Story Stocks^®

Albertsons (ACI -5%) is trading sharply lower today after reporting its Q1 (May) results. The grocery store giant reported revenue growth of 2.5% yr/yr to $24.89 bln, which was a slight beat and was driven by a healthy increase in identical sales growth of +2.8%. The company beat by only a penny on the EPS line. Besides a rare miss in Q1 of last year, this was its most narrow EPS beat in over five years. On the positive side, ACI raised its guidance for identical sales growth to +2.00-2.75% from +1.50-2.50%.

• Revenue in Q1 continues to remain strong for ACI, which can be attributed to strong identical sales growth driven by its digital platforms. Two of its four platforms stand out above the rest. E-commerce grew 25% yr/yr and now totals 9% of total grocery revenue, while its pharmacy and health platform grew 20%.
• What stood out to us is that ACI raised identical sales guidance very early in its fiscal year. To do so is a sign of confidence for ACI. Typically, companies tend not to raise full year guidance this early to give them a little wiggle room in case the next quarter is weak. It feels its investments in its customer experience and digital growth platforms are driving sales.
• The increase in identical sales guidance can also be attributed to its productivity agenda, which helps fuel growth and offset inflationary headwinds, a main concern of its consumers. Management expects $1.5 bln in productivity savings through FY25-27.
• Despite the increase in FY25 identical sales guidance, management did caution that Q2 (Aug) identical sales could be towards the lower end of guidance, with gradual acceleration in 2H25.
• In terms of its competitive landscape, management is seeing continued promotional investment from competitors, while they are leaning more heavily on loyalty (grew 14% yr/yr) and personalized deals. However, ACI continues to see pressure from mass club stores like Costco (COST) and Walmart (WMT).

Despite reporting solid identical sales growth and raising its guidance, the stock is trading sharply lower today. We think the narrow beat on EPS is weighing more heavily on investors compared to the positives. Also, it sounds like ACI's mass club store competitors are being aggressive on lowering prices, so we wonder if that will affect ACI down the road.