Albertsons Companies, Inc. (ACI) Q1 2022 Earnings Call Transcript

Albertsons Companies, Inc. (ACI -0.54%)
Q1 2022 Earnings Call
Jul 26, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for joining us for the Albertsons Companies first quarter 2022 earnings conference call. With me today from the company are Vivek Sankaran, our CEO; and Sharon McCollam, our president and CFO. Today, Vivek will share insight into our first quarter results and 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. These risks and uncertainties include those related to the COVID-19 pandemic. 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 Form 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 historical financial information includes the reconciliation of net income to adjusted net income, and adjusted EBITDA. And with that, I'll hand the call over to Vivek.

Vivek Sankaran -- Chief Executive Officer

Thank you, Melissa. Good morning, everyone, and thanks for joining us today. In the first quarter, our teams continued to deliver strong operating and financial performance across all key metrics. We want to thank all of our associates for their ongoing service to our customers and communities.

We are so proud of their resilience, agility, and passion for excellence in this challenging operating environment. In Q1, Identical sales increased 6.8%, and we continued to gain market share in food and [inaudible]. We also maintained a number one, or number two position in 68% of the 121 MSAs in which we operate. In addition, we delivered year-over-year adjusted EBITDA growth of 9% to $1.42 billion, and adjusted EPS of $1 per share.

Q1 digital sales increased 28% year-over-year. As our digital offerings continue to resonate with customers, and we further optimized our cost to serve. Also in Q1, we continue to leverage our digital investments. Omnichannel households increased 34% year-over-year, with retention rates over 90%, and they spend three times more than an in-store-only shopper.

At the same time, in-store transactions also increased as we continue to invest in new merchandizing initiatives, and our Just for you loyalty offerings. Just for you loyalty members increased 16% to 31 million, with actively engaged members reaching an all-time high, and spending four times more than a non actively engaged member. Like omnichannel households, retention remained at over 90%. These growth trends affirm a belief that engaged and connected digital and in-store experiences will result in long-lasting customer relationships, and industry-leading growth.

The underpinnings of the next phase of my transformation strategy. Customers for Life, which we introduced last quarter, is based on placing the customer at the center of everything we do. We want our customers to interact with us daily. Not only to shop, but to consume relevant content about food, plan meals, or find information to inspire the well-being.

When we laid out our fiscal 2022 priorities in our last earnings call, we shared that we are investing in four strategic priorities that I will update you on now. First, we are deepening our digital connection and engagement with our customers, which supported our 28% digital growth in the quarter. This growth was driven by an expansion of our services and innovation. For example, we were operating 2075 drugstores, drive-up, and go stores at the end of Q1.

A focus on speed is paying off. For example, our express delivery 2 hours or less is now available to 74% of our households. And penetration of this option has increased fivefold versus prior year. During Q1, we launched new merchandizing features in our Unified Mobile app, providing an increasingly personalized and curated digital experience.

Since the launch, we have seen significant growth in the number of new users and improvements in IOS and Android App Store ratings. We also saw increased digital engagement driven by our meal planning to launch last quarter. The meal planning capability inspires our customers to engage in our app more frequently, as we plan, shop, and prepare the recipes we offer. Which can be filtered by dietary preferences such as carb-conscious, vegetarian, and pescatarian.

In Q1, we had over 1.2 million unique visitors explore our meal signing tool, and over 40% of them used to add to shopping list functionality in the app to create a shopping list. We also continued to invest in the Albertsons Media Collective, using industry-leading technologies to build a platform that is easy to use, transparent, modern, and measurable. We transitioned in-house, and while we are in the very early stages of onboarding clients and agency partners, we are pleased with the growth in the business. Second, we are differentiating our store experience, but a deepening engagement through the use of technology to automate task management, thus creating more time for our team members to assist our customers despite a difficult staffing environment.

They're also simplifying the end-to-end shopping journey by improving localized assortments, and adjacencies of complementary products, installing more checkouts, and adding grab-and-go sections to ensure a convenient and easy experience. In support of our omnichannel growth, we are evolving store operations, building out staging areas for drive up and go, adding r[inaudible] for easier picking and installing additional NFC. So we are enhancing what we offer, by expanding our own brand products, and elevating our distinctiveness and fresh. We are actively leveraging the strength of our own brands assortment, and our ability to manage fresh hyper-locally to give customers great choices in the inflationary environment we are at.

In own brands, a sales penetration reached an all time high of 25.8%, and own brand sales outpaced national brands in several categories. In the quarter, we launched 59 new items, including new PITA options, and we expect to launch a total of approximately 425 new products this year. But much of the growth in own brands is related to increases in underpenetrated markets and product innovation, the breadth of our own brands portfolio, from opening to premium price points, also provides great value to customers who are trying to stretch their budgets. In fresh, our in-store processing capabilities allow us to tailor the selection, to cut, and package sizes to fit local demographics and economic circumstances.

We are giving customers choices with opening price points and large value packs. Our Innovation too is gaining traction. For example, we now have rolled out our ready meals, ready-to-eat, ready-to-heat, and ready-to-cook meals to approximately 600 stores, and expect to be in more than 1100 stores by our fiscal year end. But we are modernizing our capabilities in part through an improved supply chain, enhance data and data analytics, and ongoing productivity.

All built on the foundation of being locally great and nationally strong. In supply chain, recurrently increasing automation in two of our largest distribution centers, and expect to continue to roll out similar automation across our network over the next several years. We've also begun the progressive rollout of a new Enterprisewide warehouse management system, that is expected to be fully implemented networkwide by fiscal 2025. Both these initiatives are expected to materially improve our ability to differentiate our fresh quality, improve in-stock conditions, lower our cost to serve, and improve our end-to-end supply chain data analytics capabilities.

