Welcome to the Albertsons Companies Fourth Quarter and Fiscal Year-End 2024 Earnings Conference Call and thank you for standing by. All participants will be in listen-only mode until the Q&A session. This call is being recorded. I would like to hand the call over to Melissa Plaisance, Senior Vice President, Investor Relations, Treasury and Risk Management. Please go ahead.

Good morning and thank you for joining us for the Albertsons Companies fourth quarter and fiscal year-end 2024 earnings conference call. With me today from the company are Vivek Sankaran, our CEO; Susan Morris, our COO and CEO-Elect; and Sharon McCollam, our President and CFO. Today, Vivek will make a few parting comments on his retirement and Susan will update you on our strategic priorities and our progress and path forward against them. Then Sharon will provide the details related to our fourth quarter 2024 financial results and our 2025 financial outlook before handing it back over to Susan for some closing remarks. After management comments, we will conduct a Q&A session. I'd like to remind you that management may make statements during this call that are or could include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not limited to historical facts, but contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are and will be contained from time to time in our SEC filings, including on Forms 10-Q, 10-K and 8-K. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures. And the historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA. And with that, I'll hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thank you for joining us today. First, let me say a few words about my upcoming retirement and Susan's succession to the role of CEO. It has been an honor to serve as the Albertsons CEO and work alongside the best people in the industry. My tenure has spanned the COVID-19 pandemic, our initial public offering and our reemergence as a standalone company following our 2022 review of strategic alternatives. What I'm most proud of is that throughout this journey, we have stayed true to our customers, invested in strengthening our business and advancing our Customers for Life strategy. This strategy has firmly positioned the company for its next chapter of growth and value creation for our shareholders. Within the few months since the termination of the merger, our mojo is back. We are executing once again like we used to and we have proof points and therefore more conviction to say that our strategy is right and working. Thank you for your support through all of it. For those of you who don't already know Susan, let me introduce you. Susan is a homegrown talent, starting her career at Albertsons nearly 40 years ago at a store in the Denver market. During her tenure, she has taken on roles of increasing responsibility, including store operations, supply chain and merchandising. She has been the steward of our retail operations for my six years here. She has become one of the most influential leaders across the industry. She has extensive knowledge of all facets of the industry and our company, a strong track record of driving operational excellence and most importantly, a passion for serving our customers, our associates and our communities. She has been a top partner with me since the day I arrived and an integral part of developing and leading our Customers for Life strategy. I'm delighted she is taking the reins and cannot wait to see the next great chapters of our company under her leadership. Susan, it's all yours.

