Transcript: Albertsons Companies Q2 2026 Earnings Conference Call

Albertsons Companies (NYSE:ACI) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

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Summary

Albertsons Companies reported a decline in identical sales of 0.8% for Q2 fiscal 2026, with adjusted EBITDA of $784 million and adjusted EPS of $0.36 per share.

E-commerce sales grew by 11%, and pharmacy sales remained strong despite challenges from the Inflation Reduction Act and a shift from branded to generic products.

The company plans to accelerate cost savings and productivity initiatives, targeting $2 billion in cost savings over the next three years, focusing on areas such as third-party spend and store execution.

Albertsons is undergoing a comprehensive business review to enhance shareholder value, including evaluating its portfolio of banners and markets and considering strategic actions.

Management emphasized the need to simplify operations, improve decision-making, and enhance the customer value proposition, with plans to provide a detailed multi-year financial outlook by the Q4 earnings call.

The company continues to generate significant cash flow, with $1.2 billion in operating cash flow and $400 million in share repurchases during the first half of 2026.

Full Transcript

OPERATOR

Greetings. Welcome to the Albertsons Companies second quarter fiscal 2026 earnings conference call. All participants will be in a listen-only mode until the Q&A session. This call is being recorded. I would now like to hand the call over to Cody Perdue, Interim Chief Financial Officer of Albertsons Companies. Please go ahead.

Cody Perdue, Interim Chief Financial Officer

Good morning and thank you for joining us. Before we get started, I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC.

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. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in this morning's earnings release. Now let me hand the call over to Susan Morris, the Chief Executive Officer of Albertsons Companies.

Susan Morris, Chief Executive Officer

Thanks, Cody, and good morning. Thank you all for joining us. Today's call is going to be a little different. Before Cody and I review the quarter and tell you about the big steps we're taking to accelerate Albertsons' progress, I've asked our new Executive Chair, Meg Whitman, to provide you with some of her thoughts and observations. Having access to Meg has allowed me to draw on the perspective of a veteran CEO who has grown companies, unlocked shareholder value, and managed an enormous array of challenges.

Her insights are helping us refine our effort. I want you to hear Meg's early impressions about the company. After Meg speaks, I'll provide a recap of our second quarter results and an assessment of our performance, discussing the actions we're taking to improve the business. Finally, Cody will cover our financial results in some more detail. So, Meg, please take it away.

Meg Whitman, Executive Chair

Thank you, Susan, and good morning everyone. I want to spend a few minutes this morning sharing my perspective as I begin my role as Executive Chair. Over the past several weeks I've spent some time with management, directors, associates, and customers, and have been getting to know the business. While it's still early days, here are some observations. First, Albertsons has significant strengths. We operate strong local banners in many prime locations, serve millions of customers every week, generate substantial cash flow, and have talented associates who care deeply about serving their communities.

Our pharmacy business is robust and a crucial part of our customers' lives. We've built a strong e-commerce platform and see AI as critical to our success. We have a proud history, and we want to win. That all said, our performance has fallen short. Sales and earnings growth have not met our expectations, market share trends have lagged, and despite many individual successes across the business, we're not delivering results consistent with the quality of our assets.

We must turn things around. The first step is to take a hard look at the business, challenge assumptions, and decide what actions create the greatest value for customers and shareholders. That includes looking at opportunities to run the core business much better by improving the operational model and decision-making. It also includes improving the cost structure, reducing price for customers, and resetting priorities for improved capital allocation.

We must also take a close look at our portfolio of banners, markets, assets, and businesses, as well as at potential strategic actions we can take to enhance shareholder value. Susan and I agree that everything should be on the table as we figure out how Albertsons should be structured to better compete in the years ahead. As I've worked with Susan and her leadership team, one thing has become increasingly clear. We must move faster to reduce costs, reinvest much of those savings into lower prices, improve the store experience for customers, grow traffic and share in core markets, drive ID sales and revenue, and improve returns for shareholders.

Albertsons must become a simpler, more focused company that gets the basics right every day. I joined Albertsons because I believe the company has greater potential than its results have reflected, but dramatic improvement is needed now. Albertsons must move faster to change the trajectory of the business. What I have seen in Susan and her team is a renewed commitment to create long-term, sustainable shareholder value, all while staying focused on Albertsons' customers and communities.

I believe we will turn the corner. So with that, let me turn it back over to Susan.

Susan Morris, Chief Executive Officer

Thanks, Meg. Before discussing where we're headed, I'd like to briefly address the quarter's results. Identical sales declined 0.8%, adjusted EBITDA was $784 million, and adjusted EPS was $0.36 per share. On the top line, ID sales in our core grocery business sequentially improved versus the first quarter by approximately 20 basis points. At the same time, pharmacy script count growth remained strong despite increasing sales headwinds related to the Inflation Reduction Act and an ongoing shift from branded to generic.

