Greetings. Welcome to the Albertsons Companies second quarter fiscal 2026 earnings conference call. All participants will be in a listen-only mode until the Q&A session. This call is being recorded. I would now like to hand the call over to Cody Perdue, Interim Chief Financial Officer of Albertsons Companies. Please go ahead.

Good morning, and thank you for joining us.

Before we get started, I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. 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. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in this morning's earnings release. Now, let me hand the call over to Susan Morris, the Chief Executive Officer of Algesons. Susan?

Thanks, Cody, and good morning. Thank you all for joining us. Today's call is going to be a little different. Before Cody and I review the quarter and tell you about the big steps we're taking to accelerate Albertson's progress, I've asked our new executive chair, Meg Whitman, to provide you with some of her thoughts and observations. Having access to Meg has allowed me to draw on the perspective of a veteran CEO who has grown companies, unlocked shareholder value, and managed an enormous array of challenges. Her insights are helping us refine our efforts. I want you to hear Meg's early impressions about the company. After Meg speaks, I'll provide a recap of our second quarter results and an assessment of our performance discussing the actions we're taking to improve the business. Finally, Cody will cover our financial results in some more detail. So Meg, please take it away.

Thank you, Susan, and good morning, everyone. I want to spend a few minutes this morning sharing my perspective as I begin my role as Executive Chair. Over the past several weeks, I've spent some time with management, directors, associates, and customers. and have been getting to know the business. While it's still early days, here are some observations. First, Albertsons has significant strengths. We operate strong local banners in many prime locations, serve millions of customers every week, generate substantial cash flow and have talented associates who care deeply about serving their communities. Our pharmacy business is robust and a crucial part of our customers' lives. We built a strong e-commerce platform and see AI as critical to our success. We have a proud history and we want to win. That all said, our performance has fallen short. Sales and earnings growth have not met our expectations. Market share trends have lagged and despite many individual successes across the business, we're not delivering results consistent with the quality of our assets. We must turn things around. Thank you for joining us. As well as that potential strategic actions we can take to enhance shareholder value. Susan and I agree that everything should be on the table as we figure out how Albertson should be structured to better compete in the years ahead. As I've worked with Susan and her leadership team, one thing has become increasingly clear. We must move faster to reduce costs, reinvest much of those savings into lower prices, improve the store experience for customers, grow traffic and share in core markets, drive ID sales and revenue, and improve returns for shareholders. Albertsons must become a simpler, more focused company that gets the basics right every day. I joined Albertsons because I believe the company has greater potential than its results have reflected, but dramatic improvement is needed now. Albertsons must move faster to change the trajectory of the business. What I have seen in Susan and her team is a renewed commitment to create long-term, sustainable shareholder value, all while staying focused on Albertson's customers and communities. I believe we will turn the corner. So with that, let me turn it back over to Susan.