In our stores, we are rolling out AI based and machine learning technologies to improve the customer experience and self-checkout, enhance freshness, and product availability, and produce, and reduce shrink. In addition, we've continued to modernize our technology through cloud migration and the upgrade of our edge computing platform. And finally, the further embedding ESG throughout our operations. We launched our new ESG framework in April.

Recipe for Change is focused on maximizing the company's positive impact across four pillars for, planet, people, product, and community. We have a long history of driving sustainability within our operations, and are committed to leveraging our resources and expertise to support the communities we serve and the planet we share. Also in April, we began utilizing electric terminal tractors in our distribution centers. In place of diesel powered options, and we have plans to expand our fleet later this year.

We continue to support hunger relief in the communities we serve through food bank donations, and the 7.7 million fundraiser supporting our nourishing neighbors initiative. These funds will provide over 30 million meals to people in need. I will now turn the call over to Sharon to cover the details of our first quarter, and our updated 2022 outlook.

Sharon McCollam -- President and Chief Financial Officer

Thank you, Vivek, and good morning, everyone. It is great to be here with you today. Our first quarter results were strong across all key metrics. Identical sales were up 6.8%, with momentum continuing into Q2.

Market share gains in both dollars and units, together with inflation, drove these better than expected results. Our Q1 22 gross margin rate was 28.1%, excluding fuel and LIFO expense, the gross margin rate was lower than Q1 21 by 27 basis points. This decrease was driven by fewer COVID-19 vaccines versus Q1 last year. And consistent with our expectations for the quarter, excluding fuel, LIFO, and fewer COVID vaccines.

Our gross margin rate was slightly ahead of the first quarter last year, due to ongoing productivity improvements ,offsetting higher product ,and supply chain costs. Our selling in administrative expense rate with 25.2% this quarter. Excluding fuel, the SG&A rate decreased 15 basis points compared to last year. This decrease was primarily driven by lower COVID related expenses, and the benefit of productivity initiatives.

These decreases were partially offset by investments related to the acceleration of our digital and omnichannel capabilities, market-driven wage rate increases, and higher depreciation. Interest expense in Q1 22 decreased $14 million to $139 million. This reduction was primarily driven by a lower outstanding debt balance. Q1 22 adjusted EBITDA with $1.42 billion compared to $1.31 billion last year.

This $110 million increase was primarily driven by the flow through from our 6.8% I.D. sales increase, and benefits from our productivity initiatives. Q1 adjusted EPS was $1 per fully diluted share compared to $0.89 in Q1 21. I'll now discuss Q1 22 cash flow and capital allocation.

We ended Q1 22 with $3.2 billion in cash, which provides us with significant liquidity to invest in growth, and return cash to our shareholders. Capital expenditures in Q1 were approximately $614 million, with the majority of our investments being made in the modernization of our store fleet, and ongoing investments in our digital and omni channel transformation. We also returned $63 million to our shareholders through common stock dividends. Net debt leverage at the end of the first quarter was 1.0 times compared to 1.5 times in Q1 21.

Turning to labor relations, we have continued to reach settlements that are providing an overall wage, and benefit package that rewards our team members for their significant contributions, and strengthen our competitive positioning in the markets we serve. During Q1, as previously shared, we settled retail contracts in both Northern and Southern California, Seattle, Las Vegas, and Shaw. And earlier this month, we reached a tentative settlement on the retail contract with dual. I'd now like to discuss our financial outlook, as we look forward to Q2 and the rollout of our customers for life strategy.

We do so, with continued momentum as evidenced by our Q2 to date mid-single digit ID sales increases. We are gaining market share, and continue to see signs of a healthy grocery consumer who is engaging broadly. While we and the industry are seeing a bit of trade down within and out of some categories as consumers stretch their budgets, our share gains in price continue. With that as our backdrop, we have raised our fiscal 22 outlook, assuming the following.

We now expect fiscal 22 ID sales to increase 3% to 4%, up 100 basis points versus previous guidance of 2% to 3%, driven by continued inflation and market share gains. In the second quarter, we expect ID sales to be above the full year range, and in the back half below due to cycling heightened inflation in the back half of fiscal 21. We are also increasing adjusted EBITDA by $100 million to the range of $4.25 to $4.35 billion versus previous guidance of $4.15 to $4.25 billion. Our gross margin rate, excluding fuel and LIFO, we are expecting core business gross margin rate expansion driven by productivity tailwind.

Offsetting this, however, is a continued expectation of a 65% decline in COVID vaccinations and related margins, the impact of which will be greater than the core business margin rate expansion. Therefore, factoring in both drivers, we are expecting the gross margin rate, excluding fuel and LIFO to be down slightly in fiscal 22. In selling and administrative expense, we will continue to incrementally invest in our digital transformation, the Albertsons Media Collective, and the modernization of our supply chain, which will increase our SG&a rate in fiscal 22, but drive growth and productivity longer term. As an example, productivity tailwinds are currently substantially offsetting a significant increase in hourly wages and benefits for our front-line associates in this year's outlook.

That brings us to adjusted EPS, which we now expect will be in the range of $2.80 to $2.95 per fully diluted share, up $0.10 versus previous guidance of $2.70 to $2.85 per fully diluted share. To support this outlook, we expect capital expenditures to remain in the range of $2 to $2.1 billion. Additionally, as it relates to productivity, we are on track to deliver against our three year commitment of $1.5 billion by the end of fiscal 22, and are already beginning to roll out action plans to deliver the incremental $750 million between fiscal 23 and fiscal 25 that we shared with you last quarter. And finally, I'd like to provide a brief update on our ongoing review of strategic alternatives.

