Shares of grocery store chain Albertsons (ACI -7.44%) fell 8% on Tuesday as of 1:00 p.m. ET. Albertsons reported earnings today, and while the past quarter’s results were solid, management’s forward outlook for profits was well below analyst expectations.
Albertsons stock had actually increased year to date, even as the overall market fell on tariff concerns and economic uncertainty. So, perhaps it was due for a pullback. Moreover, Albertsons’ CEO is about to retire, which may have played a role in the conservative guidance.
Albertsons revenue comes in line, earnings beat
In the fourth quarter, Albertsons’ revenue grew 2.5% to $18.8 billion, helped along by a 2.3% increase in same-store sales, which was in line with expectations. Adjusted (non-GAAP, or non-generally accepted accounting principles) earnings per share (EPS) fell 15% to $0.46; however, that actually came in ahead of analyst expectations of $0.41.
While fourth-quarter EPS came in a bit ahead of expectations, management’s full-year 2025 EPS guidance of $2.03 to $2.16 per share disappointed because it was well below expectations of $2.28. Even more troubling was that this outlook would also mark Albertsons’ third straight year of adjusted earnings declines.
Albertsons’ pharmacy offerings stood out in fueling revenue growth, all while the company is investing in delivery and digital programs, which grew 24% last quarter. However, the pharmacy revenue is lower-margin, and delivery growth entailed further investments on the company’s part. Those two elements pressured Albertsons’ gross margins while the grocery store chain kept a lid on price increases to stave off competition.
But is management being intentionally conservative?
It should be noted that Albertsons CEO Vivek Sankaran is retiring on May 1, when he will be succeeded by the current COO Susan Morris. Often, when there is an anticipated management change, a company will guide conservatively so as to allow the new executive to “beat” expectations early in their tenure. It’s hard to know whether management is, in fact, being conservative, given the disappointing existing earnings trajectory, but it is a possibility.
Overall, Albertsons may be a stock to own for defensive purposes in a recession since people will still need to eat and will likely buy more groceries instead of going out to restaurants. However, Albertsons is still in a tough competitive spot after its proposed takeover by Kroger was rejected last year. Therefore, those looking for strong earnings growth or upside surprises should perhaps look elsewhere.