Thanks, Meg. Before discussing where we're headed, I'd like to briefly address the quarter's results. Identical sales declined 0.8%, adjusted EBITDA was $784 million, and adjusted EPS was $0.36 per share. On the top line, ID sales in our core grocery business sequentially improved versus the first quarter by approximately 20 basis points. At the same time, pharmacy script count growth remained strong, despite increasing sales headwinds related to the Inflation Reduction Act and an ongoing shift from branded to generic prescription. E-commerce continued to deliver double-digit growth of 11% during the quarter. Let me characterize the quarter by saying we saw some early signs of improvement. Some of our cost takeout and in-store execution began to yield results in the quarter. Those gains, however, need to be accelerated to offset continued pressure in our core retail operation. The reality right now is that the economy is tough for many of our customers. Fuel prices are elevated and inflation remains stubbornly high for our customers and in our P&L. Traffic and units are below where they need to be, and our overall performance does not reflect the quality of our assets or the capabilities of our team. Simply put, we're not satisfied with the results and the current trajectory of our business. Over time, we launched a number of initiatives for good reasons and with the right intention. Upon reflection, however, too many initiatives, processes, and layers of complexity have built up Slowing the organization and increasing the cost of running our business. I take responsibility for some of that complexity. We recognize the need to simplify how we work, sharpen accountability, and move with greater speed and discipline to deliver better results. Going forward, our focus will be much narrower. Our resources will be concentrated on the right projects that most accelerate our results. and our expectations and accountability for results will be significantly higher. We must deliver more consistently for our customers. Price matters, promotions matter, freshness matters, convenience, selection and customer service matter. Our job going forward is to deliver all of those things better than we do today. Over the last several years, we've invested in e-commerce capabilities, loyalty, pharmacy, Retail Media, Own Brands, and Fresh Differentiation. Those are important investments that have increased the value to our customers. Now, we must double down on the basics. Our stores must provide the products our customers want at prices they want to see in the places and formats they love. Going forward, we're evaluating every customer-facing investment against three outcomes. A stronger customer value proposition, improved traffic and units, and sustainable market share gain. Those outcomes will increasingly guide how we allocate resources and measure success. Earlier this year, we increased our cost savings program from one and a half to two billion over the next three years. I believe there's more room to run there and at a faster pace. Last quarter, we also announced ACI Edge. ACI Edge began with two major structural changes, moving from 11 divisions to four regions and Centralizing Center Store Merchandising. We will accelerate ACI Edge to improve buying and find savings we can pass back to customers more aggressively. As we evaluate opportunities to accelerate cost savings and productivity, two areas stand out early. The first is third party spend, or goods for resale and goods not for resale, where we believe there are meaningful opportunities to simplify, consolidate and reduce costs across the organization. The second is store execution. We will improve inventory discipline, we will reduce shrink, and we will recommit to running our stores at the highest standards, which includes providing the best training to our associates. These steps and more, taken together, will improve the customer experience and ultimately our business results. Finally, we're taking a disciplined look at our portfolio. Albertsons has strong businesses, strong banners, and valuable assets. But not all assets create the same value. Going forward, we'll be more focused. We'll invest where we have a clear path to win. We'll exit areas that are underperforming. Before I hand it over to Cody, let me leave you with this thought. There is significant potential in our business, but our performance has not reflected that potential. Our responsibility now is to close that gap and to close it fast. That means simplifying our organization, improving decision-making and execution, Allocating capital with further discipline and delivering more consistently for customers. Most of all, it means tackling even harder a cost structure that we can no longer afford. We must reduce our cost of doing business more aggressively to better serve our customers and shareholders. With that, I'll turn it over to Cody.

