Correspondence 0001140361-24-047298 from Albertsons Companies, Inc. (ACI) (CIK 0001646972) (ACI)
Albertsons Companies, Inc. (ACI) (CIK 0001646972)
Date: Nov. 19, 2024 · CIK: 0001646972 · Accession: 0001140361-24-047298
AI Filing Summary & Sentiment
File numbers found in text: 001-39350
Referenced dates: September 23, 2024
Letter
353 N. CLARK STREET CHICAGO, IL 60654-3456
November 19, 2024
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Trade & Services
100 F Street, NE
Washington, D.C. 20549
Attention: Aamira Chaudhry and Abe Friedman
Re:
Albertsons Companies, Inc.
Form 10-K for Fiscal Year Ended February 24, 2024
Filed April 22, 2024
File No. 001-39350
Ladies and Gentlemen:
On behalf of Albertsons Companies, Inc., a Delaware corporation (the “Company”), we are writing to respond to the comments set forth in the comment letter of the staff of the Securities and Exchange Commission (the “Staff”), dated September 23, 2024 (the “Comment Letter”), relating to the Form 10-K for Fiscal Year Ended February 24, 2024 (the “Form 10-K”).
The discussion below is presented in the order of the numbered comments in the Comment Letter. Certain capitalized terms set forth in this letter are used as defined in the Form 10-K. For your convenience, set forth below in bold and italic font are the comments of the Staff contained in the Comment Letter and immediately below each comment is the response of the Company.
The Company has asked us to convey the following as its responses to the Staff.
Form 10-K for Fiscal Year Ended February 24, 2024
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Non-GAAP Measures, page 43
1.
We note your Adjusted net income measure adjusts for business transformation expenses. In the related footnote, you describe these costs as operational priorities and associated business transformation. Please tell us the nature of your business transformation costs and your consideration of Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations. In particular, tell us how the excluded costs do not represent normal, recurring, cash operating expenses necessary to operate your business.
CENTURY CITY CHICAGO LONDON LOS ANGELES NEW YORK SAN FRANCISCO WASHINGTON, DC
JENNER.COM
Albertsons Companies, Inc.
Page 2
The Company respectfully acknowledges the Staff’s comment and advises the Staff that the Company has considered the guidance set forth in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. The Company’s business transformation initiatives required the Company to engage internationally-recognized third-party consultants to provide discrete, expert services that the Company believes are not representative of the Company’s normal operating cost structure. When evaluating these third-party consulting costs, the Company has considered how they relate to the Company’s operations, revenue generating activities, business strategy, industry and regulatory environment as further explained below.
Background on the Company’s Business Transformation
During fiscal year 2020, the year of the Company’s initial public offering (“IPO”), the Company embarked on a multi-year strategic plan to transform its business, which is currently referred to as its Customers for Life strategy. This Customers for Life strategy is centered within the Company’s strategic priorities of (1) differentiating its store experience, (2) continuous enhancement of its offerings, (3) deepening its digital connection and engagement with its customers and (4) modernizing its capabilities. This multi-year transformation strategy is far-reaching, highly complex and requires the Company to challenge its historical operating model and capabilities on a scale not previously undertaken by the Company. The Company’s strategic priorities and transformation have been disclosed in its Annual Reports on Form 10-K, Proxy Statements for its annual meetings of stockholders and quarterly earnings releases.
In presenting the non-GAAP measures, the Company believes the business transformation adjustments are not misleading and the Company has primarily adjusted only for the nonrecurring, incremental, project-based third-party consulting costs related to the strategy development and activities in furtherance of such strategy. These costs represent specialized expert services received from two global management consulting firms that are leaders in strategy consulting. The Company considers these third-party consulting costs to be nonrecurring and incremental to its normal operations as the costs primarily represent costs for strategic conceptualization, plan development, execution planning, and project and change management activities – expertise not within the Company’s core competencies. The Company does not adjust for costs that it would consider to be necessary and a normal part of its operations and revenue generating activities, such as internal employee costs and other direct and indirect costs required to implement and operate the transformation initiative, which are more indicative of an ongoing cost of doing business. For example, the Company does not adjust for internal costs related to any related pilot programs, startup costs, or non-capitalizable operating expenses related to the design, development and implementation of any technology solutions as it believes these are necessary, normal and ongoing costs directly related to revenue generating and operating activities of the Company’s business.