While we have not yet reached that conclusion, we are pleased to share that as part of the review, our third party appraiser has completed our [inaudible] compliant real estate appraisal, and the overall value of our real estate portfolio has increased $2.5 billion to $13.7 billion, representing a $4 per fully diluted share increase in asset value on a pre-tax basis versus the 2019 appraisal at $11.2 billion. I'll turn the call back over to Vivek for closing remarks.

Vivek Sankaran -- Chief Executive Officer

Thank you, Sharon. We are pleased with our first quarter results and the momentum we're seeing today. As we look ahead to the balance of the year, we are thoughtful about the macro environment and the possible implications it could have on consumer behavior. Our top-tier performance over the last several quarters, even with periods of high inflation, has demonstrated a stronger company today than we were pre-pandemic.

And the initiatives that have driven us strong results give us confidence in our future. First, our customers for life strategy is working. We are adapting quickly and we are executing well. We are adding customers and engaging customers more frequently through our loyalty program and our e-commerce offering.

Customers spend more with us, and stay longer with us because we're able to tailor assortment and promotional offers for them. We are giving customers great value choices by adapting our fresh offerings literally every week in every market, and through our strong own brands portfolio. Our stores are operating more effectively and efficiently as our supply improves, and new technologies take hold, and we are proactively managing our costs. Given recently settled collective bargaining agreements, we have visibility into our labor costs into the future, and our productivity programs with all the new continue to allow for investments, and provide the insulation for our earnings commitments in the event the macro situation becomes more challenging.

We believe this puts us in a strong position to continue to gain market share and sustain our track record of sales and earnings growth. I would like to again thank our 290 thousand associates for their loyalty, and dedication to our customers, and communities. They are the ones who make all of this possible. We will now take your questions.

Questions & Answers:

Operator

Thank you. Ladies, and gentlemen, thank you for joining us for the Albertsons Company's first quarter 2022 earnings conference call. We will now be conducting a question-and-answer session. [Operator instruction] The first question comes from John Heinbockel of Guggenheim, please go ahead.

John Heinbockel -- Guggenheim Partners -- Analyst

Hey guys, I want to start with how you think about the market share opportunity from food away from home, in an environment where menu prices continue to go up. Anything size that opportunity in your mind, how much of that will be driven by ready meals versus ingredients? And how do you kind of go out and maybe market differently in this environment to educate consumers about your offering?

Vivek Sankaran -- Chief Executive Officer

Hey, John. Good morning. John, here's how I characterize what we're seeing in the market. I think I would argue that consumers are still eating a lot at home, and possibly because they're working at home, possibly because of some of the things you point out about inflation outside and in restaurants, sometimes it's hard to get into restaurants.

And the way I see that is because of the portfolio, if your ready meals is doing so well. We just launched a sandwich program, and the sandwich program that sold many sandwiches, they're doing so well, and our convenience salad in our stores are doing so well. So we think there's one of two phenomenon's happening. One is people working at home and picking up things to have lunch at home, do convenient things so that they can have a quick lunch at home.

And we also see the types of things that you would buy if you were cooking at home. The meat programs that we have, our oils, the things that you would use to cook at home. So we still see that trend going, and I think everything we're doing in the app to enable meals, to provide more meals is also working for us. If you go to our app, we just launched a meal capability where you can pick your meal and it populates the items that you want, and we're seeing a lot of traction and things like that, John.

John Heinbockel -- Guggenheim Partners -- Analyst

OK. Great. And then maybe second. Totally different topic.

Maybe share your philosophy or what you can share the board's philosophy with regard to real estate ownership. You mentioned the $13.7 billion. A lot of big box retailers [inaudible] real estate is a strategic value, for control reasons and a lot of a lot of other factors. What's the philosophy on your end as to ownership.

Sharon McCollam -- President and Chief Financial Officer

Thank you, John. Our philosophy on real estate is exactly the way you described it, which is that we believe that the real estate we have is a strategic asset for the company. There is been a history in the company of occasionally having a transaction where they might do a sale leaseback of a percentage of the real estate that we have. That was about three years ago, I believe the last time they did that, and it was particularly small.

But despite having the real estate appraisal, we are very excited to see how well we've invested in the real estate. You saw that we were up about $2.5 billion, which if you put that on an asset value to the stock price on a pre-tax basis is about $4 a share. So it was an impressive increase in the valuations. But we do recognize the strategic value of the real estate, and we'll be very thoughtful about that as we continue to consider all of the strategic alternatives that we have in front of us.

John Heinbockel -- Guggenheim Partners -- Analyst

OK. Thank you.

Operator

Thank you. [Operator instruction] The next question comes from Simeon Gutman of Morgan Stanley.

Michael Kessler -- Morgan Stanley -- Analyst

Hi guys. This is Michael Kessler on for Simeon. Thanks for taking my questions. I wanted to ask first about inflation in units or consumption.

How did both of those trend in the quarter? I guess even sequentially, incrementally versus what you were seeing a few months ago. And then thinking about the pass through of higher costs into retail pricing, how that's going, if there's any change in how you're viewing that past or dynamic, and what you're seeing from the competition. And then any sense of inflation outlook for the rest of this year, and potentially even into next year, as we're starting to hear a little more speculation about maybe some commodity deflation coming in.

