Grocer Albertsons lifts sales view on steady demand, margin pressure weighs on shares

Albertsons ACI raised its annual sales forecast and beat first-quarter estimates on Tuesday, leaning on its competitive pricing strategy to ensure steady demand for essentials at its grocery stores and pharmacies despite inflationary pressures.

While the rest of the retail sector struggles with weak demand, U.S. grocers such as Albertsons and Kroger KR are attracting value-conscious shoppers, helping them raise their annual forecasts for same-store sales.

However, shares of Albertsons fell about 6% as it left its annual adjusted profit outlook unchanged, with first-quarter gross margin dropping to 27.1% from 27.8% a year ago, due to higher delivery and handling costs and investments.

"The main concern remains the company's ability to manage inflationary overhead expense including labor costs, while reinvesting back into customer value proposition and narrowing competitive price gaps," said Michael Montani, analyst with Evercore ISI.

Several companies, including retail giant Walmart WMT, have refrained from issuing forecasts or pulled them back owing to tariff pressures and uncertain consumer spending.

Albertsons now expects annual identical sales to grow between 2% and 2.75%, compared with its prior range of 1.5% to 2.5%.

To keep retail prices on check, CEO Susan Morris said on a post-earnings conference call the grocer has invested in loyalty programs, targeted promotions and leaned more on its private-label products.

For the first quarter, identical sales rose 2.8% compared to 1.4% increase a year ago, on strong growth in pharmacy sales.

"Grocery store pharmacies are gaining from closures of traditional drugstores, while more people are buying fresh food as a cheaper, healthier alternative to dining out or consuming snacks," said Arun Sundaram, analyst with CFRA Research.

Albertsons' quarterly sales of $24.88 billion, edged past analysts' estimates of $24.73 billion, as per LSEG data, while its adjusted profit of 55 cents per share beat estimates of 53 cents.