E-commerce continued to deliver double-digit growth of 11% during the quarter. Let me characterize the quarter by saying we saw some early signs of improvement. Some of our cost takeout and in-store execution began to yield results in the quarter. Those gains, however, need to be accelerated to offset continued pressure in our core retail operations. The reality right now is that the economy is tough for many of our customers, fuel prices are elevated, and inflation remains stubbornly high for our customers and in our P&L. Traffic and units are below where they need to be, and our overall performance does not reflect the quality of our assets or the capabilities of our team. Simply put, we're not satisfied with the results and the current trajectory of our business. Over time, we launched a number of initiatives for good reasons and with the right intentions. Upon reflection, however, too many initiatives, processes, and layers of complexity have built up, slowing the organization and increasing the costs of running our business.

I take responsibility for some of that complexity. We recognize the need to simplify how we work, sharpen accountability, and move with greater speed and discipline to deliver better results. Going forward, our focus will be much narrower, our resources will be concentrated on the right projects that most accelerate our results, and our expectations and accountability for results will be significantly higher. We must deliver more consistently for our customers.

Price matters, promotions matter, freshness matters, convenience, selection, and customer service matter. Our job going forward is to deliver all of those things better than we do today. Over the last several years, we've invested in e-commerce capabilities, loyalty, pharmacy, retail media, Own Brands, and fresh differentiation. Those are important investments that have increased the value to our customers. Now we must double down on the basics. Our stores must provide the products our customers want at prices they want to see in the places and formats they love.

Going forward, we're evaluating every customer-facing investment against three outcomes: a stronger customer value proposition, improved traffic and units, and sustainable market share gain. Those outcomes will increasingly guide how we allocate resources and measure success. Earlier this year we increased our cost savings program from $1.5 to $2 billion over the next three years. I believe there's more room to run there and at a faster pace. Last quarter we also announced ACI Edge.

ACI Edge began with two major structural changes: moving from 11 divisions to four regions and centralizing center-store merchandising. We will accelerate ACI Edge to improve buying and find savings we can pass back to customers more aggressively. As we evaluate opportunities to accelerate cost savings and productivity, two areas stand out early. The first is third-party spend for goods for resale and goods not for resale, where we believe there are meaningful opportunities to simplify, consolidate, and reduce costs across the organization.

The second is store execution. We will improve inventory discipline. We will reduce shrink, and we will recommit to running our stores at the highest standards, which includes providing the best training to our associates. These steps and more, taken together, will improve the customer experience and ultimately our business results. Finally, we're taking a disciplined look at our portfolio. Albertsons has strong businesses, strong banners, and valuable assets.

But not all assets create the same value. Going forward, we'll be more focused. We'll invest where we have a clear path to win. We'll exit areas that are underperforming. Before I hand it over to Cody, let me leave you with this thought. There is significant potential in our business, but our performance has not reflected that potential. Our responsibility now is to close that gap, and to close it fast. That means simplifying our organization, improving decision-making and execution, allocating capital with further discipline, and delivering more consistently for customers.

Most of all, it means tackling even harder a cost structure that we can no longer afford. We must reduce our cost of doing business more aggressively to better serve our customers and shareholders. With that, I'll turn it over to Cody.

Cody Perdue, Interim Chief Financial Officer

Thanks, Susan, and good morning everyone. Before I discuss the quarter, I'd like to reinforce a few of the themes Meg and Susan have shared. Right now we are focused on a simple question: How do we create a stronger, more competitive and more valuable Albertsons Companies? From a financial perspective, we believe that starts from two distinct points. First, Albertsons Companies continues to have meaningful strengths. We operate strong local brands, serve millions of customers, generate significant cash flow, and have businesses and capabilities that are performing well.

However, those strengths are not translating into the financial results we want to see. Part of the reason for that is the economic challenges many of our customers face, with higher fuel prices at the top of the list. But there is also much more we can do to build a stronger business. While we have delivered growth in parts of the business, we have not generated the level of sales growth, earnings growth and shareholder return we believe we can and should produce.

That reality is driving the work currently underway. We believe this business can perform better than it does today. Our goal is to lock in on a few priorities that are the best identical sales and revenue drivers. With that, let me turn to our second quarter results. Second quarter identical sales were negative 0.8%. Consistent with recent quarters, we saw continued strength across several areas of the business. E-commerce sales increased 11%, reflecting continued customer adoption of our offerings, with overall digital penetration increasing to 10.5%.

Pharmacy identical sales continued to grow, supported by continued prescription growth. At the same time, we continued to face multiple sales headwinds in the quarter, including in our pharmacy 120 basis points related to the Inflation Reduction Act and an incremental 30 basis point headwind related to the ongoing brand-to-generic mix shift, a 30 basis point unit impact related to the Cyclospora outbreak, which broadly impacted produce sales, and 30 basis points related to the continued cycling of egg deflation.

In total, these headwinds were approximately 210 basis points to our total reported identical sales. All that said, customer engagement across our loyalty ecosystem remains strong, with active membership, personalized offers and digital engagement continuing to provide important competitive advantages. Gross margin in Q2 was 26.8%, a decline of 17 basis points year over year excluding fuel and LIFO. The decrease in gross margin rate was primarily driven by the mix shift impact of outsized growth in e-commerce as well as higher shrink primarily associated with the Cyclospora outbreak.