Thanks, Susan, and good morning, everyone. Before I discuss the quarter, I'd like to reinforce a few of the themes Meg and Susan have shared. Right now, we are focused on a simple question. How do we create a stronger, more competitive, and more valuable Albertsons? From a financial perspective, we believe that starts from two distinct points. First, Albertsons continues to have meaningful strengths. We operate strong local brands, serve millions of customers, generate significant cash flow, and have businesses and capabilities that are performing well. However, Those strengths are not translating into the financial results we want to see. Part of the reason for that is the economic challenges many of our customers face, with higher fuel prices at the top of the list. But there is also much more we can do to build a stronger business. While we have delivered growth in parts of the business, we have not generated the level of sales growth, earnings growth, and shareholder return we believe we can and should produce. That reality is driving the work currently underway. We believe this business can perform better than it does today. Our goal is to lock in on a few priorities that are the best ID sales and revenue drivers. With that, let me turn to our second quarter results. Second quarter identical sales were negative 0.8%. Consistent with recent quarters, we saw continued strength across several areas of the business. E-commerce sales increased 11%, reflecting continued customer adoption of our offerings. with overall digital penetration increasing to 10.5%. Pharmacy ID sales continued to grow, supported by continued prescription growth. At the same time, we continued to face multiple sales headwinds in the quarter, including, in our pharmacy, 120 basis points related to the Inflation Reduction Act and an incremental 30 basis point headwind related to the ongoing brand to generic mix shift. a 30 basis point unit impact related to the cyclospora outbreak, which broadly impacted produce sales, and 30 basis points related to the continued cycling of egg deflation. In total, these headwinds were approximately 210 basis points to our total reported ID sales. All that said, customer engagement across our loyalty ecosystem remains strong, with active membership, personalized offers, and Digital Engagement continuing to provide important competitive advantages. Gross margin in Q2 was 26.8%, a decline of 17 basis points year over year, excluding fuel and LIFO. The decrease in gross margin rate was primarily driven by the mid-shift impact of outsized growth in e-commerce, as well as higher shrink, primarily associated with the cyclospora outbreak. We continued to make surgical investments in price funded by productivity initiatives. The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. In SG&A, our dollar spend was relatively flat on a year-over-year basis, reflecting the benefits of our productivity initiatives. On a rate basis, selling an administrative expense rate, excluding the impact of fuel, increased 38 basis points year-over-year. The increase in the SG&A rate was primarily attributable to sales deleveraging resulting from lower identical sales, including the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q2 interest expense increased $20 million to $125 million compared to $105 million last year due to higher borrowings and slightly higher average rates. Adjusted EBITDA in Q2 was $784 million, and adjusted EPS was $0.36 per diluted share. In sum, these results demonstrate the resilience of our business and our ability to generate meaningful profitability and cash flow. They continue to underscore the opportunity we believe exists to improve both growth and returns over time. Our business continues to generate meaningful cash flow and maintain a strong financial foundation. During the first half of 2026, Operating cash flow was $1.2 billion. Capital expenditures totaled approximately $900 million, including 38 remodels and the opening of seven new stores and continued investment in our digital and tech platforms. And ultimately, free cash flow was more than $300 million. Net leverage ended the quarter at 2.4 times. These results provide the flexibility to continue investing in the business while maintaining a disciplined approach to capital allocations. During the second quarter, we spent approximately $175 million on share repurchases and have repurchased approximately $400 million in shares during the first half of 2026, with $1.7 billion remaining against our $2 billion share repurchase authorization that was refreshed in April of this year. We also paid our $0.17 per share dividend during the quarter, totaling $83 million, and declared our next quarterly dividend of $0.17 this morning. Our overall capital allocation objective is clear. Allocate capital where it can create the greatest long-term value for shareholders. Although the business performed in line with our revised guidance expectations during the second quarter, we do not believe it is prudent today to provide an incremental update to our financial outlook. Instead, we believe the better path is to look closely at the business, establish clear priorities, and come back to investors with a comprehensive plan and multi-year financial outlook. By our fourth quarter earnings call, we will provide a refreshed customer strategy, a significantly expanded productivity and cost reduction program, including opportunities in goods for resale and goods not for resale, shrink reduction and other simplification initiatives, a framework for pricing improvements that will attract more customers, portfolio optimization actions, and finally, an updated capital allocation framework. All of that will come together with a clear set of metrics and KPIs, and as I mentioned, a fully vetted financial outlook that will allow you to track our progress with precision. We also plan to host an investor day in spring 2027 to further detail the plans outlined above. Ultimately, the goal is to establish a roadmap that improves execution strengthens our competitive position, increases returns, and creates greater long-term value for shareholders. With that, I'll turn the call back to Susan.

Thank you, Cody. Before we move to questions, let me leave you with one final thought. Albertsons is now fully engaged in a turnaround. The company has strong assets, talented associates, and significant potential. We will turn potential into measurable, sequential improvement and sustained performance. As Cody said, by our fourth quarter earnings call, we intend to outline a clear turnaround plan and measurable commitment. Until then, our focus is simple. Drive execution, accelerate cost out, and improve the customer value proposition.

And with that, we'll take your questions.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Mark Cardin with UBS. Please proceed with your questions.

Good morning. Thanks so much for taking the questions. So to start, I was wondering if you can walk through just a bit of why now is the right time to announce your comprehensive business review. Obviously, it comes right in the back of ACI Edge's announcement last quarter, and you talked about how some of your initiatives have been bleeding to increased complexity. Just how does your updated approach impact how you think about ACI Edge's ramp and also its scope going forward? Thanks.

Sure. Thanks, Mark. Thanks for the question. As for why now, actually your point is spot on about ACI Edge. What this is really is the evolution of ACI Edge, but it's actually thinking about us going faster and more aggressively. While we met expectations in the second quarter and we certainly made progress in many areas, the pace of that improvement just hasn't been fast enough. We've not translated that into the sales, the share growth, the traffic, and the earnings that we need. And quite frankly, it's been very helpful to have Meg here getting that external lens. As I mentioned in the call, I've been very critical of the amount of initiatives that we've launched over the last 18 months. Maybe for good reason, but the fact of the matter is we've created more complexity in the business and unintentionally created competing priorities. So our focus now is really about direct impact on three things. How we drive customer experience and how we improve financial performance. So if we're not working on driving improvements in store standards or execution, if we're not investing in the customer value proposition or aggressively removing cost and complexity in the business, those initiatives are paused or stopped, and we'll look at those further. We look forward to coming back to you during our fourth quarter earnings call with a more comprehensive plan on what the evolution of ACI Edge looks like.

