The pandemic has resulted in us changing our everyday lives in so many ways. And it looks
like another company is set to take advantage of the new normal. This time it’s Albertsons
Companies and they have set the terms for their previously announced initial public
offering... today, I’ll cover all the details of the IPO as well as my own take on investing
in the company. Hi! Kevin here from Healthy, Wealthy, and
Wise where we talk about little things that can lead to big improvements in our financial
and physical health. Today I’m following up the impromptu video that I made last Thursday
on details of the IPO for Albertsons Companies. Just wanted to say if you’re back after
watching that one with the quality being a little subpar, you’re awesome! I wanted
to get that one out quickly, and I’m sorry to say…it showed—losing some lighting
halfway in was not optimal! Now in that video, I provided some initial thoughts on investing
in a grocery company in these times; today, I’ll provide a more detailed look at what
factors we should keep in mind when considering investing in the company as well as covering
everything we know about the IPO itself. And if you like to hear the company numbers and
background, hang in there till the end as I have them for you as well.
But before we get into it, I want to thank my subscribers for sticking with me. And if
you’re new to the channel, I’d love to have you join the community by subscribing.
We’ve spent a lot of time talking about investing in stocks directly related to the
pandemic, with most of the focus being on companies working on developing a vaccine.
If videos like these are what you’re interested in, please hit that like button so I know
to keep making what you want to see. And I’d also like to give a shout out to my Dad on
Father’s Day who I’ve learned so much from over the years…and the one thing he
told me is he’d like to see me not standing in front of a plain wall. I don’t know if
this is much better, but Dad, this is for you!
Alright, in one sense you think, what do grocery stores have to do with pandemic investing?...
and then you remember how important they were when all of the restaurants closed down. And
then as an investor when you hear the letters IPO, your ears perk up a little. I know when
I heard Albertsons Companies set the terms on its initial public offering last week,
it got my attention…and I’m not one that thinks about investing in grocery stores.
And that’s for a lot of reasons. Primarily, one being that there is a lot of competition
and two, the margins are historically low. Now about the margins, I remember the owner
of a grocery store I worked at in high school shared with me how low the margins were at
that time. But seeing that was going on 30 years ago, I guess I should consider things
might’ve changed. Before I go on, I want to say that I’m just giving my personal
thoughts; I’m not a financial advisor giving you any advice to act on…you should always
do your own homework or consult your own financial advisor before taking any action.
So I feel one of the most important things is how grocery stores have worked to offer
much improved margins on certain services. Selling cooked foods and baked items have
been one of those niche areas that grocery stores have been exploiting for some time
now. Stores have also been catering to specialty products such as organic foods and dedicated
areas such as espresso bars that also offer much higher margins than your typical purchases
of milk, bread and eggs. Newer ways of increasing margins include technological innovations
such as self-checkouts and checking out with apps, things that reduce costs and improve
the overall customer experience. Some stores are now using gas discount programs and digital
coupons through their apps which help to build brand loyalty which then ultimately helps
protect the store against all of the competition out there. Curbside pickup is another area
that had been slowly ramping up, but which exploded during the height of the pandemic.
And when you add ready-to-eat meals with curbside pickup, it’s very similar to take-out windows
or drive-throughs, so they’ve effectively entered the fast food market. What grocery
stores have seen is that if you enhance the customer experience, people are willing to
pay for it. Of course, having the right mix of stores in the right locations is super
important. Currently Albertsons stores are located primarily in the west and northeast
of the US which offers some potential areas for future growth into new markets in the
central and southeast regions of the country. On the other hand, Albertsons stated that
the same unprecedented conditions that have resulted in such a spike in business also
have brought forth significant challenges, particularly on the expense side, with the
cost of safety equipment like the Plexiglas shields, enhanced cleaning costs, providing
employees with face masks and temporarily paying its workers higher wages. So there
has been a cost from the pandemic as well, not just the surging sales and foot traffic
that we’ve all heard about and experienced. And then, of course, is what everyone calls
the new normal—which asks us to consider: how have people’s daily lives changed since
the pandemic and will those changes be long-term? Well, one thing that definitely changed was
people’s eating habits transitioning from dining out to eating in---now obviously, that
was involuntary, as it was imposed on people through government lockdowns. The big question
is will people go right back to the old way of life now that everything is reopening?
