs so far relative to the guide. And do you expect Q1 to be a softer quarter than the rest of the year for any of these reasons?

Sharon McCollam: Yes. What you need to expect is not because of what is happening with the consumer, it’s going to be the investments. We will be making investments in the first half of the year as Susan said. We will be expecting those investments to start paying off towards the back half of the year. And from a customer point of view, I’ll just reiterate what Susan said, we are not seeing a major change in customer behavior at this point, everything you’re hearing about our own research validates. The consumer sentiment is low, et cetera, but the consumer is also saying that they will do what they’ve been doing, which is seek value and find ways to tighten their pocket books. Food away from home versus food at home is always a decision for those customers who need value. So at this point, we have not seen any major change.

Edward Kelly: Great. Thank you.

Operator: Our next question is from the line of John Heinbockel with Guggenheim Partners. Please proceed with your question.

John Heinbockel: Hey, Susan. I wanted to start with you’ve acquired a lot of pharmacy customers in the last two years, three years, maybe the journey as they go through the engagement process, right, when you think about their wallet share kind of where does it start out? How does it progress? What’s the opportunity there, right? And then how do you attack that? Is that simply CRM through things they might be interested in or how do you look at that?

Susan Morris: Good morning, John. Thanks for the question. So speaking about the pharmacy customer, it’s definitely an evolution over time. They engage with us. They start to engage with us typically in-store first then join our pharmacy business in that first year. But over the course of 1.5 to 2 years, they engage across multiple platforms. So going back to our ecosystem, right? As they think about, of course, brick-and-mortar customers evolve to E-commerce, evolve to pharmacy, evolve to loyalty. As they engage with us, through those multiple platforms, that’s when we start to see the bigger unlock in their lifetime value. Now with that said, customers that shop pharmacies and brick-and-mortar alone, typically have 4x the basket of customers that don’t.

John Heinbockel: Okay. And then just maybe as a follow-up, right? When you think about enhancing profitability in the digital channel, right? Obviously, you’re not running larger automated facilities. But is the opportunity when you think about density, right, of delivery versus in-store labor productivity. Where are the big unlocks in the E-commerce profitability?

Susan Morris: Sure. Thanks for the question. So as I think about that the largest opportunity for us in E-commerce profitability is all around growing sales, right? So scale breeds productivity. You touched on the fact that our stores are actually in the neighborhood that our customers live. So our proximity to customers creates some productivity for us that perhaps others may not have. We have advantages in our growth because we do care full assortment. We have fast delivery, convenient delivery. Our DOG part of our business is actually quite robust, which helps on the profitability side. The other part around scalability, as we look at our growth, and we mentioned before, 24% growth in the fourth quarter, which is fantastic.

Strong penetration, which, by the way, at 8% store penetration, we believe there’s upside there versus our competitive set and we fully expect to be able to capture that. But that growth, that expansion of growth, the scalability of that creates efficiencies from our picking platform as well. So we’ve got in-house built tools that are fantastic. What we’re learning, though, is as you get more and more E-commerce orders in a given store, we actually shift the way that the pickers are selecting orders to batch picking. So they’re doing more than one order at a time. Lower times of the day, and they’re going back to one. But we’re really studying and understanding the science of how we’re investing labor to most effectively, first of all, deliver the terrific customer experience we’re looking for, but also to seek more productivity in the E-commerce business.

John Heinbockel: Thank you.

Operator: The next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.

Erica Eiler: Good morning. This is actually Erica Eiler on for Rupesh. Thanks for taking our question. So I was just hoping maybe to unpack gross margin a little bit more this year. So it would be helpful, I think if you could just maybe talk about the puts and takes. Obviously, a lot of moving pieces there. I mean you touched on productivity a little bit. Maybe you could talk about how you’re thinking about level of reinvestment of the $1.5 billion savings you guys have outlined. You touched on price investments. And then just also as we think about mix headwinds, are you assuming similar type headwinds from the strong growth in pharmacy and digital that you’re seeing currently?

Sharon McCollam: Yes. Thank you. As we look at ’25 and you think about, first, let’s talk about productivity. From a productivity perspective, you’re going to see it both in SG&A and in the margin. And over the years, it will shift. In 2025, you’re going to see more of it in SG&A than you do in the gross margin. We will continue we are expecting strong growth from the digital platform. So we’re expecting strong growth in E-commerce and Pharmacy and Health, which will create a mix shift impact. I will say that that’s getting better because as E-commerce scales, it levers. And on the Pharmacy and Health side, we have productivity initiatives that are coming into place like Central Fill and other things that we are able to do that will take that dilutive nature of pharmacy and make that better.