That's great, thanks. And then as a follow-up, a big part of ACI Edge today has been kind of centralized purchasing across the organization. Does this get pushed back at all as you reevaluate your portfolio of stores? And then on guidance, understand the decision to push that out. Just is that largely driven, presumably giving you some more flexibility in your term? Or is there also anything incremental you're seeing in the consumer that's concerning?

Actually, it's the opposite. We are accelerating ACI Edge in particular the elements about buying better together, the centralized buying processes. We're already seeing early signs of success there and have a line of sight for the rest of the year and even into next year on fairly substantial benefits. So it's actually helping us as we think about how we can move further faster on ACI Edge. You mentioned briefly the customer and the only thing I would say there is that As you're hearing across the industry, we are seeing the customer remain under pressure, particularly our lower income customers. They're still trading down, looking for value, buying more private label, and we expect to see that continue for the short term.

And Mark, on the guidance point, what I would say is, first of all, We did perform in line with our expectations during the second quarter. And I would also say that nothing has really changed from the exit rate in the second quarter. We're continuing to see the same general performance from the core business as we saw during the second quarter. But at the same time, this is a comprehensive review, and that may change the pace and mix of investments, the cost reductions and related timing, certainly, and the portfolio actions that we mentioned. So that's really the reason for the pause there.

Got it. Thanks so much. Good luck, guys.

Thank you.

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

Yeah, hello. Good morning, everyone, and thank you for all the color. Susan, I wanted to ask you maybe to start, you know, you've had a well-defined strategic plan anchored by sizable cost cuts, you know, coming into this. You've been driving a lot of change. Obviously, the addition of Meg Whitman adds a new set of eyes. But can you just talk about how much more room you think there is in the organization on the cost-saving side, given the sizable amount of cost that you've talked about? And then how you're balancing how quickly you move with the risk associated with a lot of this change. And then historically, you have kind of talked about this balanced approach of driving savings and investment. It sounds like that might not be the case now where maybe you do only to put some upfront investment into the business. I'm curious as to where you stand related to that philosophy.

Sure. Hi, Ed. Thanks for the question. So regarding cost out, here's what I would say. We actually believe there's still substantial blue sky in terms of cost out. And I think about three areas in particular. First and foremost, cost of goods, as I mentioned, are buying better together. We're seeing great response there and expect that to accelerate, and our ability to do that is real. The second piece is in goods not for resale, and that's simply aggregating the demand of an $80 billion company more effectively. As we've gone back through in recent weeks and looked harder at what the benefits might be there end-to-end, we see real savings. The other piece is SG&A. We did some work last year and saw a substantial reduction in headcount, but quite frankly, there's more to be had. and you'll see us taking aggressive action there in the next 12 to 18 months as well. And then finally in store conditions. So obviously we are running better stores. We're going to invest in the customer value proposition but we've also got opportunities in terms of how we manage shrink and waste in the business and have a strong line of sight on how we do that. Your question about speed. So the goal here, yes, speed is going to be critical but what's going to help us Balance against any conflicting priorities is focus. Speed on fewer initiatives will result in stronger results faster. Clarity for the team matters, and that's exactly what we're striving for here. Cody, anything to add?

No, I would just say, simply put, we think there's a lot more room to run on the cost side and at a more accelerated pace because we do recognize the need to fund that investment.

Great, thanks. And then just a quick follow up on the portfolio. You know, you obviously have some, you know, very good assets. And then, as you mentioned, you have some assets that are underperforming. Can you maybe talk a bit more about some of the, you know, the criteria you're looking at when you're assessing these businesses? And I don't know to the extent that you can help us sort of size how big, you know, the asset base that you would truly consider, you know, sort of underperforming and sounds like maybe turning into non-core would be.

Cody, why don't you take that and I'll chime in.

Yeah, I don't know that we're ready to declare any of that right now. That's part of the comprehensive review that's ongoing. But what I would say is obviously we look at store performance and then we also look at the capital that's required to maintain it. So I think it'll be a comprehensive review. I don't think it's all that significant overall, but that work is underway and we'll be back to you with a clear plan.

Thanks, Cody. What I would add to that, it's both a blend of looking at where we're not performing as we would like, but maybe equally, if not more important, is also leaning into the markets where we're very strong, number one or two market share, and how do we double down our investment and get returns on that capital and investment more effectively faster.

Great. Thank you.

Thank you. Our next question comes from the line of John Heinbacher with Guggenheim Partners. Please proceed with your question.