Vivek Sankaran -- Chief Executive Officer

Thank you, Simeon. First, let me, if you don't mind, let me just give you a little bit about the consumer backdrop that we're seeing, because that's important for me to characterize what we've been seeing with inflation. I don't want to generalize, but I'll say there's two things that we've seen. One is the consumer is clearly trending down.

And so you can think of in rice, beans, oils, buying bouquets, and sort of arrangements, and so on. And so we're seeing that on one hand. But the good news is they're trading down into a lot of our own brands on that front. The second thing I would point out is that we have consumers uncharacterized the consumers.

Again, not every segment, but there are consumers who have cash, but are very value conscious,. OK? And so the behavior we see from them is they are buying more, they are trading down on deli meats, but they're also buying a lot of store made sandwiches and meals. They are buying more hamburger, but they're also buying organic meats. They're buying premium beer, and people are buying lower priced beer.

Right? And instead of buying one avocado, they're buying bags of avocados. So we're seeing this behavior where people are value conscious, but are willing to spend on the things that they care about. So when we think about your going back to your question, we're seeing the kind of inflation that you would expect in the marketplace that you're seeing in the marketplace. I think retail CPI was like 10.9% or so for the quarter, and when you see the numbers, yes, we are seeing some unit decline.

But I'll also tell you that [inaudible] is better than our units because of the other bag of avocados is one unit, right? instead of three avocados that they're the box in the past. So we're seeing some of that. Our expectation on inflation, when we started the year was that the inflation would moderate quite significantly in the back half of our calendar year. And we don't think it's going to moderate as quickly, which is why we've raised our forecast a little bit, as you see on the top line.

But what we're seeing, though, is that the overall behavior of the consumer is that they're engaging on the bookends with us and in the middle. And we are working that. I mean, our assortment allows for that. If somebody wants the higher end of the product, they've got it.

Somebody wants an opening price point, they've got it in our stores. And that combination is working well for us in driving units and margins. And as you know, the margins are pretty strong when they start engaging in our own brand portfolio. Does that help, Simeon?

Michael Kessler -- Morgan Stanley -- Analyst

It does, yeah, thanks. This is Michael, by the way, [inaudible]I But that's helpful, thank you. And maybe a follow-up to actually John's question. You know, he's asking about food away from home, and maybe just a broader one on market share.

There is the component of food away from home, demand shifting into food at home. And then there's a component of people trading down with in-food at home, maybe at a lower price or discount channels. How do you view your positioning, I guess, in the context of those two dynamics, which maybe to a degree are playing out? And if you can maybe speak to where you think the market share gains are coming from. And we heard from one of the largest sellers of food in the country yesterday that they also think they're gaining share.

So curious where you think it's coming from, too. Thank you.

Vivek Sankaran -- Chief Executive Officer

Yeah. Michael I'd say the first thing I note is that our market share is positive in food, and in dollars, and units. And that the last thing I said is very important to us, that we are gaining market share in units. When people are eating more at home, if they're in fact turning other food away from home, turning into food at home, and they're eating more at home, the fresh portfolio really, really matters.

And so we think we are gaining market share first because people are coming in for a broad, fresh portfolio. People are coming in for the bookings of the assortment, if that's what they choose, we've got it. And so, by our observation is that we're gaining market share clearly within the world of retail. And it's going to be very locally from all the competitors that we track locally, Michael and I think you know the needs.

Michael Kessler -- Morgan Stanley -- Analyst

Yup. Got it. OK. Thank you.

Appreciate it. Good luck.

Operator

The next question comes from Paul Lejuez of Citi.

Paul Lejuez -- Citi -- Analyst

I just want to be clear of that. In that 6.8% ID sales number. How much of that was passing through higher prices to the consumer? And then just ask my follow-up now, performance of own brands. What was the increase overall compared to that ID sells number, and you said that it performed on brands, it performed national brands in several categories.

Curious where own brands are outperforming versus underperforming, and what you think makes up that difference. Thanks.

Vivek Sankaran -- Chief Executive Officer

Paul, here's how on the own brand. What happens in these markets is if you're if a national brand is not a strong national brand, people migrate very quickly to be own brand. So you see it like categories like oils, and shortening, and rice, and beans, and even in some meats, and are deli meats, and so on. We're starting to see people move very quickly to their own brands.

I'll remind you that our own brand portfolio is thousand basis points better margins than national brands. So even a small movement into own brands makes a meaningful difference in the in our gross margins. I think own brand penetration went up 30 [inaudible] this quarter. Right? So that's a substantial change, and the contribution to the to the gross margin.

Sharon McCollam -- President and Chief Financial Officer

And now your question, Paul, on the 6.8% ID sale, clearly, Vivek mentioned that retail CPI was in the high ten for the quarter, and we anticipated coming into Q1 that we would start seeing some breakage in units as well as government stimulus had been rolling off. So all of that contributed, market share gains contributed to the ID sales, as did the opportunity for us to continue to grow the business. We did go up 30 basis points. Our penetration on own brands went up from 25.5% last year, up to 25.8% this year, and we expect that to continue going forward.

So that is the answer on your 6.8%. Of course, inflation helped drive that number. Some of the assets were some breakage in units, and we also saw government stimulus go down.

Operator

The next question comes from Edward Kelly of Wells Fargo.

Edward Kelly -- Wells Fargo Securities -- Analyst

Hi. Good morning, everyone. I wanted to go back to the volume question, and the question around sort of elasticity. It does look like this quarter with double digit inflation elasticity picked up a bit, curious as to whether that's what you are seeing as well.