Thanks, Vivek, for the introduction and for your partnership. Over the last six years, you've helped us reach a new level from which to grow. Turning to the fourth quarter, we're pleased with our results, including ID sales growth of 2.3%, adjusted EBITDA of $855 million and adjusted earnings per share of $0.46. These results illustrate the proof points of our strategy that Vivek mentioned and were guided by the following priorities. Driving customer growth and engagement through digital connection, growing our Albertsons Media Collective, enhancing the customer value proposition, modernizing capabilities through technology and driving transformational productivity. As we outlined last quarter, to engage customers, we've continued to invest in growth through four digital platforms. These platforms are designed to drive increased sales, more deeply engage our most loyal customers, increase customer lifetime value and generate digital space and robust data for the Albertsons Media Collective. The first digital platform is E-commerce. E-commerce grew 24% in the fourth quarter and the full year with first party far outpacing third party growth. We operate our E-commerce business out of our stores, which allows us to leverage our rich asset base and proximity to our customers. It also enables full access to our merchandise assortment, a fast and convenient Drive Up and Go experience and robust delivery options. E-commerce penetration is now over 8% of grocery revenue with our top performing markets now over 10%. This growth is driven by award winning experiences in our fully integrated mobile app and the success of our five star certification program, which we discussed last quarter. At over 8% of grocery revenue today, E-commerce penetration is still below our industry peers and is one of our biggest customer acquisition and retention opportunities for 2025 and beyond. The second digital platform is Loyalty. Loyalty membership grew by over 15% year-over-year in the fourth quarter to more than 45 million members and at the same time actively engaged customers increased 12%. Our new simplified Loyalty program is a key enabler of digital customer engagement and a rich source of data for the Albertsons Media Collective. Through the unified mobile app, it allows customers to get personalized deals, to earn points, and to have an extended period of time to redeem them for fuel and grocery rewards or automatic cash off their grocery bill. Since launching the simplified program, 20% of engaged households are now electing the new cash off option, reinforcing the customer desire for immediate value. In fiscal 2025, we will continue to simplify and expand the program to include integrated strategic partnerships that will offer even more value. The third digital platform is Pharmacy and Health. In the fourth quarter, Pharmacy revenue increased 18% year-over-year, driven by industry leading script and immunization growth, best-in-class customer satisfaction scores, and the ongoing integration of experiential health offerings in our Sincerely Health mobile app. Although the Pharmacy business is financially dilutive, cross shoppers between grocery and pharmacy are exceptionally valuable, contributing outsized customer lifetime value to the total store. For this reason in fiscal 2025, we will continue to invest in our Pharmacy and Health platform to drive increased customer engagement and loyalty. We also expect growth in scripts and immunizations as Pharmacy competitors continue to close stores. The fourth digital platform is the integration of the mobile app for use in our stores. Launched in 2024, over 9 million customers have engaged with this in-store feature. When customers are in our stores, we want them to digitally engage with us, which requires us to raise the bar on store level execution. Our in-store geolocation mobile feature delivers real time coupons, helps shoppers locate products and assists customers with meal planning and generating shopping lists. In 2025, we expect to drive increased customer engagement through this platform by adding additional conveniences and value. All these digital platforms are working together to generate deeper customer engagement, increase digital inventory and enrich our data to accelerate growth in the Albertsons Media Collective or AMC. In fiscal 2025, we will continue to significantly invest in improving endemic and non-endemic brand reach by building industry leading technologies to deliver an easy to use dynamic and transparent measurement model. These investments will also improve our ability to define shopper audiences, run targeted media campaigns, compress campaign measurement timelines, and deliver consistent omni execution across our digital and physical assets. In addition, we expect to build new partnerships that add even more digital inventory and capabilities to our media offerings. We continue to expect AMC to grow faster than the retail media market and to be one of the largest sources of fuel for reinvestment into our core business. Turning now to our customer value proposition. Inflationary pressures have elevated our customers' needs for value. To address these needs, we're working with our vendor partners to strategically invest in price in certain categories and certain markets. We've also enhanced the breadth of our Loyalty offerings to provide immediate savings and greater value. Finally, we're amplifying our own brands presence to drive profitable unit growth and increase share of wallet. We will increase innovation, more prominently feature existing owned brands and offer products at attractive entry price points. We ended Q4 with sales penetration of 25.4% and believe with increased exposure and new product launches, we can increase our penetration to at least 30%. In Q4, we launched new items in our industry leading Open Nature Cauliflower Pizza line and in our Signature Select ice cream assortment. We also launched our first seasonally relevant Burst of Flavor campaign to a strong customer response. Each of these value creating initiatives are driving increased loyalty, greater digital and omni household engagement and higher transaction counts. Our next priority is the modernization of our capabilities through technology. Our North Star is to use technology in everything that we do. We've invested strategically to build best-in-class technology platforms with our core infrastructure in the cloud and a modernized scalable network. Most recently, we built a real time comprehensive data platform designed to enable data science and artificial intelligence. This advanced technology platform on which we will continue to innovate, powers our E-commerce, store, pharmacy, supply chain, merchandising, and media collective operations and will allow us to leverage emerging AI technologies to accelerate our operational transformation going forward. This transformation includes empowering merchants to optimize pricing decisions, using our recommendation and look-alike capabilities to provide customers personalized offers to complete their basket and capitalizing on in-store Vision AI to reduce inventory shrink and enhance product quality. The final priority is driving transformational productivity. Our productivity engine is systematically improving the efficiency of our business and lowering our costs. From fiscal year 2025 through fiscal year 2027, we expect to ratably deliver $1.5 billion in productivity savings, which we plan to reinvest in our growth initiatives and our customer value proposition as well as to help offset inflationary headwinds. The largest of these initiatives is leveraging our consolidated scale to buy goods for resale. In fiscal 2025, we are accelerating national buying on a category by category basis, resulting in lower costs and easier, more efficient supplier relationships. The next of these initiatives is transforming our ways of working, including strategically consolidating divisions, rationalizing non-customer facing headcount and optimizing our onshore and offshore activities to not only reduce costs, but to accelerate innovation in technology and data analytics. In our supply chain, we are continuing to invest in automation and the rollout of our new warehouse management system. By the end of 2025, we expect 30% of our distribution volume to be automated. And we're piloting innovative new technologies to expand our menu of options for future warehouse automation. We also expect our new warehouse management system to be fully implemented company wide by year-end. All of these initiatives lower our cost to serve and improve our end-to-end data analytic capabilities, resulting in better in-stock conditions and a differentiated level of quality and fresh. And finally in-store operations in fiscal 2025, we're leveraging new store replenishment, shrink management and labor productivity tools to drive enhanced efficiency and improved customer experience and deeper associate engagement. We're also continuing to expand utilization of AI technology in our produce departments to drive increased freshness, higher sales, and better net promoter scores. I would now like to talk about the support we provide to the communities that we serve. In 2024, along with the Albertsons Companies Foundation, we contributed more than $435 million in food and financial support. This includes $40 million to our Nourishing Neighbors program to ensure those living in our communities and those impacted by disasters have enough to eat. In addition, on March 10th, we announced a new goal to enable 1.5 billion meals through 2030, supporting our efforts to help end the cycle of hunger. I will now hand it over to Sharon for an overview of our fourth quarter and to provide guidance on our expectations for fiscal year 2025.