Hey Susan, can you talk to value perception versus reality? And I know it'll differ market by market, but generally speaking, the comparison of the two and then the speed with which you'll be able to improve value perception. because to really move the needle, you've got to invest a lot and market it aggressively in the markets you choose to do that in. So your thoughts on all of that.

Sure. Hi, John. Thanks for the question. So great question on value perception. And as we talk about it internally and I think in the industry, it's a blend, right? It's what are the quality of products I'm getting, the variety, the services, the ease of the shopping experience balanced out by what I'm willing to pay. and so as I think about that with Albertsons Companies, I think we've been quite clear. Our goal is not to be the cheapest guy in town, but rather to have the right balanced value proposition that resonates with the customers that we serve uniquely by market. And from a price position, our goal is not to have a broad-based reduction, but rather as we've shared before, a very surgical and strategic price investment by market, by category, both in price and promotion, Again, in ways that resonate uniquely with the customers that we're serving. So our approach is methodical, data-driven, and we'll be able to share a lot more of the shape of that when we talk again at the fourth quarter.

Maybe the follow-up, right, is there's a lot you're looking at in terms of the portfolio and things sort of maybe upstream from the stores today. It's easy for that to be distracting to people over the next six months. How do you insulate the stores from any of that distraction that might be upstream in this process?

Such a good operational question, and here's the answer. Part of ACI Edge was about centralizing decision-making and lowering cost of goods. The other part was about creating simplicity in our operational model. So our four regional executive vice presidents, that's their job right now. It's really fundamentally to elevate store conditions, keep the teams focused on taking care of our customers better than anyone else, and continuing to raise the bar every single day. With that kind of focus on elevating store standards and execution, it eliminates the distractions from all the noise happening around us. Our team knows that we have essentially two roles in our company. We either serve customers directly or we serve those that serve customers.

Thank you.

Thank you.

Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question.

Hi, good morning. Thank you for taking our question. You called out high inflation in your own P&L. So seeing if you could talk about what level of inflation you were seeing in your business in the quarter. What are you seeing in terms of your own transportation expense? What are you hearing from suppliers? How do you think about how inflation should trend as we move through the back half of the year?

Hi, Leah. Thanks for the question. What I would say is we saw CPI pick up to about 2.5% in the second quarter. I would tell you that we passed along less than that, maybe 2.1%. As far as the outlook, Cody, maybe I'll ask you to chime in on that piece.

Yeah, no, I think that's exactly right. And as we look at the back half of the year, it's probably, you know, we are seeing suppliers come with some cost increases. We obviously have a playbook by which we handle that. And we are seeing inflation across the P&L, but that's not new for us. We've been dealing with headwinds for some time now, and we'll continue to do that.

Okay, that's helpful. Thank you. And then since shrink kind of reemerged as a headwind in the quarter, maybe you could talk about the magnitude of that headwind. Was it all related to the outbreak in produce or anything else you would call out there? And just kind of tying this with another theme that you called out with improving the store experience longer term, a big opportunity in shrink. So just more detail on maybe where you're mixed executing and inventory management and the opportunity to leverage there and how we should think about that.

Yeah, in the quarter, I would say the lion's share of the increase there was completely related to the cyclospora outbreak and its impact on produce sales and the like. And as we look ahead, we've got a lot of the tools, we've got a lot of the foundational elements built to accelerate shrink reduction. And so we're very focused on that as part of the store operations and the elevation we're looking for there.

Cody, that's exactly right. And Leah, one of our countermeasures against the pursuit of shrink reduction is also managing the customer experience. We recognize they want to have choices. We want to make sure we're providing them the breadth of quality and variety that they're looking for. And we do have the tools and technology to manage that as effectively as possible.

Great. Thank you.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Hey, good morning, everyone. Susan, can you give us your perspective on pricing, where you stand nationally, locally, and any progress since you've taken over? Thanks.

Hi, Simeon. So, once again, from a national perspective, we do look at it that way, but it's really more important for us to look at it market by market and literally category by category and item by item. Our opportunities vary across the country. versus the competitors that are in the market surrounding us. So it's a varied answer. But our approach has been very surgical. Last year, we engaged in three different price campaigns and we saw strong success there. As we look forward, we're learning from those pilots, understanding what drove the inflection in units faster, what drove the inflection in profitability faster, and we'll make very strategic investments as we move forward again as part of the larger plan that we'll come back and discuss in the fourth quarter.