Albertsons Companies, Inc.
Page 3
Transformation Costs in Detail
As shown in the table below, the adjustments for the incremental third-party consulting costs represent 0.2%, 0.4%, and 0.3% of the Company’s selling and administrative expenses for fiscal years 2023, 2022, and 2021, respectively. The operational areas of these third-party consulting costs are primarily related to merchandising, supply chain modernization, productivity, and, to a lesser extent, technology-based commercial platforms and other costs summarized in the table below and which are further described following the table:
Fiscal
Fiscal
Fiscal
Merchandising
$
28.6
$
28.2
$
30.8
Supply Chain Modernization
-
6.7
18.8
Productivity
14.1
43.4
-
Technology & Other
2.4
-
7.0
Total
$
45.1
$
78.3
$
56.6
% Selling and administrative expenses
0.2
%
0.4
%
0.3
%
% Operating income
2.2
%
3.4
%
2.3
%
% Adjusted EBITDA
1.0
%
1.7
%
1.3
%
Merchandising
The Company, together with the third-party consultants, have undertaken several discrete project-based initiatives to reimagine and build industry-distinct merchandising capabilities encompassing pricing and promotion programs, cost reduction, vendor negotiation and selection, category management, replenishment, and expansion and optimization of its private labels (Own Brands).
These initiatives included (1) establishing a new category management operating model and organization for the Company’s store network to better leverage its scale through nationally focused assortment teams and to develop a holistic approach to category development and innovation, (2) improving pricing strategy through aligning product value and quality to customer perception, (3) optimizing promotional investments by developing a roadmap to enhance spend effectiveness and to improve the Company’s overall pricing gap to market, (4) developing consistent category management and item rationalization to ensure dependable and predictable store replenishment to drive in-stock improvements across the Company’s store network, (5) identifying critical needs to modernize the Company’s technology and build out an overall roadmap and (6) reinventing its Own Brands merchandising and category strategy, including rationalization of category items and product innovation to modernize the Company’s product portfolio.
Albertsons Companies, Inc.
Page 4
Supply Chain Modernization
The Company’s legacy supply chain operating model existed for over 20 years with limited investment and innovation. The Company’s supply chain has largely been built through a series of acquisitions that resulted in fragmented processes and antiquated technology relative to modern practices. The third-party consultants were engaged to develop an end-to-end supply chain strategy that would instill continuous improvement to drive increases to base productivity and adoption of best practices, optimize physical network capabilities, automate supply chain facilities and implement modernized technology, utilize data to drive decision-making, and build the talent model for the future. The initial development of the supply chain modernization strategy and related technology roadmap was substantially completed by the end of fiscal year 2022, but implementation of key priorities, which continued through fiscal year 2023 and fiscal year 2024, is currently ongoing. For example, over the last three fiscal years, the Company has implemented warehouse automation and robotic capabilities at certain distribution center locations with continuing rollout to other locations through fiscal year 2024. Additionally, the Company has launched the implementation of a newly designed and developed enterprise resource planning (“ERP”) warehouse management system in fiscal year 2023 which continues across the distribution center network throughout fiscal year 2024. Finally, the Company is currently designing and developing a new ERP warehouse replenishment system that it expects to implement in fiscal year 2025.
Productivity
During fiscal year 2022, the Company launched a three-year $1.5 billion productivity (cost savings) program to offset future known labor and other inflationary increases. Because of the historic and wide-ranging nature of the program, the Company engaged a third-party consultant to help the Company to develop a comprehensive plan to identify, realize and capture savings across three identified dimensions. The dimensions were focused on the (1) way the Company operates, (2) Company’s structure and processes and (3) Company’s behaviors and capabilities. This productivity program encompassed business process reengineering, project oversight and program and change management. The operational areas of the Company’s productivity program are entity-wide but focused primarily on driving operational excellence across the store network, embedding strategic sourcing capabilities across all its procurement functions, including capital purchasing, and making administrative support costs more efficient. Store network productivity included driving labor efficiencies through applying lean methodologies across all aspects of labor planning and production. It also included a review of the corporate and division organizational structure to identify opportunities to develop a pipeline of automation, outsourcing and offshoring.
Albertsons Companies, Inc.
