Albertsons Companies NYSE: ACI executives told investors the grocer closed fiscal 2025 with “operational agility and strong execution,” even as pharmacy-related headwinds weighed on reported sales trends in the fourth quarter.
On the company’s fourth quarter and full-year 2025 earnings call, CEO Susan Morris said identical sales rose 0.7% in Q4 and adjusted EBITDA came in better than expected at $903 million, despite “greater than expected pharmacy headwinds.” For the full year, the company reported identical sales growth of 2% and adjusted EBITDA of $3.9 billion.
Fourth quarter pressured by pharmacy dynamics, but profitability held up
President and CFO Sharon McCollam said Q4 performance exceeded expectations for adjusted EBITDA and adjusted EPS even as the industry faced “pharmacy dynamics that pressured reported identical sales.” She said identical-store sales increased 0.7% in Q4, net of approximately 145 basis points of pharmacy-related headwinds, which was larger than what the company had anticipated in its prior outlook.
McCollam attributed the bulk of the pharmacy headwind to the Inflation Reduction Act (IRA) changes that took effect mid-quarter and broader affordability dynamics in the sector. She said “IRA pricing and mix pressure accelerated more quickly than expected,” alongside an industry shift toward a higher generic-to-brand mix. Together those factors were “an approximate 105 basis point headwind” to identical sales in the quarter. McCollam noted that while the top-line impact was significant, the margin impact was favorable because generics are “structurally more accretive.”
She also cited a “greater moderation in GLP-1 growth,” driven by tighter payer criteria and increased direct-to-consumer penetration, which represented an incremental 40 basis point headwind to identical sales versus the company’s earlier expectations.
Outside pharmacy, management said grocery demand remained uneven. McCollam said grocery units and identical sales “remained pressured in our lowest income cohorts,” while “egg deflation” created a sales headwind as the company cycled the egg shortages from the prior year. She said that egg deflation was expected to persist into the first quarter of fiscal 2026.
On profitability, McCollam reported Q4 gross margin of 27.2%, down 25 basis points year-over-year excluding fuel and LIFO. She said the decline was primarily due to mix shift from outsized digital growth, while productivity benefits helped offset targeted price investments. SG&A expense, excluding fuel and the opioid settlement framework, improved by two basis points year-over-year, though the rate reflected an unfavorable impact from lower sales tied to the IRA.
Adjusted EBITDA for Q4 was $903 million, including approximately $68 million related to the 53rd week, and adjusted EPS was $0.48 per diluted share. Interest expense rose $40 million year-over-year to $141 million, which McCollam attributed to higher borrowings and the extra week in fiscal 2025.
Opioid settlement framework recorded in Q4
McCollam also addressed a “proposed nationwide opioid legal settlement framework” announced the morning of the call. She said the framework provides for a $774 million settlement payable over nine years and that it was recorded during the fourth quarter.
She described the proposal as “a meaningful step toward resolving our opioid-related litigation without any admission of wrongdoing or liability,” and said the company remained committed to patient safety and strong pharmacy practices.
Strategy focus: personalization, digital growth, and productivity
Morris framed the company’s strategy around the idea that “the future of grocery is personal,” positioning personalization as a “durable competitive advantage.” She said Albertsons is focused on three connected pillars:
- A winning footprint (including banner optimization, store modernization, market densification, and store rationalization where economics are challenged)
- A customer-centric experience centered on service, fresh, convenience, value, and own brands
- Balanced value, funded by structural margin improvement and productivity rather than “short-term trade-offs”
Morris emphasized technology and AI as central to the transformation, highlighting four “big bets”: Digital Customer Experience, Merchandising Intelligence, Labor Optimization, and Supply Chain Optimization. She said the initiatives are “not pilot programs,” describing them as long-term structural efforts intended to support growth and margin expansion.
As part of supply chain investments, Morris said the company launched “Gateway,” a proprietary AI-powered tool focused on inventory efficiency and replenishment for promotional center store SKUs.
Digital continued to be a major focus. Morris said digital penetration surpassed 10% in Q4, and digital sales grew 16% in the quarter, with nearly 90% of that growth coming from the company’s first-party business. She said the store-based fulfillment model remained a differentiator, with more than half of digital orders fulfilled in under three hours, and said “the vast majority of delivery households are eligible for 30-minute flash delivery,” which she described as the fastest-growing digital segment.