Additionally, obviously, we talked about investing in loyalty and the customer value proposition. So that will flow into the margin and then be partially offset by the cost of goods sold and the Buying Together initiative that we have. So that’s how you should think about it. But when you look at the guidance for next year and you think about where to wait it, which is probably where your question came from, you need to wait into the margin.

Erica Eiler: Okay. That’s super helpful. And then just lastly for me, just wanted to touch on the competitive backdrop and the promotional environment. So I mean are you seeing any changes on the competitive side? And then just given the increased macro uncertainty out there and you’ve talked about that your consumer increasingly seeking out value. What are you expecting on the promotional front this year?

Susan Morris: So Erica and I think I had mentioned this earlier, we are absolutely still seeing the customers navigate towards value and towards promotion. So our promotional volume is up and this is where our work around buying better together and seeking to improve our cost of goods is going to be critical for us as we go throughout 2025. From a competitive perspective, I think like the rest of the industry, we’re all seeing the crushers from mass and club stores value players. That said our customer traffic is up. We have share growth in several of our markets, and we understand exactly where those are and are very thoughtful about how we’re investing in the areas where we have opportunity, very surgically using the tools and technologies that we have to help us make the best decision.

Erica Eiler: Great. Thank you.

Operator: The next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Unidentified Analyst: This is [indiscernible] on for Simeon. I would like to ask you about the guidance. Could you talk a little bit about what food inflation assumptions are embedded in your ID sales guidance? And what would be the effect of pharmacy within the ID sales figure for the full year?

Sharon McCollam: Thank you. The inflation assumption within the guidance, we got a 1.5% to 2.5%, ID sales guidance. And within that, it’s 1.5% to 2% on inflation. And on the mix of Pharmacy and E-commerce, we expect to see very strong growth in E-comm and continued growth in Pharmacy. We’re not guiding that, but you can think about in terms of continuing, we are making continued investments there. So that would be how I would model it, if I was you.

Unidentified Analyst: Okay. Great. Thank you. And as a follow-up, if I could ask you about E-commerce. Congratulations, you had impressive sales growth there, 24% in the fourth quarter. Could you help us think through how you’re looking at the E-commerce contribution to profitability and how you’re thinking it more broadly alongside retail media and the loyalty program into 2025?

Sharon McCollam: Yes. So on E-commerce, E-commerce is dilutive to our margins and it is getting better all the time. If you look at the explanation in the press release about our gross margin in Q4, we talked about the fact that the picking cost and delivery costs are putting weight on the margin, but then we explained, it’s only because of the volume. And so we actually are making progress in productivity in our E-commerce operations within our stores. So that business is getting more profitable as it goes. So our guess would be that when you combine our first party and our third-party businesses, that we are getting close to being contributing to the EBITDA margin, we expect that to continue to grow over time.

Unidentified Analyst: Great. Thank you.

Operator: The next question is from the line of Robby Ohmes with Bank of America. Please proceed with your question.

Robert Ohmes: Hey, good morning. I had just two quick follow-up questions. Just and maybe on the pharmacy growth outlook, how much is GLP-1 still a driver to the comps there? And do you see that fading at all in 2025? And what are the other, how much is the GLP-1, say versus how much benefit are you getting from drug store closings?

Susan Morris: Thanks for the question. So first and foremost, of course, GLP-1s are contributing to our growth, but that’s not the sole increase that we have. Our core script volume is growing year-over-year and actually has been for several years now. So we’re excited about the health of the business from that regard. Clearly, the GLP-1 profitability is less. That said, as we engage those customers into our entire ecosystem, recognizing clearly, their eating habits change, but their eating habits change with regard to wanting more protein, looking for supplements, buying more fruits and vegetables, we have all of those things. So it’s actually an opportunity for us to even more deeply engage those customers. Sharon, what might you add?

Sharon McCollam: Yes. I would add that we continue to actually be excited about the GLP-1 customer and as you know, the industry is evolving. It’s going to be in pill form. I don’t know the exact timing of that, but as that goes. But it gives us such a substantial opportunity to help these customers achieve this life goal. And when we embrace those customers, we can fulfill their new basket. Remember, their basket materially changes, and it shifts, as Susan said to a more profitable basket. And we believe through sincerely how and the other investments that we’re making in the digital side of our business that we can be an asset to these customers and that they will choose us for the role that we play in their health care so from that standpoint. So that’s how we’re thinking about it right now.

Susan Morris: And then you have mentioned, sorry, I was just going to answer your acquisition question. So, yes, we are continually looking at opportunities to acquire scripts, pharmacy businesses certainly hire the pharmacists and the techs from other units around us. We have a very solid thoughtful approach on how we do that, but we are absolutely looking to continue to grow our pharmacy business thoughtfully.