I do think, that of all the everyday things we do, eating out may be the one area that
is slower to come back. While you can go shopping or to the museum with a mask on, it’s pretty
hard to eat with one on. Now there are lots of examples out there of people going out
and not following guidelines on social distancing and wearing masks, but what you have think
is, what percentage of people…and these might be the older people or people with underlying
health conditions…will either not eat out or significantly reduce how often they will?
I think it’s fair to say that the population is getting older and less healthy and so I
believe there will be a reduction in eating out, if only for the short term, whether that
fear goes away from people just getting used to living with the threat or when a vaccine
is developed. But I do wonder how many people will have actually changed their long-term
habits when it comes to eating out; as people have gotten used to eating home more often,
will this become more routine? As grocery stores have done more of the work for you,
meaning they can pick out your food or cook your meals and then bring it right to your
car; how much more often will people do that vs. dining out? And what about the economic
fallout where almost every economist is saying that unemployment, while it will get better,
job recovery will be slow and the unemployment rate will be high for some time? Now the unemployed
may not be using the higher margin services that grocery stores offer, but they will still
need to eat and food options at the grocery store are going to be cheaper to buy, and
that will be crucial if incomes are down on a meaningful scale.
So when you start to think about the grocery stores, you can see that business, while up
in the pandemic, could continue to stay at higher levels. After considering a lot of
these factors, I feel I’m now personally more open to investing in grocery store companies.
Besides, Warren Buffett always says invest in what you know. And while we don’t all
understand the science behind potential vaccines such as Moderna’s messenger RNA technology,
to some degree we all know about grocery stores. And that brings us back to Albertsons and
their IPO. Grocery stores are still somewhat regional
so the name of Albertsons may not be familiar to you. But make no mistake, they are a fairly
large company and have a portfolio of stores under different brand names, in fact now over
20 names. Albertsons is one name; the other name you may be more familiar with is Safeway.
Other store names they run that you may be familiar with are Shaw’s, Vons, Jewel-Osco,
Acme, Pavilions, and United Supermarkets. Albertsons Companies has been based in Idaho
since 1939 and while once a public company, has most recently been owned by private equity
firms. Right now, the company operates over 2,200 stores. Albertsons also runs a meal-kit
company named Plated which offers another higher margin product…another service that
while already was growing, was only to be helped even more with the pandemic.
On a SEC filing last Thursday which prompted my last video, Albertsons set the terms of
their IPO looking to sell 65.8 million shares in a range between 18 and 20 dollars and the
stock will trade under the symbol ACI. This came after news of Kroger’s beating Wall
Street estimates of sales and profitability, which should only help the image of investing
in a grocery company in 2020. The offering will raise approximately 1.2 billion dollars
and would command an approximate market value of 9 billion dollars. If you’re wondering,
this isn’t the first time the company planned on an IPO, as previously 2 other IPO’s were
planned. The most well-known attempt came before an impending merger with Rite-Aid which
cancelled the IPO; ultimately the merger never happened. And then a lesser known attempt
occurred 5 years ago, but due to rough market conditions, the IPO was nixed. The current
plan on offering an IPO was made public in a filing on March 6th, 2020.
Some book numbers from the company show sales of $62.5 billion with a gross margin of 28%
and an operating margin of 2.3% for the 12 months ended February 29, 2020, right before
the effects of lockdowns occurred. Total revenue was up almost 2 billion dollars or 3.3% over
the previous year. In the same time period, adjusted cash flow came in at 1.4 billion
dollars. More recently, reports of sales have surged by over 40% in March and over 20% for
both April and May. So when will trading commence? The Wall Street
Journal reports trading could begin at the end of this coming week; other reports seem
to confirm this. Proceeds of the IPO will be used primarily to pay back the private
equity firm for its investment in the company. In the SEC filing, the company will establish
a dividend of 2.5% assuming a $19/share price. When the date is confirmed for actual trading
or any other important information related to the IPO is released, I’ll put up another
video. So again, if you don’t want to miss it, hit that subscribe button and the notification
bell and you’ll have that information as soon as it’s released.
So what are your thoughts on Albertsons? Please let us know in the comments. And again, if
you enjoy videos on topics like these, please hit that Like button so I know to keep making
them. As always, I hope that we can all learn from each other on how to take little, easy
steps in making big improvements in our lives. Thank you again for watching and until next
time, have a great day!