We continued to make surgical investments in price funded by productivity initiatives. The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. In SG&A, our dollar spend was relatively flat on a year over year basis, reflecting the benefits of our productivity initiatives. On a rate basis, selling and administrative expense rate excluding the impact of fuel increased 38 basis points year over year.

The increase in the SG&A rate was primarily attributable to sales deleveraging resulting from lower identical sales, including the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q2 interest expense increased $20 million to $125 million compared to $105 million last year due to higher borrowings and slightly higher average rates. Adjusted EBITDA in Q2 was $784 million and adjusted EPS was $0.36 per diluted share. In sum, these results demonstrate the resilience of our business and our ability to generate meaningful profitability and cash flow.

They continue to underscore the opportunity we believe exists to improve both growth and returns over time. Our business continues to generate meaningful cash flow and maintain a strong financial foundation. During the first half of 2026, operating cash flow was $1.2 billion. Capital expenditures totaled approximately $900 million, including 38 remodels and the opening of seven new stores, and continued investment in our digital and tech platforms.

And ultimately, free cash flow was more than $300 million. Net leverage ended the quarter at 2.4 times. These results provide the flexibility to continue investing in the business while maintaining a disciplined approach to capital allocation. During the second quarter, we spent approximately $175 million on share repurchases and have repurchased approximately $400 million in shares during the first half of 2026, with $1.7 billion remaining against our $2 billion share repurchase authorization that was refreshed in April of this year.

We also paid our $0.17 per share dividend during the quarter totaling $83 million, and declared our next quarterly dividend of $0.17 this morning. Our overall capital allocation objective is clear: allocate capital where it can create the greatest long-term value for shareholders. Although the business performed in line with our revised guidance expectations during the second quarter, we do not believe it is prudent today to provide an incremental update to our financial outlook.

Instead, we believe the better path is to look closely at the business, establish clear priorities and come back to investors with a comprehensive plan and multi-year financial outlook. By our fourth quarter earnings call, we will provide a refreshed customer strategy, a significantly expanded productivity and cost reduction program including opportunities in goods for resale and goods not for resale, shrink reduction and other simplification initiatives, a framework for pricing improvements that will attract more customers, portfolio optimization actions, and finally, an updated capital allocation framework.

All of that will come together with a clear set of metrics and KPIs and, as I mentioned, a fully vetted financial outlook that will allow you to track our progress with precision. We also plan to host an Investor Day in spring 2027 to further detail the plans outlined above. Ultimately, the goal is to establish a roadmap that improves execution, strengthens our competitive position, increases returns and creates greater long-term value for shareholders.

With that, I'll turn the call back to Susan.

Susan Morris, Chief Executive Officer

Thank you, Cody. Before we move to questions, let me leave you with one final thought. Albertsons Companies is now fully engaged in a turnaround. The company has strong assets, talented associates and significant potential. We will turn potential into a measurable sequential improvement, sustained performance. As Cody said, by our fourth quarter earnings call, we intend to outline a clear turnaround plan and measurable commitment. Until then, our focus is simple: drive execution, accelerate cost out and improve the customer value proposition.

And with that, we'll take your questions.

OPERATOR

Thank you. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up.

Thank you. Our first question comes from the line of Mark Harden with UBS. Please proceed with your question.

Mark Harden, Analyst at UBS

Good morning. Thanks so much for taking the question. So, to start, I was wondering if you can walk through just a bit of why now is the right time to announce your comprehensive business review. Obviously it comes right on the back of ACI Edge's announcement last quarter, and you talked about how some of your initiatives have been leading to increased complexity. Just how does your updated approach impact how you think about ACI Edge's ramp and also its scope going forward?

Susan Morris, Chief Executive Officer

Thanks. Sure. Thanks, Mark. Thanks for the question. As for why now? Actually, your point is spot on about ACI Edge. What this is really is the evolution of ACI Edge, but it's actually thinking about us going faster and more aggressively. While we met expectations in the second quarter and we certainly made progress in many areas, the pace of that improvement just hasn't been fast enough. We've not translated that into the sales, the share growth, the traffic and the earnings that we need.

And quite frankly, it's been very helpful to have Meg here, getting that external lens. As I mentioned in the call, I've been very critical of the amount of initiatives that we've launched over the last 18 months, maybe for good reason, but the fact of the matter is we've created more complexity in the business and unintentionally created competing priorities. So our focus now is really about direct impact on three things: how we drive customer experience and how we improve financial performance.

So if we're not working on driving improvements in store standards or execution, if we're not investing in the customer value proposition, or aggressively removing cost and complexity in the business, those initiatives are paused or stopped. And we'll look at those further. We look forward to coming back to you during our fourth quarter earnings call with a more comprehensive plan on what the evolution of ACI Edge looks like.

Mark Harden, Analyst at UBS

That's great, thanks. And then as a follow-up, a big part of ACI Edge today has been kind of centralized purchasing across the organization. Does this get pushed back at all as you reevaluate your portfolio of stores? And then on guidance, understand the decision to push that out. Just is that largely driven, presumably giving you some more flexibility near term, or is there also anything incremental you're seeing in the consumer that's concerning?