And then the pulling of guidance, how does it, how does capital allocation factor in? Does it get a second look and what happens with repurchase in the interim?

Yeah, sure. So, Simeon, what I would say is obviously we're looking at capital allocation very, very holistically. Through the first two quarters of the year, we repurchased about $400 million in shares and We've got $1.7 billion remaining on the off, and we'll continue to be opportunistic against that. But at the same time, we are looking holistically at capital allocation priorities.

One more question.

Okay, thanks. Good luck.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer & Company. Please proceed with your question.

Good morning. Thanks for taking my question. So maybe a shorter term question first. I know you guys aren't guiding, but in terms of some of the puts and takes for at least the top lines, some of the headwinds that you're expecting to back out there, whether it's IRAs, cyclospora, just curious if there's anything you can quantify or even just highlight some of the puts and takes for the balance of the year there.

Yeah, maybe just to unpack the ID a little bit. Obviously, the headline ID at minus 0.8%. Pharmacy was up low to mid single digits, which leaves the core down about in that just a little bit over 1.5% range. We're obviously not guiding the rest of the year, but I would tell you the same thing that we said earlier, which is nothing has fundamentally changed as we've looked at the exit rate from the second quarter. Obviously, the quarter did have the 30 basis points cyclospora impact and 30 basis points of egg deflation. Those should be sort of cyclical items, not structural headwinds.

Great. And then my follow-up question, maybe for Susan, this might be difficult to answer, but I'm going to ask anyway. If you think about the turnaround efforts, like any sense of how long this can take? Is it, you know, you get into early next fiscal year, you start to see benefits right away. Is it a multi-year turnaround? So just any initial thoughts on just the timing of how quickly you guys can turn around the business?

So Rupesh, you're right. Again, we'll come back with more clarity in the fourth quarter earnings call, but here's what I would say. The company is focused, we're moving with speed, and we have strong alignment across the organization. So we're not waiting while there are deeper dives to be done in certain areas. There are clear lines of sight on things that we can do right now to materially change the trajectory and that's what we're focused on.

Okay, great. Thank you. Best of luck.

Thank you. Our next question comes from the line of Tom Palmer with J.P. Morgan. Please proceed with your question.

Good morning. Thanks for the question. First off, any update on the CFO search and maybe to what extent do the board changes and the comprehensive review affect the timeline or perhaps the type of candidate that you're looking for? Thanks.

Thanks for the question. So our CFO search is underway and we're making good progress there. And I would tell you that I believe the shape our board is taking as we've made the recent changes and as we continue to evolve is very exciting. Again, having Meg on board has been incredibly helpful to us. I think it sends a strong signal of her support for the organization, as did her comments earlier. I am confident that we will get the right fit from a CFO perspective, someone that's aggressive and wants to drive change and help shape strategy for the future. I'm very optimistic about our search.

Thank you for that. I did want to follow up maybe about the consumer perception of value that you've already been asked about in a couple ways. I mean, really, with the rise of e-commerce and maybe the more transparent pricing from retailer to retailer that it allows, do you think the perception of value is more linked to the absolute level of pricing in a way maybe it wasn't in the past? And if so, I guess, how do you think about overcoming that in kind of the context of, you know, not wanting to be a low-cost provider and instead offer this greater value on a more holistic basis? Thanks.

Yeah, so that's a great question. I would say absolutely transparency on price has clearly increased for the customer. However, price and value are are not always the same thing. So as customers are looking for products they're willing to buy at prices they're willing to pay, I think that's where we can create points of differentiation. Price, yes, is about what I'm paying out of my wallet, but it's also about the convenience of location. It's about our ability to leverage our very, very strong loyalty program and create personalized offers that may mean something very different to me as a consumer than it might to you as a consumer. So it's absolutely more transparent but we have the tools and vehicles to be able to cater to our customers on a broad base but also maybe more importantly on an individual level through our loyalty program.

Understood. Thank you.

Thank you.

Our next question comes from the line of Robbie Olmes with Bank of America. Please proceed with your question.

Oh, hey, Susan and Cody. You know, my two questions, just one would just be, could you speak to own brands and where this fits in and any changes you may be making? Should we expect even more of an acceleration than you would have already been planning? And then the other one would just be, why don't we start with that one?

