10-Q: Albertsons Q2 Sales Rise 2.0%, Boosted by Pharmacy & Digital Growth

Albertsons Companies reports a 2.0% increase in net sales and other revenue for Q2 fiscal 2025, driven by strong pharmacy and digital sales growth, despite a decline in gross margin rate.

Summary

• Net sales and other revenue increased 2.0% to $18,915.8 million for the 12 weeks ended September 6, 2025, and 2.3% to $43,796.6 million for the 28 weeks ended September 6, 2025.
• Identical sales, excluding fuel, increased 2.2% for the 12 weeks and 2.6% for the 28 weeks, adjusted for Colorado labor strikes.
• Digital sales grew 23% in Q2 fiscal 2025 compared to Q2 fiscal 2024, and loyalty members increased 13% to 48.7 million.
• Net income for Q2 fiscal 2025 was $168.5 million ($0.30 per Class A common share), up from $145.5 million ($0.25 per share) in Q2 fiscal 2024.
• Adjusted net income for Q2 fiscal 2025 was $248.4 million ($0.44 per Class A common share), down from $301.0 million ($0.51 per share) in Q2 fiscal 2024.
• Adjusted EBITDA for Q2 fiscal 2025 was $848.4 million, down from $900.6 million in Q2 fiscal 2024.
• Gross margin rate decreased to 27.0% in Q2 fiscal 2025 from 27.6% in Q2 fiscal 2024, primarily due to higher pharmacy sales (lower margin) and increased delivery/handling costs for digital sales.
• Selling and administrative expenses decreased to 25.4% of net sales in Q2 fiscal 2025 from 25.8% in Q2 fiscal 2024, driven by leveraging employee costs and lower merger-related costs.
• The company repurchased 25.7 million shares for $550.1 million during the first 28 weeks of fiscal 2025.
• The Board authorized an increase to the share repurchase program from $2.0 billion to $2.75 billion and entered into a $750 million accelerated share repurchase agreement on October 14, 2025.
• The ABL Facility maturity date was extended to August 27, 2030.
• The merger agreement with Kroger was terminated on December 10, 2024, following injunctions, and Albertsons is suing Kroger for willful breach and failure to pay the $600 million termination fee.

Sentiment

Score: 6

Explanation: While net income increased and digital/loyalty growth is strong, Adjusted EBITDA and Adjusted Net Income declined. Gross margin pressure is a concern. The significant share repurchase program and debt refinancing are positive for shareholders and balance sheet management. However, ongoing merger-related litigation and other legal proceedings introduce considerable uncertainty and costs. The overall picture is mixed, with strategic progress offset by financial headwinds and legal overhangs.

Positives

• Net sales and other revenue increased by 2.0% for the 12 weeks and 2.3% for the 28 weeks ended September 6, 2025.
• Identical sales, excluding fuel, increased 2.2% for the 12 weeks and 2.6% for the 28 weeks, indicating solid underlying business performance.
• Digital sales surged by 23% in the second quarter of fiscal 2025, demonstrating successful digital transformation and customer engagement.
• Loyalty members grew by 13% to 48.7 million, reflecting strong customer retention and acquisition.
• Net income increased to $168.5 million ($0.30 per Class A common share) for the 12 weeks ended September 6, 2025, from $145.5 million ($0.25 per share) in the prior year.
• Selling and administrative expenses decreased as a percentage of net sales, indicating improved operational efficiency and leveraging of employee costs.
• Successful refinancing of $600.0 million senior unsecured notes due 2026 with new 6.250% senior unsecured notes due 2033, extending debt maturity.
• Extension of the ABL Facility maturity date to August 27, 2030, enhancing long-term liquidity.
• Increased share repurchase program authorization to $2.75 billion and initiation of a $750 million accelerated share repurchase agreement, signaling confidence in value creation and commitment to shareholder returns.
• Prevailed at trial in the *Schutte* False Claims Act case on March 4, 2025, with judgment entered in favor of the Company on March 12, 2025.
• Recorded a pension settlement gain of $26.8 million during the 12 and 28 weeks ended September 6, 2025, by transferring $290.0 million of pension plan assets.

