Key takeaways:
- Identical sales declined 0.8% in the first quarter of fiscal 2026, dragged down by softer industry unit trends, a 100-basis-point headwind from the Inflation Reduction Act and 50 basis points of deflation.
- Albertsons launched ACI Edge, a restructuring initiative that consolidates 11 divisions into four regions and centralizes center-store merchandising, targeting $200 million in annual run rate savings by fiscal 2027.
- President and Chief Financial Officer Sharon McCollam announced her retirement, with the company now conducting a search for her successor.
Albertsons Companies reported a challenging first quarter of fiscal 2026, with identical sales declining 0.8% and adjusted earnings per share falling to $0.42 from $0.55 a year earlier. The results, which covered the 16 weeks ended June 20, came in below management’s expectations and prompted the company to lower its full-year outlook while accelerating a broad operational overhaul anchored by artificial intelligence.
Net sales and other revenue increased by 0.2% to $24.94 billion, driven by higher fuel sales. But core grocery operations faced mounting pressure, particularly among lower-income shoppers.
“In the first quarter, our digital and pharmacy businesses continued to deliver strong growth, while core grocery faced increasing pressure from softer industry unit trends and a more cautious consumer,” said CEO Susan Morris on the company’s earnings call on Thursday. “While these results did not meet our expectations, they underscored the need to move faster.”
Lower-Income Customers Feeling Pressure
Adjusted EBITDA declined to $1.013 billion, or 4.1% of net sales and other revenue, compared with $1.111 billion, or 4.5%, in the same period a year ago. Net income dropped to $84.7 million, or $0.17 per share, from $236.4 million, or $0.41 per share, in Q1 fiscal 2025.
Gross margin declined 23 basis points year over year to 26.6%, excluding fuel and LIFO. Management attributed the compression primarily to delivery and handling costs tied to digital sales growth and a mix shift as ecommerce carries lower margin rates than traditional in-store grocery.
Selling and administrative expenses climbed 42 basis points to 25.6% of net sales, driven by higher rent, occupancy, merger-related litigation and business transformation costs.
“The decline was most pronounced in our lower income customer segment, where we continued to see softness in both units and basket,” said President and CFO Sharon McCollam.
Two external headwinds compounded the pressure. The Inflation Reduction Act’s Medicare Drug Price Negotiation Program created roughly a 100-basis-point drag on identical sales, while deflation added another 50 basis points of headwind. Excluding both factors, identical sales would have increased approximately 0.7%.
Lower-income consumers are leaking to price-focused competitors, including Walmart and Amazon, according to Morris. The company is responding with targeted loyalty offers and price locks aimed at that segment rather than broad-based discounting.
Across categories, Albertsons is contending with trade-downs to private label and value packaging, as well as shifts to cheaper proteins among budget-conscious shoppers. The West region faces more pronounced unit pressure than the middle of the country and the East, Morris noted.
The company also flagged potential cost increases from suppliers in the second half of fiscal 2026 as a risk. Albertsons said it plans to push back on vendor partners and, where possible, absorb costs rather than pass them to consumers.
The ACI Edge Restructuring Model
Albertsons introduced ACI Edge, describing it as “a simpler, faster, more connected operating model” designed to turn scale into greater customer impact. The initiative has two primary structural changes: consolidating 11 divisions into four regions (California, West, South and East) and centralizing center-store merchandising under a single enterprise team.
“These actions are not simply about changing how we’re organized,” Morris said. “They are about creating a stronger operating platform that allows us to move faster, make better decisions, scale successful ideas more consistently and deploy resources against the markets, banners and capabilities with the greatest opportunity.”
Leadership appointments for the four regions are complete, and center-store centralization is underway. Full centralization is expected to be completed by spring or early summer of 2027.
Albertsons estimates ACI Edge will generate approximately $200 million in incremental annual run rate savings, with most benefits realized in fiscal 2027. Transition costs are expected to total approximately $50 million across fiscal 2026 and 2027.
AI as the Foundation
Technology and AI are central to the ACI Edge strategy. The company has identified four enterprise AI priorities: digital customer experience, merchandising intelligence, labor optimization and supply chain optimization. Albertsons has expanded partnerships with Google, OpenAI and Microsoft to support those efforts.
In merchandising, AI-driven tools are being used to improve category planning, promotions and vendor negotiations. Morris said early pilots have produced encouraging results and are being expanded with selected vendor partners.
An AI-powered workforce management platform for labor scheduling remains on track for enterprise-wide rollout in early 2027. On the supply chain side, machine learning tools are improving demand forecasting and inventory productivity, and the company is building a unified AI-powered ordering platform that brings demand planning and replenishment together.
The company’s sponsored product discovery has also been integrated into AI-powered conversational search, positioning its media business to monetize customer engagement at what management described as the point of highest intent.
Digital vs. In-Store
Digital sales grew 13% in the quarter, with penetration reaching nearly 10.5% of total sales. Ecommerce turned profitable for the first time, a milestone Morris highlighted as evidence of improving unit economics driven by higher order density and better fulfillment productivity.
Flash delivery continued to be the fastest-growing segment of Albertsons’ digital offering. The company’s loyalty ecosystem is scaling personalization, with engaged members shopping more frequently and spending more per visit than non-members.
Despite that momentum, the digital mix continues to compress gross margins, since ecommerce carries a lower gross margin rate than traditional grocery. McCollam acknowledged the dynamic: even as a small profit contributor, the digital channel still creates a negative mix shift in the overall gross margin line.
McCollam to Retire
McCollam, who joined Albertsons in 2021 and helped steer the company through its failed merger with Kroger, announced her retirement during the call. Morris credited her with shaping the company’s financial, operational and strategic priorities and said a search is underway for her replacement.
“We are conducting a comprehensive search process, evaluating both internal and external candidates to identify a transformational leader who combines exceptional financial acumen with a strategic vision to drive sustainable growth and long-term value,” Morris said.
Outlook and Capital Allocation
Albertsons revised its fiscal 2026 guidance downward across all key metrics. Identical sales are now expected to range from negative 1.5% to negative 0.5%, compared with the prior range of flat to positive 1%. That updated range includes an estimated 150 basis points of headwind from the pharmacy IRA.
Adjusted EBITDA guidance was lowered to a range of $3.55 billion to $3.625 billion, down from $3.85 billion to $3.925 billion. Adjusted EPS guidance was cut to $1.75 to $1.85 per diluted share, from a prior range of $2.22 to $2.32. Capital expenditure guidance was reduced to a range of $1.9 billion to $2.0 billion.
“Our more cautious view reflects ongoing pressure on lower-income consumers, softness in grocery industry unit trends and the potential for additional affordability pressure from supplier cost increases,” McCollam said.