Susan Morris, Chief Executive Officer

Actually, it's the opposite. We are accelerating ACI Edge, in particular the elements about buying better together, the centralized buying processes. We're already seeing early signs of success there and have a line of sight for the rest of the year and even into next year on fairly substantial benefits. So it's actually helping us as we think about how we can move further faster on ACI Edge. You mentioned briefly the customer. And the only thing I would say there is that, as you're hearing across the industry, we are seeing the customer remain under pressure, particularly our lower-income customers.

They're still trading down, looking for value, buying more private label, and we expect to see that continue for the short term.

Cody Perdue, Interim Chief Financial Officer

And Mark, on the guidance point, what I would say is first of all, we did perform in line with our expectations during the second quarter. And I would also say that nothing has really changed from the exit rate in the second quarter. We're continuing to see the same general performance from the core business as we saw during the second quarter. But at the same time, this is a comprehensive review, and that may change the pace and mix of investments, the cost reductions and related timing certainly, and the portfolio actions that we mentioned.

So that's really the reason for the pause there.

Mark Harden, Analyst at UBS

Got it. Thanks so much. Good luck, guys.

OPERATOR

Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.

Edward Kelly, Analyst

Yeah, hello, good morning everyone and thank you for all the color. Susan, I wanted to ask you maybe to start, you know, you've had a well defined strategic plan anchored by sizable cost cuts. You know, coming into this, you've been driving a lot of change. Obviously, the addition of Meg Whitman adds a new set of eyes. But can you just talk about how much more room you think there is in the organization on the cost saving side, given the size of the amount of cost that you've talked about and then how you're balancing how quickly you move with the risk associated with a lot of this change. And then historically you have kind of talked about this balanced approach of driving savings and investment.

It sounds like that might not be the case now where maybe you do willing to put some upfront investment into the business. I'm curious as to where you stand related to that philosophy.

Susan Morris, Chief Executive Officer

Sure. Hi, Ed. Thanks for the question. So, regarding cost out, here's what I would say. We actually believe there's still substantial blue sky in terms of cost out. And I think about three areas in particular. First and foremost, cost of goods, as I mentioned, our buying better together. We're seeing great response there and expect that to accelerate and our ability to do that is real. The second piece is in goods, not for resale. And that's simply aggregating the demand of an $80 billion company more effectively.

As we've gone back through in recent weeks and looked harder at what the benefits might be there, end to end, we see real savings. The other piece is SG&A. We did some work last year and saw a substantial reduction in headcount. But quite frankly, there's more to be and you'll see us taking aggressive action there in the next 12 to 18 months as well. And then finally in store conditions. So obviously we are running better stores. We're going to invest in the customer value proposition, but we've also got opportunities in terms of how we manage shrink and waste in the business and have a strong line of sight on how we do that.

Your question about speed. So the goal here, yes, speed is going to be critical, but what's going to help us balance against any conflicting priorities is focus. Speed on fewer initiatives will result in stronger results, faster. Clarity for the team matters and that's exactly what we're striving for here. Cody, anything to add on?

Cody Perdue, Interim Chief Financial Officer

No, I would just say, simply put, we think there's a lot more room to run on the cost side and at a more accelerated pace because we do recognize the need to fund that investment.

Edward Kelly, Analyst

Great, thanks. And then just a quick follow up on the portfolio. You obviously have some very good assets and then as you mentioned, you have some assets that are underperforming. Can you maybe talk a bit more about some of the criteria you're looking at when you're assessing these businesses? And I don't know to the extent that you can help us sort of size how big the asset base that you would truly consider sort of underperforming and sounds like maybe turning into non core would be.

Susan Morris, Chief Executive Officer

Cody, why don't you take that and I'll chime in.

Cody Perdue, Interim Chief Financial Officer

Yeah, I don't know that we're ready to declare any of that right now. That's part of the comprehensive review that's ongoing. But what I would say is obviously we look at store performance and then we also look at the capital that's required to maintain it. So I think it'll be a comprehensive review. I don't think it's all that significant overall, but that work is underway. And we'll be back to you with a clear plan.

Susan Morris, Chief Executive Officer

Thanks, Cody. What I would add to that, it's both a blend of looking at where we're not performing as we would like, but maybe equally, if not more important, is also leaning into the markets where we're very strong, number one or two market share. And how do we double down our investment and get returns on that capital and investment more effectively faster.

Edward Kelly, Analyst

Great. Thank you.

OPERATOR

Thank you. Our next question comes from the line of John Heinbockle with Guggenheim Partners. Please proceed with your question.

John Heinbockle, Analyst at Guggenheim Partners

Hey, Susan, can you talk to value perception versus reality. And I know it'll differ in market by market, but generally speaking, the comparison of the two and then the speed with which you'll be able to improve value perception. Right. Because to really move the needle, you've got to invest a lot and market it aggressively in the markets you choose to do that in. So your thoughts on all of that?