I know you mentioned sort of tonnage, but then as we look forward now, and we think about decelerating inflation, we looks like we could be entering a period where there's very low cost growth. And I'm curious as to how you think the industry acts in that environment from a promotional standpoint and how, if at all, it will change how you act from a promotional standpoint.

Vivek Sankaran -- Chief Executive Officer

Yeah. First, and I think the inflation is decelerating, but there's still inflation. But I think we should remember that, and it may not be 10.9%, but remember we've operated a business historically that has been open 1.5 2% inflation. And we think as a business so much stronger than pre-pandemic, that even at 1.5 2% inflation, we're going to have much better comps.

Then we went into the pandemic quite so, fundamentally, I think there's more strength in the business to do that. But the inflation is going to be slightly higher than back then, the old number I think. The second thing in terms of elasticities, there are specific, if I go back to my history in this industry, in CPG and so on, the elasticities are so much better than we typically used to see in the past. But that said, there are elasticities, right? I think it's showing up in two ways.

One is maybe people are buying a little less of something, or clearly people trading down? I would expect that if that's the behavior, then people would trade back up, or buy back more if they if the inflation starts dropping. Right? So if it goes one way in one direction, it'll go the other way in the other direction. And so my sense is the volumes will also start coming up as the inflation moderates. And then I think the other thing I'd point out is that everything we are doing is driving stickiness.

We are very deliberate about saying when we get a customer, we want to engage them, keep them, get them to spend more with us. And what's helping us do that is the digital engagement that they have in the e-commerce business that continues to grow. Once we get them, we're able to personalize and keep them. And that's a market share gain that's working for us.

[inaudible]

Edward Kelly -- Wells Fargo Securities -- Analyst

OK. And then I just wanted to pivot and this question maybe is for you, Sharon, but if we look at our OpEx dollar growth, this quarter was about 5% or so, and I know you're making investments into the business. There's obviously been some stuff that's happening from a labor standpoint on contract renewals. How do we think about both for sort of like the sheer and then even sort of like going forward, with things like labor, rate inflation that gets sort of embedded into contracts, that's like I just kind of curious as to how we should be viewing the growth of that line.

I don't know.

Sharon McCollam -- President and Chief Financial Officer

Yes. We do anticipate continuing to invest in several key areas, digital and omnichannel. Of course, we're also investing in the Albertsons Media Collective, which of course is a longer term revenue driver for us. But today we are just beginning the investment in the Albertsons Media Collective, and then the modernization of our supply chain, which is going to bring us substantial cost savings in the future.

So those are the big areas where we are investing in SG&A, and in the outlook that I gave on adjusted EBITDA for the year, I gave a little color on SG&A, and those were the areas that we said we would invest, and we did expect that in the back half, by the end of the year, that we would have a great deal leverage on SG&A due to those investments. Q1, we leverage the rate, but that was heavily driven as it laid out in the press release by significantly lower COVID related costs. And those are nothing to do with the vaccine. We're talking about the cost that we incurred in Q1 of 21 in our stores.

So that was the rate leverage in Q1, and that was Q1 last year with our largest quarter of COVID store related investments. So I anticipate in the balance of the year to continue to see us make these investments, and I expect these investments, by the way, to bring us returns. Now, offsetting that, which I also said in the prepared remarks earlier, is productivity. We saw the highest increases we have seen in frontline labor in our history, quite frankly, in 2022.

And yet our productivity savings that we are continuing to identify and capture have virtually offset that increase this year. And we expect to continue our productivity programs, which I also mentioned, we just announced last quarter another $750 million productivity program from 23 to 25. So while we are making these investments, we are also funding the investments to productivity, and expect to continue to identify increasing productivity. And many of the investments by their very nature will create productivity.

Edward Kelly -- Wells Fargo Securities -- Analyst

Great. Thank you. 

Operator

The next question comes from Rupesh Parikh of Oppenheimer.

Rupesh Parikh -- Oppenheimer and Company -- Analyst

Good morning. Thanks for taking my question. So I wanted to touch on the promotional competitive backdrop. Are you guys seeing any changes of note right now on the competitive side? And then as the year progresses, just given increased consumer sensitivity, do you expect it to become a more promotional environment later this year?

Vivek Sankaran -- Chief Executive Officer

Hey. Good morning, Rupesh. No, we're not seeing a material change in the marketplace on that Rupesh. But I've said this before, and I think we are not going to come out of this, going back to the old form of promotional intensity.

And the reason behind that is, I think all of us are one better at the use of technology, and we're all much more digitally engaged in promotions, and so yet we are promoting. What we are promoting very deliberately in an extremely targeted fashion to giving people the promotions that matter for them. And you will continue to see that, in my opinion, right as we go forward. The other thing is, I think you should also know that while supply is better, supply is vastly improved, supply is not where it used to be, right? And in many categories, we've all got to a steady state of managing it, and that's also going to throttle promotions, do quite a bit well, or quite an extent over at least the next 6 to 8 months.

Rupesh Parikh -- Oppenheimer and Company -- Analyst

Right. And then maybe one final question just on the e-commerce front. One of your competitors called out change in consumer behavior, I think, toward more pickup. Are you guys doing the same thing on the e-commerce side? The shifts in consumer purchasing behavior online versus in-store.

Vivek Sankaran -- Chief Executive Officer

Rupesh, did you say pick-up?

Rupesh Parikh -- Oppenheimer and Company -- Analyst

Yeah. More pick-up versus delivery.

Vivek Sankaran -- Chief Executive Officer

Yes. I tell you two things we've always believed in, that pick-up matters and speed matters in delivery. And so the two things that are working for us is, one, we've got more pick-up in our stores, 2075 stores at the end of Q1. But we've also expanded to our delivery, and same day delivery, and we're getting tremendous traction with to our delivery, with our customers.