Negatives

• Gross margin rate decreased to 27.0% in Q2 fiscal 2025 from 27.6% in Q2 fiscal 2024, primarily due to higher pharmacy sales (lower margin) and increased delivery/handling costs for digital sales.
• Adjusted net income decreased to $248.4 million ($0.44 per Class A common share) for the 12 weeks ended September 6, 2025, from $301.0 million ($0.51 per share) in the prior year.
• Adjusted EBITDA decreased to $848.4 million for the 12 weeks ended September 6, 2025, from $900.6 million in the prior year.
• Net cash provided by operating activities decreased to $1,282.0 million for the first 28 weeks of fiscal 2025 from $1,374.1 million in the prior year, driven by lower Adjusted EBITDA, working capital changes, and increased business transformation costs.
• Ongoing litigation with Kroger following the termination of the merger agreement, with Albertsons seeking damages in addition to the $600 million termination fee. Kroger has counterclaimed.
• The State of Washington awarded $28.4 million in attorneys' fees and costs against Kroger and Albertsons jointly and severally, which is being appealed. Albertsons believes Kroger is solely responsible.
• Ongoing opioid litigation with approximately 81 suits pending, and an Omnibus Motion to add the Company to over 108 additional lawsuits.
• Ongoing PBM litigation, with the case scheduled for trial on or after February 18, 2027, although Prime was dismissed on October 10, 2025.
• Increase in current maturities of long-term debt and finance lease obligations to $1,186.4 million as of September 6, 2025, from $57.6 million as of February 22, 2025.

Risks

• Changes in macroeconomic conditions such as rates of food price inflation or deflation, fuel and commodity prices, and macroeconomic uncertainty, including in international trade and current and potential future tariffs.
• Changes in consumer behavior and spending patterns resulting from macroeconomic conditions, including shifts in state and federal assistance programs.
• Changes in wage rates and the ability to negotiate acceptable contracts with labor unions, including the outcome of pending union negotiations.
• Changes in price of goods sold and cost of goods used due to changes in various state and federal government legislation, regulation, and executive orders.
• Uncertainty regarding the geopolitical environment.
• Inability to execute on standalone business and value-creating strategies following the termination of the merger agreement with Kroger due to prolonged uncertainties and restrictions on the business during the pendency of the merger.
• Litigation in connection with the previously pending merger and the termination of the merger agreement, resulting in ongoing costs, potential inability to collect the $600 million termination fee from Kroger, and negative reactions from financial markets, suppliers, customers, and associates as a result of the litigation.
• Ability to recruit and retain qualified or specialized associates who are critical to the success of the Customers for Life strategy.
• Failure to achieve productivity initiatives, unexpected changes in objectives and plans, inability to implement strategies, plans, programs and initiatives, or enter into strategic transactions, investments or partnerships in the future on terms acceptable or at all.
• Challenges with the supply chain.
• Operational and financial effects resulting from cyber incidents at the Company or at a third party, including outages in the cloud environment and the effectiveness of business continuity plans during a ransomware or other cyber incident.
• Changes in tax rates, tax laws, and regulations that directly impact the business or customers.
• Exposure to loss contingencies arising from pending or threatened litigation and the substantial uncertainties involved in assessing and predicting outcomes.
• Potential liability under certain operating leases assigned to third parties if any of these third parties fail to perform their obligations.
• Subpoenas, Civil Investigative Demands, and other requests for documents and information from the U.S. Department of Justice and certain state Attorneys General, and preliminary discussions with the DOJ with respect to purported violations of the federal Controlled Substances Act and the FCA in dispensing prescriptions.