Page 5
Technology & Other
In fiscal year 2021, the Company, with the help of the third-party consultants, developed strategies to launch a health platform and retail media collective business. The health platform is an innovative wellness platform available to the Company’s customers to support their health and nutrition needs by offering new health-related services such as nutritional programs for customers with specific dietary needs. The Company’s retail media business, launched at the beginning of the first quarter of fiscal year 2022, is an advertising business built on top of the Company’s customer data and media inventory which provided a foundational business platform and required the Company to build a new business team. The third-party consulting costs in fiscal year 2023 were related to the development of a strategy, vision and roadmap to build an operating model to offer such customer personalization capabilities.
Company’s Analysis of the Transformation Costs
The Company highlights that this ongoing transformation has resulted in an extraordinary shift in the Company’s enterprise-wide operating model. Due to the nature, scope, complexity and magnitude of this transformation program, the Company was required to go beyond its core competencies in strategy development and planning along multiple operational fronts. Except for the expansion of certain components of the merchandising and productivity operational priorities, many of the discrete projects performed by the third-party consultants, as discussed above, were temporary in nature and have concluded, with several of the operational outputs continuing to be implemented through a focused and iterative program.
The Company concluded, based on Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures, that the costs of the third-party consultants are temporary and incremental and do not represent normal, recurring operating expenses. Though the Company’s transformation is ongoing, and it continues to develop further strategies to elevate its operating model and drive its long-term growth, it does not expect these strategic third-party consulting costs to occur beyond its 2026 fiscal year.
In addition, the Company does not believe that excluding these third-party consulting costs is misleading for its non-GAAP measures given their relative significance to this multi-year transformation and their correspondingly small percentage in comparison to overall selling and administrative expenses. In addition, it is the Company’s expectation that spending on strategic development and planning will be temporary in the near term while the actual execution and implementation will be ongoing and continue to occur over a multi-year timeframe. The Company believes that excluding these costs in its non-GAAP financial measures is relevant to aid investor analysis and understanding of the Company’s results of operations and business trends over a longer-term time horizon. The Company will continue to consider Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations and will continue to only adjust for costs that the Company believes does not represent normal, recurring, cash operating expenses necessary to operate the business.
2.
In your calculation of "Adjusted net income per Class A common share - diluted" you adjust for the conversion of convertible preferred stock that would have been otherwise antidilutive, most notably for FY's 2022 and 2021. Your adjusted measur
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353 N. CLARK STREET CHICAGO, IL 60654-3456
November 19, 2024
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Trade & Services
100 F Street, NE
Washington, D.C. 20549
Attention: Aamira Chaudhry and Abe Friedman
Re:
Albertsons Companies, Inc.
Form 10-K for Fiscal Year Ended February 24, 2024
Filed April 22, 2024
File No. 001-39350
Ladies and Gentlemen:
On behalf of Albertsons Companies, Inc., a Delaware corporation (the “Company”), we are writing to respond to the comments set forth in the comment letter of the staff of the Securities and Exchange Commission (the
“Staff”), dated September 23, 2024 (the “Comment Letter”), relating to the Form 10-K for Fiscal Year Ended February 24, 2024 (the “Form 10-K”).
The discussion below is presented in the order of the numbered comments in the Comment Letter. Certain capitalized terms set forth in this letter are used as defined in the Form 10-K. For your convenience, set forth
below in bold and italic font are the comments of the Staff contained in the Comment Letter and immediately below each comment is the response of the Company.
The Company has asked us to convey the following as its responses to the Staff.
Form 10-K for Fiscal Year Ended February 24, 2024
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Non-GAAP Measures, page 43
1.
We note your Adjusted net income measure adjusts for business transformation expenses. In the related footnote, you describe these costs as operational priorities and associated business
transformation. Please tell us the nature of your business transformation costs and your consideration of Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations. In particular, tell us how the excluded
costs do not represent normal, recurring, cash operating expenses necessary to operate your business.
CENTURY CITY CHICAGO LONDON LOS ANGELES NEW YORK SAN FRANCISCO WASHINGTON, DC
JENNER.COM
Albertsons Companies, Inc.
Page 2
The Company respectfully acknowledges the Staff’s comment and advises the Staff that the Company has considered the guidance set forth in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP
Financial Measures. The Company’s business transformation initiatives required the Company to engage internationally-recognized third-party consultants to provide discrete, expert services that the Company believes are not representative of the
Company’s normal operating cost structure. When evaluating these third-party consulting costs, the Company has considered how they relate to the Company’s operations, revenue generating activities, business strategy, industry and regulatory
environment as further explained below.