Sure, of course. Great. Thanks for the question. So yes, is the answer. We are absolutely accelerating our efforts around own brands. Over the past several months, we've been improving the variety and quality of the product that we're carrying and also working aggressively on the cost. We want to have the best products that our customers are looking for at the lowest possible price. And you'll start to see the execution of that actually already begun, but you'll see that further accelerate as we continue on with our strategy.

And then just in terms of promos versus tightening the spread, are you making a big shift on the spread and sort of backing off from promos? And are you Looking at doing any kind of more aggressive SKU rationalization with the CPG brands?

So it's a balance, right? There are absolutely areas, and again, remember, very surgical by market, by category, where we'll be making frontline pricing changes. We're also refining our promotional strategy as we move forward as well, making sure that the promotions are well-targeted, they're getting the return, they resonate with our customers, and they're delivering what we expect on the bottom line. From a skew rationalization perspective, what I would say here is we're very optimistic about our ability to grow, share, and own brands. We're also very aggressively pursuing cost reductions across the organization. We want to carry the products our customers are looking to buy. That said, we'll also make the right decisions to make sure that we are as efficient as possible from a labor perspective. We will offer the right variety to serve our customers and that we're getting the right cost to be able to do that as effectively as we can.

Great, thank you.

Thank you. Our next question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Good morning, everybody. How much of the business review will be predicated on the outcome of the trial against Kroger, given the damage amounts I would imagine that the trial outcome could influence funding plans, funding needs, and asset decisions.

So, we're not really going to talk about the litigation at this moment in time, and I would say that we are moving forward with our actions right now, regardless of what's going on in that space. We have a clear line of sight to what we need to do to change our trajectory as the business stands today, and that's what we're focused on.

Thank you. I'm not really looking for what we think of the litigation. It's a large dollar amount. And so is determining some of the business plan dependent on just learning the outcome?

Yeah, Bill, I would say it's not. We're accelerating our cost out and productivity programs, looking for ways to fund our investments in the customer value proposition area. and looking at everything holistically, you know, without giving effect to litigation or otherwise.

Okay, thank you. And then a real quick follow-up. I might have missed it. It was a number you've given before. I don't think I caught it today or at one cue. But what did loyalty member growth look like in the second quarter?

Yeah, loyalty members continue to grow. And what's really important is when we look at those that are actively engaged in our platforms and participating in the rewards, et cetera, we see that their spend is anywhere from three to four times higher than someone who isn't. So those will continue to be critical levers for us.

Thank you. I'll pass it along.

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

Yeah, thanks, guys. Good morning. You know, you've talked a little bit about capital allocation before with buybacks, but how are you thinking about CapEx given the situation right now? Like, do you guys pull back a little bit in the second half to kind of understand where you want to invest? Or what's the, is that $1.9 to $2 billion that you talked about Last quarter's still kind of where you want to be for the year.

So I'll start and I'll turn it over to Cody. So we are absolutely investing behind our highest return opportunities. That said, Joe, of course, we're still investing in our fleet, being very thoughtful about those investments and making sure that they're getting the returns that we're expecting. Cody, what would you bet?

Yeah, I would say a lot of the projects that are contemplated in the 2026 spend are already underway, and those are good ROI projects that we expect to continue. So I wouldn't fundamentally call that a reset in the back half.

That's helpful. Thank you. And then as you guys are looking at this turnaround and the acceleration that you're talking about and operational improvement, How are you leveraging technology to help with that? Do you have the right technology in place? I'm assuming AI is some part of that, but do you need to have that infrastructure improved before even getting to where you want to be? Or maybe you could share some thoughts on that. Thank you.

Thanks, Joe. As you may recall, we have our four AI big bets. And to your question about Each of them are actually designed to help accelerate the focus that we have now around driving improvements in store standards, improving the customer value proposition, and taking cost and complexity out of the business. It's actually incredibly complementary. Our Merch Intelligence Big Bet is literally about enabling faster, smarter decision-making on category decisions, whether it be assortment all the way through to price and promotion. Store labor is one of our key AI big bets. And of course, productivity is incredibly important for us and doing it in a way that helps us best serve our customers. That's a key piece. The last one or one of the others is demand forecasting. Absolutely essential in our business. And that's end to end from all the way from farm to table, if you want to think about it that way. How can we create stronger demand planning systems? so that we can better improve our in-stock results and optimize inventory at the same time. So AI is absolutely essential, complementary, and we're not waiting. Some of it will come later, but some of it's helping us right now.

Thank you very much.