Thank you, Susan, and good morning, everyone. It's great to be here with you today. As Susan shared, we are pleased with our fourth quarter results. The investments we are making are delivering transformational capabilities and affirm our confidence in our Customers for Life strategy. What I'll do now is provide additional color on our financials for the fourth quarter, and then I will discuss our 2025 outlook and provide an update on our capital allocation priorities. We grew ID sales 2.3% in the fourth quarter, fueled by an 18% increase in Pharmacy and a 24% increase in digital sales. The digital increase continues to be driven by strong growth in first party sales. Our Q4 gross margin was 27.4%. Excluding fuel and LIFO expense, the gross margin decreased 45 basis points compared to Q4 last year. Strong growth in Pharmacy sales, which carries an overall lower gross margin rate and incremental digital volume related delivery and handling costs related to the 24% increase in digital sales drove this decrease, but was partially offset by productivity initiatives. In the fourth quarter, we also made incremental investments in our customer value proposition, which were funded by the benefits from our productivity initiatives, which included reductions in shrink expense. Our selling and administrative expense rate was 25.7% this quarter. Excluding fuel, the SG&A rate decreased five basis points compared to last year. This decrease was primarily driven by lower merger related costs and leveraging of employee costs and depreciation, partially offset by increased business transformation costs. Our selling and administrative expenses also benefited from our productivity initiatives. Interest expense net decreased $7.5 million to $101.5 million during Q4 '24. This reduction was primarily driven by lower outstanding debt. Income tax expense in the fourth quarter was $46.4 million, a 21.3% effective tax rate compared to a 20.4% effective tax rate in Q4 of last year. And as mentioned in the highlights, Q4 '24 adjusted EBITDA was $855 million compared to $916 million last year. And adjusted EPS was $0.46 per diluted share compared to $0.54 in the fourth quarter of 2023. Turning now to the balance sheet and cash flow. Capital expenditures of $485 million in the fourth quarter were driven primarily by investments in the modernization of our store fleet and our digital technology platforms. In fiscal year '24, we opened 11 new stores and remodeled 127 stores. We also returned approximately $87 million to our shareholders through common stock dividend. Additionally, we repurchased 83 million of common stock during Q4 '24 under our $2 billion share repurchase authorization. Net debt leverage at the end of the fourth quarter was 1.9 times and the balance sheet remains strong. I'll now discuss our 2025 outlook. As a reminder, fiscal '25 is a 53 week year. Looking forward to fiscal '25, we do so with continued confidence in our Customers for Life strategy and our ability to execute against it. To drive incremental growth, we are deepening customer engagement through our digital platforms, enhancing our value proposition and modernizing our capabilities through technology. We are also continuing to drive our productivity agenda to fuel this growth and offset inflationary headwinds. Throughout fiscal '25, we will continue to invest in our Customers for Life strategy, including accelerated investments in digital growth, the Albertsons Media Collective and in Health and Pharmacy. We will also continue to surgically invest in our customer value proposition and elevate the customer experience. We expect these investments will continue to drive outsized growth in our Digital and Pharmacy businesses, which will result in increased future customer lifetime value, but create short-term margin headwinds. With that as our backdrop and excluding the impact of tariffs and other potential market dislocations, we are assuming the following in our outlook. ID sales growth in the range of 1.5% to 2.5%, assuming inflation in the range of 1.5% to 2%. Adjusted EBITDA in the range of $3.8 billion to $3.9 billion including the investments I just shared, partially offset by our productivity improvements and including approximately $65 million in adjusted EBITDA related to our 53rd week. Adjusted EPS in the range of $2.03 to $2.16 including $0.03 related to the company's 53rd week. The effective income tax rate is expected to be in the range of 23.5% to 24.5% and capital expenditures in the range of $1.7 billion to $1.9 billion. Looking beyond fiscal '25, we expect to leverage the investments we make this year to drive growth consistent with our long-term algorithm of 2% plus identical sales and EBITDA growth higher than that in fiscal '26 and beyond. Before I hand it back to Susan for some closing comments, I'd like to spend a moment on capital allocation. First and foremost, we will continue investing in our business to drive long-term sustainable growth. We also plan to maintain our quarterly dividend and seek to grow it over time. And finally, we plan to return excess cash to our shareholders through opportunistic share repurchases. As a reminder, in December of '24, our Board authorized a $2 billion share repurchase program. Since that time, and as of today, we have completed over $100 million in share repurchases and have approximately $1.9 billion available for repurchase under that program, which we expect to complete during the next three years. Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long-term sustainable shareholder value. I will now hand the call back to Susan for closing comments.