Susan Morris, Chief Executive Officer

Sure. Hi John, thanks for the question. So great question on value perception. And as we talk about it internally, and I think in the industry, it's a blend, right? It's what are the quality of products I'm getting, the variety, the services, the ease of the shopping experience balanced out by what I'm willing to pay. And so as I think about that with Albertsons Companies, I think we've been quite clear our goal is not to be the cheapest guy in town, but rather to have the right balanced value proposition that resonates with the customers that we serve uniquely by market and from a price position.

Our goal is not to have a broad based reduction, but rather, as we've shared before, a very surgical and strategic price investment. So by market, by category, both in price and promotion, again in ways that resonate uniquely with the customers that we're serving. So our approach is methodical, data driven and we'll be able to share a lot more of the shape of that when we talk again at the fourth quarter.

John Heinbockle, Analyst at Guggenheim Partners

Maybe the follow up, right, is there's a lot you're looking at in terms of the portfolio and things sort of maybe upstream, you know, from the stores. So, you know, how do you keep. It's easy for that to be distracting to people, right? Over the next six months, how do you sort of insulate the stores from any of that distraction that might be upstream in this process?

Susan Morris, Chief Executive Officer

Such a good operational question, and here's the answer. Part of ACI Edge was about centralizing decision making and lowering cost of goods. The other part was about creating simplicity in our operational model. So our four regional executive vice presidents, that's their job right now. It's really fundamentally to elevate store conditions, keep the teams focused on taking care of our customers better than anyone else and continuing to raise the bar every single day. With that kind of focus on elevating store standards and execution, it eliminates the distractions from all the noise happening around us. Our team knows that we have essentially two roles in our company.

We either serve customers directly or we serve those that serve customers.

John Heinbockle, Analyst at Guggenheim Partners

Thank you.

OPERATOR

Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question.

Leah Jordan, Analyst at Goldman Sachs

Hi, good morning. Thank you for taking our question. You called out high inflation in your own P&L. So seeing if you could talk about what level of inflation you were seeing in your business in the quarter, you know, what are you seeing in terms of your own transportation expense? What are you hearing from suppliers? And how do you think about how inflation should trend as we move through the back half of the year?

Susan Morris, Chief Executive Officer

Hi, Leah, thanks for the question. So what I would say is we saw CPI pick up to about 2.5% in the second quarter. And I would tell you that we passed along less than that, maybe 2, 2.1%. As far as the outlook. Cody, maybe I'll ask you to chime in on that piece.

Cody Perdue, Interim Chief Financial Officer

Yeah, no, I think that's exactly right. And as we look at the back half of the year, it's probably, you know, we are seeing suppliers come with some cost increases. We obviously have a playbook by which we handle that. And we are seeing inflation across the P&L, but that's not new for us. We've been dealing with headwinds for some time now and we'll continue to do that.

Leah Jordan, Analyst at Goldman Sachs

Okay, that's helpful. Thank you. And then since shrink kind of reemerged as a headwind in the quarter, maybe you could talk about the magnitude of that headwind. Was it all related to the outbreak in produce or anything else you would call out there and just kind of tying this with another theme that you called out with improving the store experience longer term, a big opportunity in shrink. So just more detail maybe where you're mix executing in inventory management and the opportunity to leverage there and how we should think about that.

Cody Perdue, Interim Chief Financial Officer

Yeah, in the quarter, I would say the lion's share of the increase there was completely related to the cyclospora outbreak and its impact on produce sales and the like. And, you know, as we look ahead, we've got a lot of the tools, we've got a lot of the foundational elements built to accelerate shrink reduction. And so we're very focused on that as part of the store operations and the elevation we're looking for there.

Susan Morris, Chief Executive Officer

Cody, that's exactly right. And Leah, one of our countermeasures against the pursuit of shrink reduction is also managing the customer experience. We recognize they want to have choices. We want to make sure we're providing them the breadth of quality and variety that they're looking for. And we do have the tools and technology to manage that as effectively as possible.

Leah Jordan, Analyst at Goldman Sachs

Great, thank you.

OPERATOR

Thank you. Our next question comes in the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Simeon Gutman, Analyst at Morgan Stanley

Hey, good morning, everyone. Susan, can you give us your perspective on pricing, where you stand nationally, locally, and any progress since you've taken over? Thanks.

Susan Morris, Chief Executive Officer

Hi, Simeon. So once again, from a national perspective, we really do look at it that way, but as really more important for us to look at it market by market and literally category by category and item by item, our opportunities vary across the country versus the competitors that are in the market surrounding us. So it's a varied answer, but our approach has been very surgical. Last year, we engaged in three different price campaigns, and we saw strong success there. As we look forward, we're learning from those pilots and understanding what drove the inflection in units faster, what drove the inflection in profitability faster. And we'll make very strategic investments as we move forward again as part of the larger plan that we'll come back and discuss in the fourth quarter.

Simeon Gutman, Analyst at Morgan Stanley

And then the pulling of guidance. How does capital allocation factor in? Does it get a second look and what happens with repurchase in the interim?

Cody Perdue, Interim Chief Financial Officer

Yeah, sure. So, Simeon, what I would say is obviously we're looking at capital allocation very, very holistically. Through the first two quarters of the year, we repurchased about 400 million in shares. We've got 1.7 billion remaining on the authorization, and we'll continue to be opportunistic against that. But at the same time, we are looking holistically at capital allocation priorities.