Good luck with the next quarter. Thanks. Thanks, Jim.

Thank you. Our next question comes from the line of Paul Lejoy with Citigroup. Please proceed with your question.

Everyone, this is Brandon Cheatham on for Paul. I want to circle back to some of the price investment conversation. Just anything you could share on how much has been funded by Buying Better, how much you've been able to share with vendors, and if you could help give any details on what some of your goals on kind of those funding buckets might be going forward. Thanks.

Sure. Thanks for the question. What I would say is we are absolutely using our vendor partners. They're leaning in with us to help invest in price. There are also cases where we're finding other sources for that investment. So it's a mix between the two. And what we're looking at now, part of what we'll be doing over the next couple months, is a deep dive on how we can accelerate those investments and find the right pools of funding, again, both in cost of goods sold, goods not for resale, but also in taking costs out of the business. So it's a blended effort between vendor support and internal cost out.

That's helpful. My follow-up is, is there anything you can share on some of the progress you've made in trying to gain more share of your pharmacy customer's basket?

So our pharmacy business remains strong. Cody shared the sales growth that we've experienced. In spite of some of the top-line headwinds, which are just noise, with the Inflation Reduction Act, we're actually seeing strong prescription count growth, which is really important to us. And just as a reminder, that's actually a profitable scenario for us. We've seen a nice turn to profitability in our pharmacy business. Our pharmacy customers also have a strong loyalty to the total store and drive three times larger basket size and lifetime value. And we continue to see the benefits of customers engaging in both parts of our ecosystem and reaping the rewards there.

Thank you and good luck.

Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.

Hi, thanks for taking our questions. I was wondering if you could just give any more specific update on the Buying Better Together program and to help us understand to what extent that is being executed, whether that be the percent of your national buying that's on that program and just how the savings are coming in. I believe those savings were really supposed to build this year. Does this business review and the fact that you're considering, you know, maybe exiting some areas of underperformance, does that cause you to rethink or pause any efforts on that program?

Hi, Kelly. Thanks for the question. So we are clearly, we say clearly that we are centralizing center store. And as we're looking at the buying better together, that message has been very clearly and transparently communicated, obviously internally. but more importantly externally to our vendor partners. And the negotiations have begun with that in mind. We are in the process of going through our largest suppliers and working closely with them to secure a lower frontline cost of goods and then also working on our promotional strategy moving forward. As far as the potential impact of exits, I do not believe the decisions that we might make are large enough to have a dramatic impact on any of those vendor negotiations. So it should not have, it does not weigh into that decision at this moment.

Okay, thank you. And just also was wondering if maybe you could just share maybe a candid assessment of price gaps and where, are you still making progress on that front? Or is the goalpost kind of moving? Or are you seeing signs that the goalpost is moving in the pricing space? The competitive pricing dynamic and is that what's fueling kind of this, you know, need to kind of step up investments or is it also just this customer that's more sensitive and being more reactive to the environment?

So what I would say is we clearly are not satisfied with our price position, full stop. That said, our ability to drive change and impact customer both their impression and reality is is exactly what we're undertaking right now. We know we have an opportunity to improve and we know where those opportunities are, again, down to the item and category level. So our approach is to attack that in a rational way, but this is why we're taking a moment so that we can go back, look at how we can accelerate cost out, how we can accelerate lower cost of goods, and how we can improve the customer experience while at the same time strategically investing in price.

Thank you.

Thank you. Ladies and gentlemen, our final question this morning comes from the line of Chuck Sierkowski with North Coast Research. Please proceed with your question.

Good morning, everyone. Susan, can you talk about the comp's performance with respect to Albertson's various banners and talk about the role of geography as well?

What I would say is we don't disclose individual banner performance, but what I would say is there are definitely unique pressures across the country, and you can see this in national data, not necessarily specific to Albertsons. Unit pressures may be a little bit tougher in the West, a little bit still negative units across the entire industry countrywide. Again, more pressure in the West. It really comes down to the coasts typically being All right, thank you very much. Thank you. Okay, so that concludes the question and answer part of today's call, but before we end, I want to take a second and just thank our associates for everything they do to serve our customers and our communities. As you all know, and I believe all of you believe, their commitment is one of this company's greatest strengths. We have a lot of work ahead of us, but we also are clear on what the opportunities are. We look forward to updating you on our progress in the coming months. Thanks for your time and your continued interest in Albertsons.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you.