Thank you, Sharon. Our Customers for Life strategy is working. We're growing digitally engaged customers, omnichannel households, loyalty members and increasing customer traffic. Our stores are operating more effectively and efficiently as new technologies take hold and we're proactively reducing our costs. Our productivity programs are creating fuel for investments and are an offset to inflationary headwinds. We believe all of this puts us in a strong position to continue to transform the business and serve our customers even better. As we look forward to the balance of fiscal 2025 and beyond, we are excited about the investments that we've made in our core business and new sources of revenue and in our tech-enabled capabilities. We expect to continue our investments going forward, including enhancements to our value proposition for our customers. As a result of these investments, we expect gradual and incremental improvement in top line trends in our grocery business in the second half of 2025, ultimately driving growth in line with our long-term algorithm of 2% plus identical sales and adjusted EBITDA growing higher than that in fiscal year '26. In closing, I am thrilled to be taking the helm of our company during this transformational time in our Customers for Life strategy. None of our success would be possible without the support of our 285,000 associates who worked tirelessly to make it all happen. Over the next weeks and months, Sharon and I look forward to engaging further with all of you in the investment community and thank you for your support. I would also like to thank Melissa Plaisance, who will be retiring next month after 35 years with the company. On behalf of all of us, we want to acknowledge her contributions to our success, including the relationships that she has developed with all of you. Melissa, you will be greatly missed. Cody Perdue, who you all know, will be assuming her responsibilities. We will now open up the call for questions.