On loyalty, Morris said membership grew 12% to more than 51 million members, with more frequent transactions, easier reward redemption, and higher spending among engaged households. She also said customers were increasingly using the cash-off option for redemption, which management framed as evidence the program is resonating in a “value-focused environment.”
Morris also said the company’s retail media business gained momentum in Q4. She cited “personalized ad pilots” that delivered a “90% lift in conversion and click-through rates,” which management said supported a path toward scaled personalization and improved return on ad spend.
Capital allocation: dividend increase, refreshed repurchase authorization, and higher CapEx
Management highlighted shareholder returns and investment spending. Morris said Albertsons returned more than $1.8 billion to shareholders in fiscal 2025 through share repurchases and dividends, and McCollam specified that the total included $322 million in dividends and nearly $1.5 billion in share repurchases, including completion of a $750 million accelerated share repurchase program.
The company also announced a 13% increase in its quarterly dividend, which McCollam said brings the dividend to $0.68 per share. The board also “increased our remaining share repurchase authorization to $2 billion in total,” which McCollam said the company expects to complete opportunistically over approximately the next three years.
For fiscal 2025 capital expenditures, McCollam said the company invested $1.84 billion, including remodeling 94 stores and opening nine stores. She said fiscal 2026 CapEx is expected to rise to $2.0 billion to $2.2 billion to accelerate investment in new stores, remodels, AI-powered technologies, and digital capabilities. In response to a question about the higher spending level, McCollam said the company expects “incremental new stores next year” and suggested the number could be “up 50% from this year,” though she said the company had not given a specific number. She also said remodel activity would be “amplifying” materially.
On the balance sheet, McCollam said Albertsons ended the year with a net debt to adjusted EBITDA ratio of 2.24x. She also said the company refinanced $2.1 billion of existing bonds during the fourth quarter, using proceeds to refinance 2027 and 2028 maturities.
Fiscal 2026 outlook: modest sales growth, EBITDA growth expected as year progresses
McCollam said fiscal 2026 is expected to be “an important step in returning the business to earnings growth,” while continuing to invest in capabilities supporting long-term value creation. The company’s outlook calls for identical sales of 0% to 1%, or 1.5% to 2.5% excluding a 150 basis point headwind from the IRA, assuming near-flat reported pharmacy sales.
She said first-quarter identical sales are expected to run below the full-year range due to the IRA impact and “significant ongoing egg deflation,” with sequential improvement anticipated through the year. McCollam later added that the company expects adjusted EBITDA growth in every quarter after Q1, “improving sequentially as we get through the year as our productivity kicks in.”
Albertsons guided to adjusted EBITDA of $3.85 billion to $3.925 billion and adjusted EPS of $2.22 to $2.32, which McCollam said includes approximately $600 million of share repurchases during fiscal 2026. The effective tax rate is expected to be 24% to 25%.
On profitability, McCollam said the company expects gross margin to be “flat to slightly better” through fiscal 2026, noting a positive margin impact from the IRA changes, continued digital mix shift, and productivity-funded investments in price and other initiatives.
In Q&A, management also reiterated its focus on productivity. Morris said the company increased expectations for its three-year productivity target to $2 billion and said “the bulk of the savings” is expected to come through SG&A. McCollam said the company had “amplified our activities in this area materially” and expressed confidence in delivering the new target.
Closing the call, Morris said management believes fiscal 2026 will be the year when prior investments “begin to translate into accelerating earnings power and improving returns,” while acknowledging that the competitive environment in food retail “is not easing.”
About Albertsons Companies NYSE: ACI
Albertsons Companies, Inc NYSE: ACI is one of the largest food and drug retailers in the United States, operating a diversified portfolio of grocery store banners. Founded in 1939 by Joe Albertson in Boise, Idaho, the company has grown through both organic expansion and strategic acquisitions. Its core business activities encompass the sale of fresh produce, meat, bakery items, deli offerings, pharmacy services, and general merchandise. The company's retail operations are complemented by an in-house private-label program, featuring brands such as O Organics, Open Nature, and Lucerne, which cater to a range of customer preferences and price points.
Throughout its history, Albertsons Companies has pursued growth via mergers and partnerships.
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