Future Outlook

The company anticipates contributing an additional $12.2 million to defined benefit pension plans for the remainder of fiscal 2025. The 'One Big Beautiful Bill Act' is not expected to have a material impact on the company's financial position or results of operations. The PBM litigation case is currently scheduled to be ready for trial on or after February 18, 2027, while the *Proctor* False Claims Act case trial is scheduled for June 22, 2026, and the lawsuit against Kroger is scheduled for October 19, 2026. The company estimates liquidity needs over the next 12 months to be in the range of $6.5 billion to $7.0 billion, including working capital, capital expenditures, pension obligations, interest payments, debt principal payments, operating/finance leases, dividends, and share repurchases. Management believes it has adequate cash flow to maintain current debt ratings and respond to competitive conditions. The company is also evaluating the impact of new accounting standards updates on income tax disclosures, expense disaggregation, and internal-use software accounting.

Management Comments

• We continued to execute on our Customers for Life strategy, which is centered around driving customer growth and engagement through digital connection, enhancing the customer value proposition, modernizing capabilities through technology and driving transformational productivity.
• Our digital investments are driving engagement, customer acquisition and retention.
• This integrated ecosystem [digital platforms and Media Collective] is accelerating our ability to innovate, optimize marketing spend, and unlock new revenue streams.
• In our customer value proposition, we continued to invest through a balanced approach of enhanced loyalty, incremental and personalized promotions, competitive pricing actions, and vendor funding.
• Technology remains central to our long-term growth strategy, and this technology-first approach is enabling us to innovate faster, operate more efficiently and deliver greater value at lower cost.
• Our modern, cloud-native platform continues to power key operations across eCommerce, stores, pharmacy, supply chain, merchandising and Media Collective operations, and is positioning us to rapidly scale emerging technologies to enhance our core business functions and unlock new levels of speed, precision and productivity.
• Our capital allocation strategy balances investing for the future, strengthening our balance sheet and returns to shareholders through a combination of dividends and opportunistic share repurchases.
• Based on current operating trends, we believe that we have significant sources of cash to meet our liquidity needs for the next 12 months and for the foreseeable future, including cash on hand, cash flows from operating activities and other sources of liquidity, including the ABL Facility.
• We believe we have adequate cash flow to continue to maintain our current debt ratings and to respond effectively to competitive conditions.

Industry Context

The company's continued investment in digital platforms (eCommerce, Loyalty, Pharmacy & Health, mobile app) and the Albertsons Media Collective aligns with broader retail industry trends of digital transformation, personalized customer engagement, and leveraging first-party data for advertising revenue. The focus on a 'Customers for Life strategy' and 'enhancing the customer value proposition' through loyalty programs and competitive pricing reflects the intense competition in the grocery sector, where retailers are battling for market share amidst inflationary pressures and evolving consumer preferences. The mention of 'dynamic management of cost inflation to help stretch customers' wallets' indicates the ongoing challenge of managing rising costs while maintaining affordability for consumers, a common theme across the food retail industry. The increase in pharmacy sales suggests a growing importance of health and wellness offerings within the grocery retail space, a trend many competitors are also pursuing. The termination of the Kroger merger and subsequent litigation underscore the significant regulatory scrutiny and consolidation challenges within the highly competitive U.S. grocery market.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess against global benchmarks.