Thank you. We'll now be conducting the question-and-answer session. Operator, please provide instructions. Thank you. Our first question comes from Leah Jordan with Goldman Sachs. Please proceed with your questions.

Thank you. Good morning. Thanks for taking my question. Just given the price investments you've made in the quarter and plan to make for this year, just seeing if you could provide an update on how you view your price gaps today, maybe what you're seeing in the competitive environment? And just given the dynamic consumer environment overall, has anything changed in your view on the breadth and depth of investments that you need to make throughout the year?

Hi, Leah. Thanks for the question. I would say a couple of different things. First, we have not seen a dramatic shift in recent months in consumer behavior. We are seeing a shift toward value; customers are clearly more responsive to promotion. When we listen to the voice of our internal customers, we recognize that our SNAP customers are feeling more pressure. Customers in general are thinking about their budgets and how to optimize them — maybe eating out less and making different choices, shopping our own brands, those kinds of things. With regards to the pricing question, first and foremost, we have a very different price position across the multiple markets that we operate in. As we think about our investments, we are taking a very surgical approach to how we are making those adjustments — surgical by category and by market. To be honest, we've been investing in price over the last several quarters very thoughtfully, using the new tools and technology that we've developed over the last few years that help us understand elasticity and help us make the best decisions that will optimize value for the customer while also supporting the sales and margin goals that we're trying to achieve.

Great. Thank you. That's very helpful. And then I just had one quick follow-up around the comments around the buybacks. I noticed you made buybacks in the quarter. It sounds like some activity has continued maybe even a little bit quarter-to-date. So I guess curious have you assumed anything with buybacks within the guide? And then how are you thinking about it as a lever for this year? Thank you.

Leah, in the guidance, what we've assumed is, as we said in our prepared remarks, we will be repurchasing that $1.9 billion over the next three years. If you spread that evenly over that time frame, that equates to approximately $0.06 of accretion in EPS each year if you bought it that way, but that gives you the math.

Great. Thank you. Very helpful.

Our next question is from the line of Mark Carden with UBS. Please proceed with your question.

Good morning. Thanks so much for taking the questions. So to start, I want to ask one on tariffs. Just as it stands, what proportion of your cost of goods do you import at this stage? And how do you think about the impact of tariffs once you back out USMCA exempt goods, understanding again that it's very fluid?

Good morning, Mark. For Albertsons Companies, we procure more than 90% of our products domestically, so that's a very different position than some of the competitive set. We also recognize that even in those domestic purchases, there are impacts from ingredients that are sourced from tariff-impacted areas. The situation is very fluid. We're looking closely at it. We've deployed a task force to help us understand the complexities of the situation as it evolves. And we've got plans in place to help mitigate the impacts accordingly.

Great. That's helpful. And then how are you thinking about demand growth with your Albertsons Media Collective initiative in the year ahead? And are you seeing any hesitancy in advertiser spend just given the macro?

To date, we are rather nascent in our Media Collective opportunity. Actually, to date, we're still delivering above-market growth in media. So we're very optimistic about our ability to achieve the goals that we've set forth for 2025.

Great. Thanks so much and good luck.

Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your questions.

Yes, hi. Good morning, everyone. I wanted to ask about the '25 guidance and the investment. I was hoping you could provide additional color around the key buckets of investment that you are planning to attack in '25, the magnitude of the investment around those areas, and how we should think about the cadence of EBITDA growth throughout the year. Susan, I think you mentioned progressing towards the algorithm as the year rolls on, so I'm curious around that as well.