Background on the Company’s Business Transformation
During fiscal year 2020, the year of the Company’s initial public offering (“IPO”), the Company embarked on a multi-year strategic plan to transform its business, which is currently referred to as its Customers for
Life strategy. This Customers for Life strategy is centered within the Company’s strategic priorities of (1) differentiating its store experience, (2) continuous enhancement of its offerings, (3) deepening its digital connection and engagement with
its customers and (4) modernizing its capabilities. This multi-year transformation strategy is far-reaching, highly complex and requires the Company to challenge its historical operating model and capabilities on a scale not previously undertaken
by the Company. The Company’s strategic priorities and transformation have been disclosed in its Annual Reports on Form 10-K, Proxy Statements for its annual meetings of stockholders and quarterly earnings releases.
In presenting the non-GAAP measures, the Company believes the business transformation adjustments are not misleading and the Company has primarily adjusted only for the nonrecurring, incremental, project-based
third-party consulting costs related to the strategy development and activities in furtherance of such strategy. These costs represent specialized expert services received from two global management consulting firms that are leaders in strategy
consulting. The Company considers these third-party consulting costs to be nonrecurring and incremental to its normal operations as the costs primarily represent costs for strategic conceptualization, plan development, execution planning, and
project and change management activities – expertise not within the Company’s core competencies. The Company does not adjust for costs that it would consider to be necessary and a normal part of its operations and revenue generating activities,
such as internal employee costs and other direct and indirect costs required to implement and operate the transformation initiative, which are more indicative of an ongoing cost of doing business. For example, the Company does not adjust for
internal costs related to any related pilot programs, startup costs, or non-capitalizable operating expenses related to the design, development and implementation of any technology solutions as it believes these are necessary, normal and ongoing
costs directly related to revenue generating and operating activities of the Company’s business.
Albertsons Companies, Inc.
Page 3
Transformation Costs in Detail
As shown in the table below, the adjustments for the incremental third-party consulting costs represent 0.2%, 0.4%, and 0.3% of the Company’s selling and administrative expenses for fiscal years 2023, 2022, and 2021,
respectively. The operational areas of these third-party consulting costs are primarily related to merchandising, supply chain modernization, productivity, and, to a lesser extent, technology-based commercial platforms and other costs summarized in
the table below and which are further described following the table:
Fiscal
2023
Fiscal
2022
Fiscal
2021
Merchandising
$
28.6
$
28.2
$
30.8
Supply Chain Modernization
-
6.7
18.8
Productivity
14.1
43.4
-
Technology & Other
2.4
-
7.0
Total
$
45.1
$
78.3
$
56.6
% Selling and administrative expenses
0.2
%
0.4
%
0.3
%
% Operating income
2.2
%
3.4
%
2.3
%
% Adjusted EBITDA
1.0
%
1.7
%
1.3
%
Merchandising
The Company, together with the third-party consultants, have undertaken several discrete project-based initiatives to reimagine and build industry-distinct merchandising capabilities encompassing pricing and
promotion programs, cost reduction, vendor negotiation and selection, category management, replenishment, and expansion and optimization of its private labels (Own Brands).
These initiatives included (1) establishing a new category management operating model and organization for the Company’s store network to better leverage its scale through nationally focused assortment teams and to
develop a holistic approach to category development and innovation, (2) improving pricing strategy through aligning product value and quality to customer perception, (3) optimizing promotional investments by developing a roadmap to enhance spend
effectiveness and to improve the Company’s overall pricing gap to market, (4) developing consistent category management and item rationalization to ensure dependable and predictable store replenishment to drive in-stock improvements across the
Company’s store network, (5) identifying critical needs to modernize the Company’s technology and build out an overall roadmap and (6) reinventing its Own Brands merchandising and category strategy, including rationalization of category items and
product innovation to modernize the Company’s product portfolio.
Albertsons Companies, Inc.