And so the nice thing about that is we're leveraging our stores to do that. Sometimes it's just putting a rare room in a store to do that, which is a very low CapEx. I mean, it's more shelving in the back of the store for the fast moving items, and that those two things are working for us.

Rupesh Parikh -- Oppenheimer and Company -- Analyst

Great. Thank you. I'll pass along. 

Operator

The next question comes from Ken Goldman of J.P. Morgan

Ken Goldman -- J.P. Morgan -- Analyst

Hi. Thank you. Sharon, do you have an update on how to think about which of your multi-employer pension plans might be backstopped by the government? I think the U.S. recently put out some papers on the subject, but I might need a some kind of advanced degree to fully understand them.

Just curious if you have any additional thoughts at this time.

Sharon McCollam -- President and Chief Financial Officer

Yes. So we do have an update. First of all, what you're what you're speaking to, Ken, thank you for bringing it to everybody's attention is the American Rescue Plan Act. It's called ARPA, and it was during COVID.

It was put out there to provide special assistance to keep these multi employer pension plans solvent. So we participate in about 90% of those plans. Now, keep in mind that we do not have liability for these plans. And that is the most important thing to take away from this.

But for those plans that we participate in, in the 10-K, we disclosed that we had about $4.9 billion of there was $4.9 billion of liability in those plans. And after tax, it was about $3.7 billion. And as we look at this, we have already started to receive, we've applied and received funding for that. And we anticipate that liability, about half of it would be covered by ARPA, up to about half of it would be covered by ARPA.

So, yes, it is out there, it got settled, it's acting, and moving forward. And again, we have 16 plans, which is 90% of our other funding that is in that category.

Ken Goldman -- J.P. Morgan -- Analyst

That's very helpful. Thank you. And then, Vivek, more of a broader question. You said in your opening comments, and I think you say this consistently, but you said that Albertsons faces a challenging operating environment.

And I do appreciate that by nature, Right? The industry you are in is professionally challenging. But I guess I'm not quite sure why today should be considered particularly tough. You have rational competition. You have actions that are taking share.

You're offsetting high labor inflation with productivity, low elasticity. I guess one of the questions I get sometimes is why aren't these considered the good old days? All things considered, it wasn't that long ago that supermarkets were losing a lot more share to mass. We had a historically high level of deflation, so sorry to be overly wordy, but I'm just curious what's challenging today relative to prior years in your mind?

Vivek Sankaran -- Chief Executive Officer

Ken, good morning. I think, here's how I characterize it. You're right, I think our sector and we in particular, we are doing really well relative to where we were pre-pandemic. The pandemic and the initiatives that we have in place have accelerated so many different things we're doing, like gaining customers, we're keeping them.

Our portfolio is working with better in execution. We're driving stickiness [inaudible] you know, our pharmacy NPS scores last year 54, now 81.5. And guess what? We're adding scripts every day in our pharmacy. So there's a lot of things going well.

What's challenging? The challenging part is the uncertainty. And the way we have to deal with that uncertainty is by being incredibly local and incredibly nimble, and I'm so proud of our teams for doing that, right? And that's one challenging piece. The second challenging pieces, Ken, we all go that's going away? It's not yet. So we still have the timing around it.

It causes disruptions, it's causing disruptions. And it's not like it was before, but we still have those uncertainties to manage. That's the part that I characterize as challenging. And we don't know where, I mean, this inflation so far, I think because of our portfolio, and the way we're executing, we are managing through this inflation very well.

And I think we all have in the back of our minds what the other consumer might be here if this thing keeps going, right? So those are the types of things we're navigating. It's more the uncertainty than anything else.

Ken Goldman -- J.P. Morgan -- Analyst

Great. Thanks so much, Vivek.

Operator

The next question comes from Michael Montani of Evercore ISI.

Michael Montani -- Evercore ISI -- Analyst

Good morning, thanks for taking the question. I wanted to ask if I could, first off, in terms of the ID sales. Could you just clarify what the actual number of transactions up or down in the quarter?

Sharon McCollam -- President and Chief Financial Officer

Yes. In order to drive those ID trends, we don't quantify, but transactions were absolutely up.

Michael Montani -- Evercore ISI -- Analyst

OK. Got it.

Sharon McCollam -- President and Chief Financial Officer

And we talked about the fact that we are seeing a return, Michael, of in-store traffic.

Vivek Sankaran -- Chief Executive Officer

Adding households and adding transactions.

Michael Montani -- Evercore ISI -- Analyst

Understood. And then if I could just follow-up on the guidance for a moment. So for the next three quarters, it looks like it's implied about a $200 million decrease in EBITDA year-over-year versus the $100 million increase year-over-year in 1Q. And understand there's crosscurrents going on, obviously lower ID sales as well.

But just help us to walk through that in terms of the productivity agenda sounds good. But then also, you've got basically less incremental volume forecast. So is it consistent promotionally that you're assuming through the year? And then just kind of why is that the right outlook?

Sharon McCollam -- President and Chief Financial Officer

Yeah. Keep in mind, Michael, that COVID vaccinations, 65% reduction in COVID vaccinations in 2022 versus 2021. And recall that there was a big increase that occurred. Q2 will be our smallest quarter we're in 2021, but then Q3 and Q4 started to reescalate, and that is hitting us very hard in Q3 and Q4.

Michael Montani -- Evercore ISI -- Analyst

Okay. Thank you for that.

Operator

The next question comes from Scott Mushkin of R5 Capital.