Thanks, Ed. The investment is multifaceted. First, the pricing adjustments I mentioned, which we view as a surgical opportunity and those actions have already begun in select markets. Other elements include continuing to invest in growing our digital and loyalty business. When you think about the ecosystem we talk about, the more we can engage customers in our digital platforms, pharmacy and in stores, the greater the customer lifetime value. The timing of investments will be thoughtful throughout the year, recognizing some benefits, such as media collective measurement and productivity improvements, may not directly align with the timing of investments. That's part of the reason we shared expectations for the year and expect to exit 2025 with stronger growth, building toward our long-term algorithm of IDs at 2% plus and EBITDA growth higher than that in 2026. Sharon, would you add anything?

No, that's right. The accelerated investments we're making in digital growth, AMC and health and pharmacy, combined with investments in the customer value proposition, will be the drivers to bring us to the back half of 2025 and allow us to enter that algorithm in 2026.

Okay. And maybe a follow-up: for Q1, given the uncertain consumer backdrop, how should we think about Q1 relative to the guide? Are you seeing anything in IDs so far relative to the guide, and do you expect Q1 to be softer?

What you should expect is that we'll be making investments in the first half of the year. We expect those investments to start paying off toward the back half of the year. From a customer point of view, we're not seeing a major change in customer behavior at this point. Consumer sentiment is low, and customers say they're seeking value, but overall behavior hasn't materially changed yet. So the softer parts of the year reflect the timing of investments, not necessarily a sudden change in consumer behavior.

Great. Thank you.

Our next question is from the line of John Heinbockel with Guggenheim Partners. Please proceed with your question.

Hey, Susan. I wanted to start with pharmacy customers you've acquired in recent years. How does their engagement and wallet share progress over time? Where does it start and how does it evolve, and how do you attack that opportunity?

Good morning, John. The pharmacy customer engagement evolves over time. They often engage in-store first and then join our pharmacy business. Over the course of 1.5 to 2 years, they tend to engage across multiple platforms. As they engage across brick-and-mortar, E-commerce, pharmacy and loyalty, we start to see the bigger unlock in lifetime value. Customers who shop both pharmacy and brick-and-mortar typically have about four times the basket of customers who don't.

Okay. And as a follow-up, on enhancing profitability in the digital channel, given you don't run large automated facilities, is the opportunity driven by density of delivery versus in-store labor productivity? Where are the biggest unlocks in E-commerce profitability?

The largest opportunity for E-commerce profitability is growing sales — scale breeds productivity. Our store proximity to customers creates productivity advantages. We offer a full assortment, fast and convenient delivery, and our Drive Up and Go business is robust, which helps profitability. As E-commerce scales, it leverages fixed costs and creates efficiencies in the picking platform. We have in-house built tools that are improving operations. As stores get more E-commerce orders, we shift picking to batch picking to improve productivity. We're studying the science of investing labor to deliver a great customer experience while seeking more productivity in E-commerce.

Thank you.

The next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.

Good morning. This is Erica Eiler on for Rupesh. Thanks for taking our question. I was hoping to unpack gross margin a little more for this year. Could you talk about the puts and takes? You touched on productivity a bit; how are you thinking about the level of reinvestment of the $1.5 billion savings you've outlined? You mentioned price investments; and as we think about mix headwinds, are you assuming similar headwinds from strong growth in pharmacy and digital that you're seeing currently?

Thanks. Looking at 2025, you'll see productivity both in SG&A and margin over time, but in 2025 you'll see more of it in SG&A than in gross margin. We expect strong growth in E-commerce and Pharmacy and Health, which will create a mix shift impact. That mix impact is getting better as E-commerce scales, which leverages fixed costs. On the Pharmacy side, we have productivity initiatives like Central Fill that will help reduce the dilutive nature of pharmacy. We're also investing in loyalty and the customer value proposition, which will flow into the margin and be partially offset by cost of goods improvements through our Buying Together initiative. When you look at the guidance for next year, think about the weighting into the margin.