Page 4
Supply Chain Modernization
The Company’s legacy supply chain operating model existed for over 20 years with limited investment and innovation. The Company’s supply chain has largely been built through a series of acquisitions that resulted in
fragmented processes and antiquated technology relative to modern practices. The third-party consultants were engaged to develop an end-to-end supply chain strategy that would instill continuous improvement to drive increases to base productivity
and adoption of best practices, optimize physical network capabilities, automate supply chain facilities and implement modernized technology, utilize data to drive decision-making, and build the talent model for the future. The initial development
of the supply chain modernization strategy and related technology roadmap was substantially completed by the end of fiscal year 2022, but implementation of key priorities, which continued through fiscal year 2023 and fiscal year 2024, is currently
ongoing. For example, over the last three fiscal years, the Company has implemented warehouse automation and robotic capabilities at certain distribution center locations with continuing rollout to other locations through fiscal year 2024.
Additionally, the Company has launched the implementation of a newly designed and developed enterprise resource planning (“ERP”) warehouse management system in fiscal year 2023 which continues across the distribution center network throughout
fiscal year 2024. Finally, the Company is currently designing and developing a new ERP warehouse replenishment system that it expects to implement in fiscal year 2025.
Productivity
During fiscal year 2022, the Company launched a three-year $1.5 billion productivity (cost savings) program to offset future known labor and other inflationary increases. Because of the historic and wide-ranging
nature of the program, the Company engaged a third-party consultant to help the Company to develop a comprehensive plan to identify, realize and capture savings across three identified dimensions. The dimensions were focused on the (1) way the
Company operates, (2) Company’s structure and processes and (3) Company’s behaviors and capabilities. This productivity program encompassed business process reengineering, project oversight and program and change management. The operational areas
of the Company’s productivity program are entity-wide but focused primarily on driving operational excellence across the store network, embedding strategic sourcing capabilities across all its procurement functions, including capital purchasing,
and making administrative support costs more efficient. Store network productivity included driving labor efficiencies through applying lean methodologies across all aspects of labor planning and production. It also included a review of the
corporate and division organizational structure to identify opportunities to develop a pipeline of automation, outsourcing and offshoring.
Albertsons Companies, Inc.
Page 5
Technology & Other
In fiscal year 2021, the Company, with the help of the third-party consultants, developed strategies to launch a health platform and retail media collective business. The health platform is an innovative wellness
platform available to the Company’s customers to support their health and nutrition needs by offering new health-related services such as nutritional programs for customers with specific dietary needs. The Company’s retail media business, launched
at the beginning of the first quarter of fiscal year 2022, is an advertising business built on top of the Company’s customer data and media inventory which provided a foundational business platform and required the Company to build a new business
team. The third-party consulting costs in fiscal year 2023 were related to the development of a strategy, vision and roadmap to build an operating model to offer such customer personalization capabilities.
Company’s Analysis of the Transformation Costs
The Company highlights that this ongoing transformation has resulted in an extraordinary shift in the Company’s enterprise-wide operating model. Due to the nature, scope, complexity and magnitude of this
transformation program, the Company was required to go beyond its core competencies in strategy development and planning along multiple operational fronts. Except for the expansion of certain components of the merchandising and productivity
operational priorities, many of the discrete projects performed by the third-party consultants, as discussed above, were temporary in nature and have concluded, with several of the operational outputs continuing to be implemented through a focused
and iterative program.
The Company concluded, based on Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures, that the costs of the third-party consultants are temporary and incremental and do not
represent normal, recurring operating expenses. Though the Company’s transformation is ongoing, and it continues to develop further strategies to elevate its operating model and drive its long-term growth, it does not expect these strategic
third-party consulting costs to occur beyond its 2026 fiscal year.
In addition, the Company does not believe that excluding these third-party consulting costs is misleading for its non-GAAP measures given their relative significance to this multi-year transformation and their
correspondingly small percentage in comparison to overall selling and administrative expenses. In addition, it is the Company’s expectation that spending on strategic development and planning will be temporary in the near term while the actual
execution and implementation will be ongoing and continue to occur over a multi-year timeframe. The Company believes that excluding these costs in its non-GAAP financial measures is relevant to aid investor analysis and understanding of the
Company’s results of operations and business trends over a longer-term time horizon. The Company will continue to consider Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations and will continue to only
adjust for costs that the Company believes does not represent normal, recurring, cash operating expenses necessary to operate the business.
2.
In your calculation of "Adjusted net income per Class A common share - diluted" you adjust for the conversion of convertible preferred stock that would have been otherwise antidilutive, most
notably for FY's 2022 and 2021. Your adjusted measur