Scott Mushkin -- R5 Capital -- Analyst

Hey, guys, thanks for taking my question. I guess I wanted to look at when I think about what the push back and owning Albertsons, right, really from the IPO pensions, which were covered already and I think was obviously a big plus. You know, the ownership overhang, which I think you guys addressed a little bit. And then the third, it was a major one was pricing.

Everyone hasn't come up really that much on the call. But it does seem that you guys continue to invest part of your savings in narrowing the pricing gap, at the same time I wonder how long it's going to last to certain competitors clearly have enormous pressures on their business, whether it be an omnichannel buildout, or a general merchandise problem. So how should we look at this pricing gap as you go forward? Do you think it's something you can continue to narrow in kind of, you know, take that off the table as a concern, or is that something you think is going to widen out again when the competitive environment changes?

Vivek Sankaran -- Chief Executive Officer

Good morning, Scott. To talk about pricing first, you got to believe that you're going to have gross margins stability in the business. And we've always talked in the past about having tailwinds on gross margin, and for example, assortment. So more on brands, more store made products that you show, the better the gross margins, promotions.

We're putting a lot more technology into our promotions. It's a lot more personalized. That's a gross margin tailwind. Operations, reducing our shrink through technology and production, technology and produce ordering, technology at the self-checkout.

We thought we had optimized it, now this technology will really shrink the checkout. Cost of good, we are rolling out a lot more merchandizing buying. We're even finding reduced costs in our own brand portfolio, and the supply chain. So the first thing is we need to have a lot of confidence in our gross margin.

By the way, we're also automating our supply chain, so we need to have. Now that we have, but we have it. You know, everything I told you are initiatives that are in flight. Some are late, some are early.

But we look at the ability to deliver tailwinds as we look into the future. We combine that with being extremely surgical, about where we invest in price. And the metric we're always looking at is are we gaining market share in dollars and units, foot and mulu, and where we feel that that is out of kilter, we invest in price. And so that mechanism will continue only because we have all of this I just talked about to continue to do that, Scott.

We don't believe in going and making large scale changes. We just don't think that pays off, and we, by the way, we offer a set of things in our store that we think comprehensively provides value to our customer. And it's that combination that matters.

Scott Mushkin -- R5 Capital -- Analyst

And so a little thanks for that. [Inaudible] You guys have been gaining share now. Gosh, you know, I guess a couple of years, consistently. If you had to kind of say, you know, answer the question, I guess, you know, most investors clearly don't believe it's going to happen because the [inaudible] really want to move up in this valuation is real low, you know, why do you think it's sustainable and why do you think it's happening?

Vivek Sankaran -- Chief Executive Officer

Why is [inaudible] sustainable? Well, Scott, I think there's a few things working right for us. One is up, it always starts with having a great portfolio, and our portfolio works in many, many different environments. So we are in an inflationary environment. I think that was concerned whether our portfolio would work, actually works because we can give people those bookends.

Those who choose to stay with organic meat and buy hamburger, you got it. You got it in our store. The second thing we do, I have to emphasize that, you know, while I'm giving you general statements, the magic is local. You cannot win in this market if you're not working it on a store by store basis, locality by locality basis, and optimizing to it.

And that's a heritage, and the teams are doing that. The third thing is driving stickiness. We did that extremely seriously, which is why we want people to engage more digitally, because we can drive more stickiness, whether it's a loyalty program or an e-commerce program. And the fourth thing is this is underrated, but it's just great everyday execution, right? And the [inaudible] I gave you is just good on everyday execution, just getting better so the customer said, Hey, I'd love to come here for my scripts, then somewhere else.

And all of those, we still think we have plenty of headroom, in everything I just said.

Sharon McCollam -- President and Chief Financial Officer

And I would just add to that, that the other thing to keep in mind is at the end of Q4, we gave you a metric on our Just for You loyalty members that we had gone up 45% to 30 million, just the loyalty members. And then coming into Q1, we just increased another million to 31 million just for you loyalty members. And if you go back and reflect on that prepared remarks, what you'll see is that ACI Just for You loyalty members mature. As an example, when they become omnichannel.

Over time, they come to be spending three times more than the in-store-only shoppers, are actively engage, when they become actively engaged with us, they become four times more than an average shopper spenders in our stores. And nobody joins Just for You and becomes either one of those immediately. It takes time and it grows over an extended period of time. So as we continue to gain these members, and then we have the pandemic significant increase in those members, and what we have been most pleased with is the retention of those members.

And as we do that, that helps fuel ongoing share gains because these customers become more and more valuable. We continue to gain share of wallet from those customers in addition to attracting new customers to the brand. And that provides a very significant tailwind to the issues that you've mentioned about continuing to gain market share over time. And these are some of the most that we feel like we have been able to build over the last couple of years in order to create the environment that can make that share gain environment sustainable.

Vivek Sankaran -- Chief Executive Officer

I'll just close that with Scott, you know, to do all of this, you need a capacity to invest. And that's where our productivity program comes in. A first 1.0, if I can call it, the 1.5 billion going great. We talk to you about the next tranche of productivity.

It's off to a great start. And so we feel we'll continue to have the ability to drive productivity and invest in the things that drive growth.

Scott Mushkin -- R5 Capital -- Analyst

Fantastic color, guys. Really appreciate that.

Operator

The next question comes from Robert Moskow of Credit Suisse

Robert Moskow -- Credit Suisse -- Analyst

Hi. Thanks for the question. I'm maybe trying to get the back into inflation from a different perspective. Do you expect sequential inflation in your next quarter? Like, do you expect prices to be sequentially higher? And what's driving it? Are you still seeing vendors come to you asking for more pricing? And if so, are you more are you less amenable for that, given what's happening in the commodity markets to work or not?