Okay. That's super helpful. Lastly, on the competitive backdrop and promotional environment, are you seeing any changes on the competitive side? And given macro uncertainty and customers seeking value, what are you expecting on the promotional front this year?

We're seeing customers navigate toward value and promotion; our promotional volume is up. Our Buying Better Together initiative and cost of goods work will be critical through 2025. From a competitive perspective, like the rest of the industry, we're seeing pressure from mass, club and other value players. That said, our customer traffic is up and we have share growth in several markets. We're thoughtful about where we invest and are using tools and technology to make the best decisions.

Great. Thank you.

The next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

This is an analyst on for Simeon. I'd like to ask about the guidance. Could you talk a little bit about what food inflation assumptions are embedded in your ID sales guidance? And what would be the effect of pharmacy within the ID sales figure for the full year?

The inflation assumption within the guidance is 1.5% to 2% embedded in the ID sales guidance of 1.5% to 2.5%. On the mix of Pharmacy and E-commerce, we expect to see very strong growth in E-commerce and continued growth in Pharmacy. We're not providing a specific breakout in guidance, but you can model continued investment and growth in those areas.

Okay. Great. Thank you. As a follow-up, on E-commerce: congratulations on the 24% sales growth in Q4. Could you help us think through how you're looking at E-commerce contribution to profitability and how you're thinking about it more broadly alongside retail media and the loyalty program into 2025?

E-commerce is dilutive to our margins today, but it's getting better. In Q4, picking and delivery costs weighed on margin because of the volume growth. We are making progress on productivity in our E-commerce operations within stores. As E-commerce scales, it leverages fixed costs and becomes more profitable. Combining first-party and third-party businesses, we believe we're getting closer to having E-commerce contribute positively to EBITDA margin over time, and we expect that to continue improving.

Great. Thank you.

The next question is from the line of Robby Ohmes with Bank of America. Please proceed with your question.

Hey, good morning. I had two quick follow-ups. On pharmacy growth outlook, how much is GLP-1 still a driver to comps there? Do you see that fading in 2025? How much is GLP-1 versus benefit from drug store closings?

GLP-1s are contributing to growth, but they are not the sole driver. Our core script volume is growing year-over-year and has been for several years. GLP-1 profitability is lower, but as we engage those customers into our ecosystem, their eating habits change, creating opportunities for more purchases of protein, supplements, fruits and vegetables. That is an opportunity to more deeply engage these customers. We are also continually looking at opportunities to acquire scripts and pharmacy businesses and hire pharmacists and techs from other areas; we have a thoughtful approach and plan to grow our pharmacy business thoughtfully.

That's helpful. Sharon, quick follow-up on wage rate pressure you expect in 2025 in SG&A?

We saw wage growth higher than historical 2% to 3% levels in recent periods, and those are multi-year contracts. Our assumption for wage growth in 2025 looks similar to what we saw in 2024 and we do not anticipate that changing materially. Our $1.5 billion productivity goal was set with this wage growth in mind.

Got it. Thank you.

The next question is from the line of Scott Mushkin with R5 Capital. Please proceed with your question.

Thanks for taking my question. First, by category, if you think about center of store, do you need center store to be positive next year to make your comp numbers?

We are seeing growth in center of store, which for us includes grocery and grocery non-food, and we are also seeing growth in our fresh departments. So while pharmacy and E-commerce are strong, the core parts of the store are also experiencing growth.

Okay. And if you were to exceed your internal expectations on EBITDA, would that flow to shareholders this year or be further invested in the business?

We put our guidance out there at $3.8 billion to $3.9 billion and that's where we expect to land. As the year progresses, we'll discuss allocation decisions, but at this time the guidance reflects our expectations.

Okay. Thanks.

The next question is from the line of Michael Montani with Evercore ISI. Please proceed with your question.

