MW Albertsons shows why tariff inflation isn't showing up yet

By James Rogers

Albertsons's new CEO, Susan Morris, says the company is starting to see increases in cost of goods 'moving ahead'

Grocery chain Albertsons Cos. reported fiscal first-quarter results early Tuesday, with the grocery chain explaining why tariff-related inflation has not yet hit its customers. But it acknowledged that at some point, some costs could be passed on to consumers.

During the conference call to discuss the results, Albertsons $(ACI)$ Chief Executive Susan Morris was asked about the impact of tariff-related inflation on ingredients and packaging in its grocery and pharmacy businesses.

"We're starting to see increases in cost of goods moving ahead," she added. "And we've got a very rigorous process of first and foremost, quite frankly, just pushing back."

Morris said the company has so far worked hard to avoid passing to the consumer the inflation seen from higher costs of goods, which has effectively weighed on profitability and is hurting the stock.

The CEO added that Albertsons is looking for alternate sources of supply or other products that it can push if the tariffs become unwieldy. "And then finally, in certain cases, if we have to, will pass them on to customers," she added.

The company could also expand its Own Brands products in response to tariffs, according to Chief Financial Officer Sharon McCollam. "So as we look forward and we look at the tariffs, it may be that there comes a point where we decide that an expansion in our assortment in Own Brands is a great solution for our customer," she said.

Morris, who took over as Albertsons CEO on May 1, also reiterated her comment last quarter that the overwhelming majority of the goods sourced by the company are domestically based. This number stands at "well over 90%," she said during Tuesday's conference call.

Tariff-related inflation looks set to be a key theme of this retail earnings season. Last week, Helen of Troy Ltd. $(HELE)$ said that inflationary impacts from higher tariffs have not yet been fully realized by the consumer, which could create further pressure on its results in the second half of the year.

Also last week, Conagra Brands Inc. $(CAG)$ said that consumer sentiment weakened during its recent fiscal fourth quarter. The branded-foods company cited prolonged inflation and economic pressures that weighed on purchasing behaviors.

On Tuesday, the government said that the consumer-price index rose 0.3% in June, marking the biggest rise since January. The CPI data matched Wall Street's forecast, although there were only scattered signs of inflation related to President Donald Trump's sweeping wave of tariffs.

Shares of Albertsons were down 5.3% in midday trading, as the grocery chain beat Wall Street's first-quarter adjusted earnings and sales estimates, and raised its full-year same-store sales outlook, but saw profitability decline.

Albertson's gross margin rate, which is a measure of what the company makes on its sales, decreased to 27.1% during the quarter, the lowest rate seen since the company went public again in June 2020, from 27.8% in the same period last year.

The company said the gross margin decrease was driven primarily by "incremental investments in our customer value proposition," which is another way of saying it paid to keep prices down. The company also saw strong growth in pharmacy sales, which carry an overall lower gross margin rate, and increases in delivery and handling costs related to digital sales growth.

The company's net income was $236 million, or 41 cents a share, compared with $247 million, or 41 cents a share, in the prior year's quarter. Adjusted for one-time items, earnings were 55 cents a share, above the FactSet consensus estimate of 54 cents a share.

Sales rose to $24.88 billion from $24.27 billion in the same period last year. Analysts surveyed by FactSet were looking for sales of $24.71 billion. Albertsons' first quarter ended on June 14.

Same-store sales rose 2.8% boosted by strong growth in pharmacy sales, and came in above the FactSet consensus estimate of a 2.1% rise.

E-commerce grew 25% in the quarter and reached 9% of total grocery revenue. Albertsons' loyalty members grew 14% to 47.3 million.

The Boise, Idaho-based company raised its fiscal 2025 same-store sales outlook to between 2% and 2.75%, from its prior outlook between 1.5% and 2.5%. Analysts surveyed by FactSet were looking for full-year same-store sales growth of 2%. Albertsons maintained its adjusted net income forecast of $2.03 to $2.16 a share and its outlook for capital expenditures in the range of $1.7 billion to $1.9 billion.

"ACI reported a solid start to F1Q26 with stronger-than-forecast [identical sales] supported by strong pharmacy & digital sales," wrote BMO Capital Markets analyst Kelly Bania, in a note released Tuesday. "The full-year F2026 profit outlook was unchanged despite a slightly higher outlook for [identical sales]." BMO Capital Markets has an outperform rating for Albertsons.

Albertsons shares were up 6.7% in 2025, compared with the S&P 500 index's SPX gain of 6.5%.

-James Rogers

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July 15, 2025 12:36 ET (16:36 GMT)

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