Boise, Idaho-based grocer Albertsons has raised its 2002 fiscal year EPS guidance from US$2.28 to US$2.31 per diluted share adjusted for goodwill.

Albertsons reported that Q1 earnings met the high range of revised EPS guidance issued two weeks ago and also exceeded first call consensus. They totalled US$233m, a 19% increase over prior year, on sales of US$8.9bn. In the Q1 2001, earnings were US$198m on sales of US$9bn. Comparable store sales for the quarter on a continuing operations basis increased 1.4% while identical store sales on the same basis increased 0.8%.

"This positive revision in our fiscal year earnings outlook reflects the strong momentum we see and feel in the execution of our turnaround strategy," said Larry Johnston, chairman and CEO.

Gross margin on continuing operations for the quarter increased 65 basis points to 29.23% compared to 28.58% last year. The increased gross margin number reflects the progress made by the Albertsons team in developing new improved shrink and inventory control processes. The company also benefited from strong pharmacy margins derived from improved procurement practices as well as new generic drug introductions.

Albertsons confirmed that its cash generation picture continued to be positive. Cash flow from operations for the quarter totalled US$564m and debt was reduced by US$87m. Over the past four quarters the company has reduced debt by US$869m. During the quarter, free cash flow net of capital expenditures and dividends totalled US$335m, up 68% year on year.

The firm recorded a nonrecurring pre-tax charge during the quarter to cover the cost of its Phase Two restructuring driven by several major market exits. Phase Two restructuring activities are now expected to generate US$320m in net positive cash flow. In addition, a charge of US$19m was reflected in continuing operations for restructuring and other period costs directly related to the Phase One July 2001 restructuring. The net loss reported for the quarter, including discontinued operations, restructuring and other charges, totalled US$81m, compared to a net income of US$186m in the Q1 2001.

The company reported Q1 SG&A on continuing operations of 23.71%, slightly up year on year.

Peter Lynch, president and chief operating officer, said that restructuring activities resulted in the closing of 102 supermarkets, 28 drugstores and 27 fuel centers. New capital deployment activities yielded 50 remodelled stores while adding 14 combination food and drug stores, ten drugstores, and ten fuel centers. The company finished the quarter with 2,315 retail stores and total retail space of over 92.8 millionft².

Lynch commented: "We are now deploying our capital resources in a much more focused and strategic manner. This is allowing us to concentrate on markets where we already hold strong share positions or see a path to future market leadership. In addition, we are increasingly utilising our proprietary dual-branded combo store format to begin building a much stronger food and drug presence that delivers a better return on invested capital."

Johnston added: "I am extremely proud of our associates for all the efforts they have put forth in the successful execution of our major restructuring projects.

"This is a major milestone in our restructuring. Albertsons is now solidly positioned to begin unlocking even more value for our shareowners as we are able to concentrate fully on strategic markets of choice."

Johnston confidently noted that for the fiscal year 2002, Albertsons now expects earnings per share from continuing operations of US$2.31, up 12% from prior year. For the Q2, on a continuing operations basis he predicted that the company will deliver at least US$0.53 per diluted share, up 13% from prior year.