Robert Ohmes: That’s really helpful. And maybe, Sharon, a quick follow-up for you. Just on the — so this year we should expect a little more pressure on gross margin and maybe some offset in SG&A. What’s the wage rate pressure you guys are expecting in 2025 in that SG&A?

Sharon McCollam: Yes. We said last quarter that we used to see 2% to 3%. We’re seeing significantly higher than that. Remember, these contracts are multiyear. So our assumption on wage growth in 2025 looks a lot like the wage growth we saw in 2024 and we don’t anticipate that changing materially.

Susan Morris: And part of the challenges we recognized actually the opportunity we have is we recognize that, and as Sharon mentioned, these are multiyear contracts. So as we talk about our $1.5 billion goal in productivity, which, by the way, as I say, goal, we’ve got evidence that we can accomplish that and we’ll continue to do so. But those targets were set with the wage growth in mind.

Robert Ohmes: Got it. Thank you.

Operator: The next question is from the line of Scott Mushkin with R5 Capital. Please proceed with your question.

Scott Mushkin: Hey, guys. Thanks for taking my question. So my first one is kind of looking at the business by category. And if you think about the center of store, do you need the center store to be positive next year or this year I guess now to make your comp numbers? I guess my first question.

Susan Morris: So we, let’s see, we are seeing growth in center of store. And by the way when I’m saying center of store, I mean grocery and grocery non-food, but we’re actually also seeing growth in our fresh departments. So, yes, we’re seeing strong pharmacy growth. We’re seeing strong E-commerce growth, but we are actually experiencing growth in the core part of the store as well.

Scott Mushkin: Okay. And then if you were guys going to — if you were to exceed your thoughts on EBITDA internally. Would that flow to shareholders this year or would that just be further invested in the business?

Sharon McCollam: Scott, we put our guidance out there. And at this point, as the year progresses, we can talk more about that. But our guidance at $3.8 billion to $3.9 billion is where we expect to land the year at this time.

Scott Mushkin: Okay. So no thoughts on if you were to exceed where that money would go?

Sharon McCollam: Lots of thoughts, but not for you.

Scott Mushkin: Thanks guys. All right. Thanks for taking the question. Appreciate it.

Operator: The next question is from the line of Michael Montani with Evercore ISI. Please proceed with your question.

Michael Montani: Yes, hi. Good morning. Thanks for taking the questions. The first one was just if you could give an update within the CapEx, how you’re planning to allocate that out? How many remodels should we expect and also new stores for this year and then for next? And then I had a separate follow-up.

Sharon McCollam: On the CapEx for next year, you can think about it very similarly to the way it played out this year. We expect to open new stores. We’re not giving committed numbers at this point. But you can think about the capital as half of it is in our stores, there’s a maintenance capital piece and then the rest of it will be invested in the digital platforms and AMC.

Michael Montani: Okay. And then if I could just follow up around tariffs. You mentioned that it’s not in the guide. To the extent that it does flow through over the course of the year, is the goal to preserve margin dollars or margin rate and how should we think about that evolution?

Sharon McCollam: On the tariffs, what we would tell you is our goals, our priorities for this year are going to be what the five that Susan laid out. Our goal is to drive customer growth and engagement through the digital connection, it’s growing AMC. It’s enhancing the customer value proposition. And with those three priorities, it is fluid. How we handle the tariffs, how we handle negotiations with vendors, et cetera, will depend on continuing to deal with the tariffs, but doing so in a way that continues to amplify our work towards those priorities.

Susan Morris: And Sharon, what I would add to that is, clearly, it’s dollars that drive our business and that’s always our focus.

Michael Montani: Understood. Thank you.

Operator: Our next question is from the line of Karen Short with Melius Research. Please proceed with your questions.

Karen Short: Hey, thanks very much, and Melissa, it’s been a long 25 plus years. So congratulations and have loved working with you.

Melissa Plaisance: Thank you.

Karen Short: So my two questions are price gaps. So when you think about price gaps relative to your peers, can you give me a sense of what you think your price gaps are and where you think they need to go? And then my second question is do you think you could be at the algo by 4Q as it relates to sales growth and EBITDA growth?

Susan Morris: Karen, first of all, you made Melissa very happy with your comments, thank you for that. So with regards to price gaps, it’s not a simple answer. We operate in over 120 MSAs and our price position is very different in each of those. So there’s really not one simple answer. There are markets where we’re very comfortable with our price position and see very little need to change. And there are others where we have more opportunity. So we’re really excited about using the new tools, technology and processes that we have in place to be very surgical and thoughtful about how and where we make those investments. We feel we have a deep understanding of the elasticity of our customers based off of experiments that we’ve been running over the last several months. So it’s a very surgical and thoughtful approach. Sharon, maybe I’ll give the algo question over to you.