Simeon Gutman, Analyst at Morgan Stanley

One more. Okay, thanks. Good luck.

OPERATOR

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer Company. Please proceed with your question.

Rupesh Parikh, Analyst at Oppenheimer & Co.

Good morning. Thanks for taking my question. So maybe a shorter term question first. I know you guys aren't guiding, but in terms of some of the puts and takes for at least the top line, some of the headwinds that you're expecting the back half of the year, whether it's iris, like with Spora. Just curious if there's anything you can quantify or even just highlight some of the puts and takes for the balance of the year. There's.

Cody Perdue, Interim Chief Financial Officer

Yeah, maybe just to unpack the idea a little bit. Obviously the headline ID at minus 0.8%. Pharmacy was up, you know, low to mid single digits, which leaves the core down about, you know, in that just a little bit over 1.5% range. We're obviously not guiding the rest of the year. But I would tell you the same thing that we said earlier, which is, you know, nothing has fundamentally changed as we've looked at the exit rate from the second quarter.

Obviously the quarter did have the 30 basis point cyclospora impact and 30 basis points of egg deflation. Those should be sort of cyclical items, not structural headwinds.

Rupesh Parikh, Analyst at Oppenheimer & Co.

Great. And then my follow-up question, maybe for Susan, this might be difficult to answer. I'm going to ask anyway. As you think about the turnaround efforts, like any sense of how long this can take? Is it, you know, you get into early next fiscal year, you start to see benefits right away? Is it a multi-year turnaround? So just any initial thoughts on just the timing of how quickly you guys can turn around the business?

Susan Morris, Chief Executive Officer

So Rupesh, you're right again. We'll come back with more clarity in the fourth quarter earnings call. But here's what I would say. The company is focused, we're moving with speed and we have strong alignment across the organization. So we're not waiting. While there are deeper dives to be done in certain areas, there are clear lines of sight on things that we can do right now to materially change the trajectory. And that's what we're focused on.

Rupesh Parikh, Analyst at Oppenheimer & Co.

Okay, great. Thank you. Best of luck.

OPERATOR

Thank you. Our next question comes from the line of Tom Palmer with JPMorgan. Please proceed with your question.

Tom Palmer, Analyst at JPMorgan

Good morning. Thanks for the question. First off, any update on the CFO search and maybe to what extent do the board changes and the comprehensive review affect the timeline or perhaps the type of candidate that you're looking for? Thanks.

Susan Morris, Chief Executive Officer

Thanks for the question. So our CFO search is underway and we're making good progress there. And I would tell you that I believe the shape our board is taking as we've made the recent changes and as we continue to evolve is very exciting. Again, having Meg on board has been incredibly helpful to us. I think it sends a strong signal of her support for the organization, as did her comments earlier. I am confident that we will get the right fit from a CFO perspective. Someone that's aggressive, wants to drive change and help us help shape strategy for the future. I'm very optimistic about our search.

Tom Palmer, Analyst at JPMorgan

Thank you for that. I did want to follow up maybe about the consumer perception of value that you've already been asked about in a couple of ways. I mean, really, with the rise of e-commerce and maybe the more transparent pricing from retailer to retailer that it allows, do you think that perception of value is more linked to the absolute level of pricing in a way? Maybe it wasn't in the past and, if so, I guess how do you think about overcoming that in kind of the context of not wanting to be a low-cost provider and instead offer this greater value on a more holistic basis?

Susan Morris, Chief Executive Officer

Yeah, so that's a great question. I would say absolutely. Transparency on price has clearly increased for the customer. However, price and value are not always the same thing. So as customers are looking for products they're willing to buy at prices they're willing to pay, I think that's where we can create points of differentiation. Price, yes, is about what I'm paying out of my wallet, but it's also about the convenience of location. It's about our ability to leverage our very, very strong loyalty program and create personalized offers.

That may mean something very different to me as a consumer than it might to you as a consumer. So it's absolutely more transparent, but we have the tools and vehicles to be able to cater to our customers on a broad base, but also maybe more importantly on an individual level through our loyalty program.

Tom Palmer, Analyst at JPMorgan

Understood. Thank you.

OPERATOR

Thank you. Our next question comes from the line of Robbie Olms with Bank of America. Please proceed with your question.

Robbie Olms, Analyst at Bank of America

Oh, hey, Susan and Cody, you know my two questions. Just one would just be, could you speak to Own Brands and where this fits in and any changes you may be making? Should we expect even more of an acceleration than you would have already been planning? And then the other one would just be, why don't we start with that one?

Susan Morris, Chief Executive Officer

Sure, of course. Great. Thanks for the question. So yes is the answer. We are absolutely accelerating our efforts around Own Brands. Over the past several months, we've been improving the variety and quality of the product that we're carrying and also working aggressively on the cost. We want to have the best products that our customers are looking for at the lowest possible price. And you'll start to see the execution of that actually already begun.

But you'll see that further accelerate as we continue on with our strategy.