Corporate Governance

Legal Proceedings

• False Claims Act (FCA) Qui Tam Lawsuits: United States ex rel. Proctor v. Safeway, alleging overcharging federal healthcare programs. Supreme Court reversed lower court rulings and remanded. Trial now scheduled for June 22, 2026. Relators allege damages over $100 million before trebling and penalties.
• False Claims Act (FCA) Qui Tam Lawsuits: United States ex rel. Schutte and Yarberry v. SuperValu, New Albertson's, Inc., et al., alleging overcharging federal healthcare programs. Company prevailed at trial on March 4, 2025, with judgment entered on March 12, 2025. Relators filed a motion to amend judgment and grant a new trial on damages. Relators allege damages over $100 million before trebling and penalties.
• Pharmacy Benefit Manager (PBM) Litigation: Health Care Service Corp. et al. v. Albertsons Companies, LLC, et al., challenging prescription-drug prices. Prime Therapeutics LLC was dismissed from the litigation on October 10, 2025. The case is currently scheduled to be ready for trial on or after February 18, 2027.
• Opioid Litigation: Company is a defendant in approximately 81 lawsuits by various plaintiffs alleging contribution to the national opioid epidemic. MDL cases are stayed except for 'bellwether' actions. Settled 15 cases in New Mexico and three in Nevada for $21.5 million. Active state court claims in Dallas County (Texas), State of Washington (trial May 4, 2026), and City of Philadelphia (Pennsylvania). Received subpoenas from DOJ and state Attorneys General regarding federal Controlled Substances Act and FCA violations.
• Termination of the Merger Agreement: Lawsuit filed against Kroger in Delaware Court of Chancery on December 10, 2024, for willful breach and breach of good faith, seeking damages in addition to the $600 million termination fee. Trial scheduled for October 19, 2026. Kroger filed counterclaims. State of Washington awarded $28.4 million in attorneys' fees and costs against Kroger and Company jointly and severally on August 19, 2025, which is being appealed; Company believes Kroger is solely responsible.

Stakeholder Impact

• Shareholders are impacted by the increased share repurchase program authorization ($2.75 billion, including a $750 million ASR) and quarterly dividends, which aim to enhance shareholder returns. The ongoing litigation with Kroger introduces uncertainty regarding the $600 million termination fee and potential damages, as well as legal costs.
• Employees are affected by the 'Customers for Life strategy' and 'business transformation costs,' which include employee terminations. Labor union negotiations are identified as a risk factor.
• Customers benefit from digital investments, loyalty programs (e.g., 'for U Travel'), personalized promotions, and competitive pricing actions, leading to increased digital sales and loyalty member engagement.
• Suppliers face potential negative reactions due to the merger termination litigation, as noted in the risk factors.
• Creditors benefit from improved debt maturity profiles due to the refinancing of senior unsecured notes and the extension of the ABL facility. The company's liquidity is deemed adequate to meet future obligations.

Next Steps

• Continue executing the 'Customers for Life' strategy, focusing on digital connection, customer value proposition, technology modernization, and transformational productivity.
• Further evaluate the impact of ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Expense Disaggregation), and ASU 2025-06 (Internal-Use Software) on financial statements and disclosures.
• Contribute an additional $12.2 million to defined benefit pension plans for the remainder of fiscal 2025.
• Proceed with the $750 million accelerated share repurchase agreement and the increased $2.75 billion share repurchase program.
• Engage in discovery for the lawsuit against Kroger, with trial scheduled for October 19, 2026.
• Continue defending against ongoing opioid litigation, with trials scheduled for the State of Washington (May 4, 2026) and *Proctor* (June 22, 2026).
• Await court rulings on the relators' motion to amend judgment in *Schutte* and the City of Philadelphia opioid appeal.
• Await ruling on the Company's motion seeking rehearing of denial in Dallas County Opioid matter.
• Prepare for PBM litigation trial scheduled for on or after February 18, 2027.

Key Dates

Recommendation

Albertsons demonstrates solid operational execution with strong identical sales growth (excluding fuel), significant digital sales expansion, and increasing loyalty membership. The company's strategic investments in its 'Customers for Life' strategy and technology are yielding positive engagement. The increased share repurchase program and debt refinancing are favorable for shareholder returns and balance sheet health. However, the ongoing, complex, and costly litigation with Kroger, including the dispute over the $600 million termination fee and potential damages, creates a significant overhang of uncertainty. Additionally, the decline in gross margin rate and adjusted profitability metrics, coupled with a decrease in operating cash flow, warrant caution. While the long-term strategic direction appears sound, the legal and financial uncertainties suggest a 'hold' position until there is greater clarity on the litigation outcomes and a sustained improvement in profitability metrics.

Keywords

Grocery retail, Supermarkets, Pharmacy, Digital sales, Loyalty programs, Share repurchase, SEC filing, 10-Q, Financial results, Albertsons, ACI, Food retail, Corporate governance, Litigation, Merger termination, Supply chain, Cybersecurity, Labor unions