Sharon McCollam: Yes. So we will be building toward that. Obviously, as we make these investments, they start to return. And when we start getting toward Q4, as we’re expecting that to materialize by the end of 2026. We expect it to be gradual and incremental. So you should be expecting us to be moving in that direction.

Karen Short: Okay. Great. Thank you.

Operator: The next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your questions.

Kelly Bania: Good morning. Thanks for taking our questions and congrats to both of you Vivek and Melissa on your retirement. I was wondering if we could just talk about IDs a little bit more granularly. I think you mentioned an improvement in kind of grocery sales trends in the back half in your expectations. And wondering if you could just unpack kind of the traffic versus the ticket component of that and the expectation for that to improve in the back half? And then also if there’s any conservatism with regard to SNAP and if there are any developments on reductions in SNAP there into the back half?

Susan Morris: Kelly, thanks for the question. So for ID sales we are — as mentioned before we’re looking at that 1.5% to 2.5% range. Clearly we expect to see growth increase as we exit 2025 and going into 2026. Sharon, any color you would add?

Sharon McCollam: Yes. So Kelly as it relates to, when we go into 2025, as we’re entering the year, we have said consistently, we are continuing to see customers, the traffic in our store is positive. We’re very excited about that. Obviously, the AIB with CPI in the fourth quarter, up 1.9%, AIB is going to be up and what the opportunity for us at this point is it going to be a unit as we go into 2025 and a lot of the initiatives. I’m not going to go back to them, but all the initiatives we talked about are doing exactly what Susan keeps saying and continues to drive in the company, which is bringing units back into the store. And that is the opportunity that we see within the guidance. And, yes, we believe that we are doing it and we can do it.

Kelly Bania: Okay. And if I can just follow-up on pharmacy. Obviously that is — and remains a key component of your strategy. Just wondering if it’s possible to integrate prescriptions and pharmacy deeper into your digital offerings for pickup and delivery, just given that competitors are moving forward with that? Is that something that Albertsons can do and is considering doing?

Susan Morris: Yes, we absolutely are. So it varies by market and there’s some technological solutions that we’re working on that will help us get there, but that is absolutely on our road map for pharmacy this year. We agree with you. The more that we can take pressure off of the customer experience, especially patients in pharmacy, make their life easier, we’re seeking every possible way to do that.

Sharon McCollam: And Kelly I was in our Tom Thumb store here in Dallas last night and they were announcing over the speaker that to welcome you to do both your DOG and your pharmacy order through DOG. So your question was perfect. I was just there last night and we were telling our customers all about it.

Kelly Bania: Great. Thank you.

Operator: Thank you. Our final question today comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.

Joseph Feldman: Yes, hi. Good morning, guys. Thanks for taking some time. Wanted to ask about — you made a comment about the division consolidation, which I know you’ve done some, but I was curious if there’s more to go there. It sounded like there are opportunities still and I don’t know if you could share a little more color on that. And also with the second kind of question I had was around the Albertsons Media Collective. If you could just share a little more color on sort of the adoption by your partners and what the feedback you’re getting on it initially and where there are some of those opportunities you described earlier? Thanks.

Susan Morris: Hi, Joe. So with regard to the division consolidation, the most recent one we just announced was the blending of our Denver and Intermountain divisions for calling it Mountain West. As part of that, there’s — it’s multifaceted really we’re looking at, first and foremost, how can we create productivity by bringing two divisions together, but also we’re seeking to better develop our teams to improve tools and processes and learn from that consolidation, how we might leverage opportunities across the rest of the organization. So we’re continually evaluating how we’re going to market, where there might be opportunities to look for synergies such as this and other ways as well. With regard to AMC, we have had strong performance, strong engagement with our vendor partners.

We also recognize that we have an opportunity to, as we look about our efforts around buying better together, leveraging AMC as part of those conversations. Today, we operate at 11 divisions across the organization and there’s important times to act at 11, but there’s also times to act at one. And when we think about unlocking dollars for whether it’s cost of goods reduction or AMC dollars, this opportunity of buying better together creates simplicity for our vendor partners, ease of execution consistently across the organization. So we see a lot of opportunity as we evolve our model moving forward.

Joseph Feldman: Great. Thanks. Good luck, guys.

Susan Morris: Thank you.

Sharon McCollam: Thank you.

Operator: Thank you. I’ll now turn the floor back to management for closing remarks.

Susan Morris: Just wanted to say thank you for your time and for the questions today. We remain very excited, very energized about the growth agenda that we put forth in 2025. Clearly, it’s a year of investment for us and we feel very confident in our ability to deliver both internally and externally the commitments that we have made. We appreciate your support and we look forward to talking to you all soon.

Operator: This will conclude today’s conference. Thank you for your participation. You may now disconnect your lines at this time.