Robbie Olms, Analyst at Bank of America

And then just in terms of promos versus tightening the spread, are you making a big shift on the spread and sort of backing off from promos? And are you looking at doing any kind of more aggressive SKU rationalization with the CPG brands?

Susan Morris, Chief Executive Officer

So it's a balance, right? There are absolutely areas, and again, remember, very surgical by market, by category, where we'll be making frontline pricing changes. We're also refining our promotional strategy as we move forward as well, making sure that the promotions are well targeted, they're getting the return, they resonate with our customers and they're delivering what we expect on the bottom line. From a SKU rationalization perspective, what I would say here is we're very optimistic about our ability to grow share in Own Brands.

We're also very aggressively pursuing cost reductions across the organization. We want to carry the products our customers are looking to buy. That said, we'll also make the right decisions to make sure that we are as efficient as possible. From a labor perspective, we offer the right variety to serve our customers and that we're getting the right cost to be able to do that as effectively as we can.

Robbie Olms, Analyst at Bank of America

Great. Thank you.

OPERATOR

Thank you. Our next question comes in line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Bill Kirk, Analyst at Roth Capital Partners

Good morning, everybody. How much of the business review will be predicated on the outcome of the trial against Kroger? Given the damage amounts, I would imagine that the trial outcome could influence funding plans, funding needs, and asset decisions.

Susan Morris, Chief Executive Officer

So we're not really going to talk about the litigation at this moment in time. And I would say that we are moving forward with our actions right now, regardless of what's going on in that space. We have a clear line of sight to what we need to do to change our trajectory as the business stands today. And that's what we're focused on.

Bill Kirk, Analyst at Roth Capital Partners

Thank you. I'm not really looking for like what we think of the litigation. It's more, it's a large dollar amount. And so is determining some of the business plan dependent on just learning the outcome?

Cody Perdue, Interim Chief Financial Officer

Yeah, Bill, I would say it's not. We're accelerating our cost-out and productivity programs, looking for ways to fund our investments in the customer value proposition position and looking at everything holistically, you know, without giving effect to litigation or otherwise.

Bill Kirk, Analyst at Roth Capital Partners

Okay, thank you. And then a real quick follow-up. I might have missed it. It was a number you've given before. I don't think I caught it today or at 1Q. But what did loyalty member growth look like in the second quarter?

Susan Morris, Chief Executive Officer

Yeah, loyalty members continue to grow. And what's really important is when we look at those that are actively engaged in our platforms and participating in the rewards, et cetera, we see that their spend is anywhere from three to four times higher than someone who isn't. So those will continue to be critical levers for us.

Bill Kirk, Analyst at Roth Capital Partners

Thank you. I'll pass it along.

OPERATOR

Thank you. Our next question comes from the line of Joe Feldman with TLC Advisory Group. Please proceed with your question.

Joe Feldman, Analyst at TLC Advisory Group

Yeah, thanks, guys. Good morning. You know, you've talked a little bit about capital allocation before with buybacks, but how are you thinking about capex given this situation right now? Like, do you guys pull back a little bit in the second half to kind of understand where you want to invest? Or what's the—Is that 1.9 to 2 billion that you talked about last quarter still kind of where you want to be for the year?

Susan Morris, Chief Executive Officer

So I'll start and I'll turn it over to Cody. So we are absolutely investing behind our highest return opportunities. That said, Joe, of course we're still investing in our fleet, being very thoughtful about those investments and making sure that they're getting the returns that we're expecting. Cody, what would you add?

Cody Perdue, Interim Chief Financial Officer

Yeah, I would say a lot of the projects that are contemplated in the 2026 spend are underway and those are good, you know, ROI projects that we expect to continue. So I don't, you know, I wouldn't fundamentally call that a reset in the back half.

Joe Feldman, Analyst at TLC Advisory Group

That's helpful. Thank you. And then as you guys are looking at this turnaround and the acceleration that you're talking about and, you know, operational improvement, how are you leveraging technology to help with that? Do you have the right technology in place? I'm assuming AI is some part of that, but do you need to have that infrastructure improved before even getting to where you want to be? Or maybe you could share some thoughts on that. Thank you.

Susan Morris, Chief Executive Officer

Sure. Thanks, Joe. Yeah. As you may recall, we have our four AI Big Bets. And to your question, each of them are actually designed to help accelerate the focus that we have now around driving improvements in store standards, improving the customer value proposition and taking cost and complexity out of the business. It's actually incredibly complementary. Our Merch Intelligence Big Bet is literally about enabling faster, smarter decision-making on category decisions, whether it be assortment all the way through to price and promotion.

Store labor is one of our key AI Big Bets. And of course, productivity is incredibly important for us and doing it in a way that helps us best serve our customers. That's a key piece. The last one, or one of the others, is demand forecasting, absolutely essential in our business. And that's end to end from all the way from farm to table, if you want to think about it that way. How can we create stronger demand planning so that we can better improve our in-stock results and optimize inventory at the same time.

So AI is absolutely essential, complementary, and we're not waiting. Some of it will come later, but some of it's helping us right now.

Joe Feldman, Analyst at TLC Advisory Group

Thank you very much. Good luck with the next quarter. Thanks.