Vivek Sankaran -- Chief Executive Officer

Yes. So, Rob. Here's how I characterize it. The broad answer to you is, yes, we do expect sequential inflation, but it's more moderated levels than we're seeing.

So, if early in the year, we it expected that we [inaudible] that and we [inaudible] it and inflation was moderate very significantly. We are less sure about that now. So if I was to characterize what we're seeing, one on the one hand, you're seeing commodity prices decreasing. But on the other hand, we also expect that things like produce and others will come in a little higher because fertilizer costs are up.

And those are that's the crop that people have already put in the ground. And so when we harvest that, we're going to see some prices. So [inaudible], we're seeing signals on both sides today. But I think some CPGs are coming forward with price increases later in the year.

Of course, we will continue to challenge all of that because we do our own clean sheets on what something should cost, and we'll continue to challenge that. But [inaudible] answer is we do expect some sequential inflation, even if moderated through the rest of the year.

Robert Moskow -- Credit Suisse -- Analyst

OK. Great. Last question, I didn't hear anything about supply chain disruption being an issue in the quarter. Are you still experiencing that or is that tamped down a lot? And as a result, are your shelves full, or are you still not getting everything you need from your vendors?

Sharon McCollam -- President and Chief Financial Officer

We are definitely still seeing supply chain disruption, and we still have categories where we are on allocation. So those issues have moderated. They are in no way passed. And from a supply chain operations standpoint, we have been hiring better, and we've been more able to find labor.

I'm not saying it's solved, it seems to have mitigated. And on the transportation side, that continues to be a challenge, but again, moderated but not fixed. So I think all of us, as an industry would say we've seen some relief, but it is not at this point where we would call it being significantly better. It is moderating.

Vivek Sankaran -- Chief Executive Officer

Doesn't make us problem. That's good.

Operator

Thank you. The final question comes from [inaudible] of Wolfe Research.

Spencer Hanus -- Wolfe Research -- Analyst

Good morning. This is Spencer Hanus on for Greg. One of your biggest competitors is increasing your taxes and price increases on [inaudible] to manage the markdowns they're taking in general merchandise categories. Just curious how you think that would impact the competitive environment in grocery? And do you think your peers are going to take the opportunity to also bring out prices?

Vivek Sankaran -- Chief Executive Officer

Yeah. Hey, I don't know. I can't speak about what might be happening in somebody else's business, but I can tell you that I think everybody is feeling that the food business is doing well. You're seeing that across the markets.

Even if you saw some of the earnings calls today, you see that the food businesses are doing well. And my sense is that for some of the things I talked about earlier, it'd be really hard to, in this environment to do drive down prices and expect massive uptake in supply in volumes, certainly because if a supply is challenged and people are looking for different things, it's not just about going in and buying a package. Good people are looking for a full portfolio to solve their challenges, and meet their needs today.

Spencer Hanus -- Wolfe Research -- Analyst

That's helpful. And then I totally understand that the [inaudible] main challenge, and that's constraining promotions for now. But if we start to see accelerated and pick-up, and then we see unit changes decelerate further in the second half and into 2023, do you think the promotions remain as rational as they've been over the last 18 months that.

Vivek Sankaran -- Chief Executive Officer

Yeah, it still is rationalized. Again, I go back to, if you go back to the past, the old behavior in our sector was that we would all run an eight, ten page ad and blast promotions that didn't give us a return. OK? And that was, what, deluded gross margins in the past? I think there's plenty of technology, and data, and digital access, and so on today to become much more targeted and get a better return on promotions. And so far, I still find it rational, I suspect that by I talk to you about the [inaudible] rates, just to put it in perspective, you know, in some of these categories, we are at 65% service level and feeling good because it's better than 35%, but 65% still sucks.

So I think we've got a long way to go before we get completely comfortable as a sector on supply.

Sharon McCollam -- President and Chief Financial Officer

And we've said consistently that with the pricing promotion, data analytics investments, that the entire industry has been making over the last several years. We believe that it is the tide that raises all boats. This isn't a specific Albertsons discussion, we believe that this discussion applies to most of our sophisticated competitors, that through personalized promotion, it is why the media collectives are doing better that talked about the fact that the suppliers and the retailers together have realized that the effectiveness of promotions can be so much greater when you can personalize and you use data analytics to drive it. And so I think that over the last couple of years, if you take a look at the investments that we've all made in those capabilities, they have changed the game.

And to just give away margin, I just don't see that behavior coming back into the industry in the way that we saw it pre-pandemic.

Operator

OK. Thank you very much for participating in today's call. We look forward to speaking with you over the balance of the day and the rest of the week.

Vivek Sankaran -- Chief Executive Officer

Thank you.

Sharon McCollam -- President and Chief Financial Officer

Thank you all.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Vivek Sankaran -- Chief Executive Officer

Sharon McCollam -- President and Chief Financial Officer

John Heinbockel -- Guggenheim Partners -- Analyst

Michael Kessler -- Morgan Stanley -- Analyst

Paul Lejuez -- Citi -- Analyst

Edward Kelly -- Wells Fargo Securities -- Analyst

Rupesh Parikh -- Oppenheimer and Company -- Analyst

Ken Goldman -- J.P. Morgan -- Analyst

Michael Montani -- Evercore ISI -- Analyst

Scott Mushkin -- R5 Capital -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Spencer Hanus -- Wolfe Research -- Analyst

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