Hi. Good morning. Can you give an update on CapEx allocation? How many remodels should we expect, and new stores for this year and next?

For CapEx next year, think about it similarly to this year. We expect to open new stores, though we're not giving committed numbers now. About half of the capital is for stores — maintenance and remodels — and the rest will be invested in digital platforms and the Albertsons Media Collective.

Thanks. And on tariffs, since they're not in the guide, if they flow through during the year, is the goal to preserve margin dollars or margin rate and how should we think about that evolution?

Our priorities remain the five Susan laid out. How we handle tariffs and negotiations with vendors will depend on the evolving situation, but we'll manage it in a way that aligns with those priorities and our investment agenda.

And to add, dollars drive our business, and preserving value for the customer while managing costs remains our focus.

The next question is from the line of Karen Short with Melius Research. Please proceed with your questions.

Hi and Melissa, congratulations on your retirement and thank you for your years of service. Two questions: on price gaps relative to peers, can you give a sense of where your price gaps are and where they need to go? And second, do you think you could be at the algorithm by Q4 in terms of sales growth and EBITDA growth?

Thank you.

On price gaps, there's no single answer — we operate in over 120 MSAs and our price position varies by market. There are markets where we're comfortable and others where we have opportunity. We're excited to use our tools and technology to be surgical about where we invest. We have run experiments and have a deep understanding of elasticity, so we'll be thoughtful in our approach. Sharon, on the algorithm question?

We will be building toward the algorithm. As we make these investments, they will start to return. We expect gradual and incremental improvement and to be moving in the direction of our long-term targets, with the benefit materializing over time and into 2026.

The next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your questions.

Good morning. I was wondering if you could unpack IDs a bit more — you mentioned expected improvement in grocery sales trends in the back half. Can you separate traffic versus ticket improvement and the expectation for that to improve in the back half? Also, any conservatism on SNAP and any developments there for the back half?

For ID sales we are looking at the 1.5% to 2.5% range and expect growth to increase as we exit 2025 and go into 2026. We're focused on initiatives that bring units back into the store.

As it relates to traffic, our store traffic is positive. With initiatives to drive units back into the store, we see the opportunity reflected in our guidance. We believe the initiatives we discussed will continue to drive units and improved performance.

Okay. And on pharmacy, can you integrate prescriptions and pharmacy deeper into digital offerings for pickup and delivery given competitors moving forward with that? Is that something Albertsons is considering?

Yes, absolutely. It varies by market and there are technological solutions on our roadmap that will help us deliver pickup and delivery integration for pharmacy this year. Making life easier for pharmacy patients is a priority for us.

To add an example, I was in our Tom Thumb store in Dallas last night and they were announcing over the speaker that customers could place both their Drive Up and Go and pharmacy orders through Drive Up and Go. We're actively rolling out these capabilities.

Great. Thank you.

Thank you. Our final question today comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.

Hi. Thanks. You mentioned division consolidation, which you've done some of. Are there more opportunities there and can you share more color? Also, on AMC, can you share more color on partner adoption and initial feedback?

Regarding division consolidation, the recent example was blending our Denver and Intermountain divisions into Mountain West. We're looking at how we can create productivity by bringing divisions together while improving tools and processes and developing teams. We'll continue to evaluate where opportunities exist for synergies. On AMC, we've had strong performance and engagement with vendor partners. We see opportunities to leverage AMC in conversations around Buying Better Together. Today we operate at 11 divisions and will act at the right level — sometimes at division level and sometimes company-wide — to unlock dollars and simplify execution for vendor partners.

Great. Thanks. Good luck.

Thank you. I'll now turn the floor back to management for closing remarks.

Just wanted to say thank you for your time and for the questions today. We remain very excited, very energized about the growth agenda that we put forth in 2025. Clearly, it's a year of investment for us and we feel very confident in our ability to deliver both internally and externally the commitments that we have made. We appreciate your support and we look forward to talking to you all soon.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.