OPERATOR

Thank you. Our next question comes from the line of Paul Legue with Citigroup. Please proceed with your question,

Brandon Cheateman, Analyst at Citigroup (for Paul Legue)

Everyone, this is Brandon Cheateman for Paul. I want to circle back to some of the price investment conversation. Just anything you could share on how much has been funded by buying better, how much you've been able to share with vendors and, you know, if you could help give any details on what some of your goals on kind of those funding buckets might be going forward. Thanks.

Susan Morris, Chief Executive Officer

Sure. Thanks for the question. What I would say is we are absolutely using our vendor partners. They're leaning in with us to help invest in price. There are also cases where we're finding other sources for that investment. So it's a mix between the two and what we're looking at now. Part of what we'll be doing over the next couple months is a deep dive on how we can accelerate those investments and find the right pools of funding. Again, both in cost of goods sold, goods not for resale, but also in taking costs out of the business.

So it's a blended effort between vendor support and internal cost out.

Brandon Cheateman, Analyst at Citigroup (for Paul Legue)

That's helpful. My follow-up is, is there anything you can share on some of the progress you've made in trying to gain more share of your pharmacy customers' basket?

Susan Morris, Chief Executive Officer

So our pharmacy business remains strong. Cody shared the sales growth that we've experienced in spite of some of the top-line headwinds, which are just noise with the Inflation Reduction Act. We're actually seeing strong prescription count growth, which is really important to us. And just as a reminder, that's actually a profitable scenario for us. We've seen a nice turn to profitability in our pharmacy business. Our pharmacy customers also have a strong loyalty to the total store and drive three times larger basket size and lifetime value.

And we continue to see the benefits of customers engaging in both parts of our ecosystem and reaping the rewards there.

OPERATOR

Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.

Kelly Bania, Analyst at BMO Capital Markets

Hi, thanks for taking our questions. I was wondering if you can just give any more specific update on the Buying Better Together program and to help us understand to what extent that is being executed, whether that be, you know, the percent of your national buying that's on that program and just how the savings are coming in. I believe it was really those savings were really supposed to build this year. And does this business review and the fact that you're considering, you know, maybe exiting some areas of underperformance, does that cause you to rethink or pause any efforts on that program?

Susan Morris, Chief Executive Officer

Hi Kelly, thanks for the question. So we are clearly, we say clearly that we are centralizing center store and as we're looking at the Buying Better Together, that message has been very clearly and transparently communicated, obviously internally, but more importantly externally to our vendor partners. And the negotiations have begun with that in mind. We are in the process of going through our largest suppliers and working closely with them to secure lower frontline cost of goods and then also working on our promotional strategy moving forward.

As far as the potential impact of exits, I do not believe the decisions that we might make are large enough to have a dramatic impact on any of those vendor negotiations. So it should not have. It does not weigh into that decision at this point.

Kelly Bania, Analyst at BMO Capital Markets

Okay, thank you. And just also was wondering if maybe you could just share maybe a candid assessment of price gaps and where are you still making progress on that front or is the goalpost kind of moving? Or are you seeing signs that the goalpost is moving in the pricing, the competitive pricing dynamic and is that what's fueling kind of this, you know, need to kind of step up investments or is it also just this customer that's more sensitive and being more reactive to the environment?

Susan Morris, Chief Executive Officer

So what I would say is we clearly are not satisfied with our price position, full stop. That said, our ability to drive change and impact customer, both their impression and reality, is exactly what we're undertaking right now. We know we have an opportunity to improve and we know where those opportunities are, again down to the item and category level. So our approach is to attack that in a rational way. But this is why we're taking a moment so that we can go back, look at how we can accelerate cost out, how we can accelerate lower cost of goods, and how we can improve the customer experience while at the same time strategically investing in

Kelly Bania, Analyst at BMO Capital Markets

Thank you.

OPERATOR

Thank you. Ladies and gentlemen, our final question this morning comes from the line of Chuck Sierrankowski with North Coast Research. Please proceed with your question.

Chuck Sierrankowski, Analyst at Northcoast Research

Good morning everyone. Susan, can you talk about the comps performance with respect to Albertsons various banners and talk about the role of geography as well?

Susan Morris, Chief Executive Officer

What I would say is we don't disclose individual banner performance. But what I would say is there are definitely unique pressures across the country and you can see this in national data, not necessarily specific to Albertsons. Unit pressures may be a little bit tougher in the West, a little bit still negative units across the entire industry countrywide. Again, more pressure in the West. It really comes down to the coasts typically being a more pressured environment and then that pressure reduces slightly as you move inward to the middle of the country.

Chuck Sierrankowski, Analyst at Northcoast Research

All right. Thank you very much.

Susan Morris, Chief Executive Officer

Thank you. Okay, so that concludes the question and answer part of today's call. But before we end, I want to take a second and just thank our associates for everything they do to serve our customers and our communities. As you all know, and I believe all of you believe, their commitment is one of this company's greatest strengths. We have a lot of work ahead of us, but we also are clear on what the opportunities are. We look forward to updating you on our progress in the coming months.

Thanks for your time and your continued interest in Albertsons Companies.

OPERATOR

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.