Albertsons Companies Inc (NYSE: ACI) Q4 2025 Earnings Call dated Apr. 14, 2026
Corporate Participants:
Cody Perdue — Senior Vice President – Treasury, Investor Relations and Risk Management
Susan Morris — Chief Executive Officer
Sharon McCollam — President and Chief Financial Officer
Analysts:
Leah Jordan — Analyst
Mark Carden — Analyst
Edward Kelly — Analyst
Simeon Gutman — Analyst
Paul Lejuez — Analyst
John Heinbockel — Analyst
Rupesh Parikh — Analyst
Tom Palmer — Analyst
Scott Mushkin — Analyst
Robert Ohmes — Analyst
Presentation:
Operator
Welcome to the Albertsons Companies’ Fourth Quarter and Full Year 2025 Earnings Conference Call, and thank you for standing by. [Operator Instructions]
I would like to hand the call over to Cody Perdue, Senior Vice President, Treasury, Investor Relations, and Risk Management. Please go ahead.
Cody Perdue — Senior Vice President – Treasury, Investor Relations and Risk Management
Good morning and thank you for joining us. With me today are Susan Morris, our CEO, and Sharon McCollam, our President and CFO.
Today, Susan will provide an overview of our fourth quarter and full year 2025 results and update you on our strategic progress, highlighting areas of particular focus as we enter fiscal 2026. Then Sharon will provide the details related to our fourth quarter and full year financial results and our outlook for 2026 before handing it back to Susan for closing remarks. After management comments, we will conduct a Q&A session.
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 as a result of new information, future events, or otherwise.
Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning’s earnings release.
And with that, I will hand the call over to Susan.
Susan Morris — Chief Executive Officer
Thanks, Cody. Good morning, everyone, and thanks for joining us today. In the fourth quarter, our teams led with operational agility and strong execution. Despite greater than expected pharmacy headwinds, identical sales increased 0.7%, while our resilient operating model and ongoing productivity drove better than expected adjusted EBITDA of $903 million. For the full year, we delivered results in line with our expectations while investing in capabilities that strengthened our business, further positioning us for long-term growth.
Also during fiscal ’25, we returned more than $1.8 billion to shareholders through share repurchase and dividends, underscoring our commitment to shareholder returns and disciplined capital allocation. Throughout 2025, our teams leaned into a new day, executing with focus amidst a volatile and uncertain macro environment.
The results we delivered validate the effectiveness of our investments, the progress we’re making across the business, and the strength of the foundation that we have built.
As we enter 2026, we do so with confidence as reflected in today’s outlook. This confidence is further reinforced by our announcement this morning to increase our quarterly dividend by 13% and refresh our existing share repurchase authorization to $2 billion. But before we talk more about the fourth quarter and 2026, I want to step back and talk about how we see the future of Albertsons and how we’re positioning the company to win in a competitive, value-focused grocery environment that requires differentiation. At the core of our strategy is a clear conviction. The future of grocery is personal, and true personalization is a durable competitive advantage.
Our mission is to become the most loved grocer in the neighborhoods we serve by transforming routine transactions into differentiated customer connections and experiences that deepen engagement. It’s not a reinvention of who we are. It’s a deliberate build on strengths that already differentiate us and give us the right to win. We have one of the strongest store networks in the country. In our markets, our stores are within 15 minutes of approximately 120 million people, giving us a structural advantage in trip frequency, pharmacy access, and fast same-day fulfillment.
Put simply, our store network cannot be replicated and is further strengthened by our team, our data, AI, and next-generation technology capabilities, which allow us to personalize a customer’s entire experience. We also have the scale and capabilities to deliver sustainable value. In our stores, we provide market-tailored fresh offerings and value-enhancing services.
In e-commerce, we offer speed, convenience, and variety from our store-based fulfillment model. In pharmacy, we don’t just fill prescriptions, we immunize and treat our patients along their wellness journeys. And we have a strong loyalty engagement where deep relationships with our banners and brands provide us the data and insights to personalize experiences at scale. These foundational strengths working together bring our strategy to life under three tightly connected pillars, a winning footprint, a customer-centric experience, and balanced value. Our winning footprint is not only a critical differentiator, but a deep and structural competitive advantage that enables both convenience and local relevance.
We’re taking a disciplined market-by-market approach to banner optimization, store modernization, market densification where we have the right to win, and store rationalization where the economics are structurally challenged. This is not about growth for growth’s sake.
It’s about optimizing return on investment, elevating the customer-centric experience, and ensuring that every store plays a clear role in winning in its local market. To elevate the customer experience, we’re creating scalable yet personal experiences. Experiences that are differentiated, combine caring, service, quality and fresh, convenience, value and own brands, all while remaining simple and easy for our customers to navigate.
To deliver this, we’re building on capabilities and offerings where our brands already have credibility and our customers’ trust. Fresh is a great example. Our customers know they can trust us with their custom birthday cake order, to have perfectly trimmed steaks for their barbecue, or to be there for them with our Fresh Cut options. We’re leaning into our strength as a scaled fresh destination, combining service, solutions, innovation, and expertise to drive both loyalty and share.
We’re also expanding into what we call food now, broadening our role in customers’ daily lives by providing meal solutions that allow us to compete for a larger share of food occasions, not just the weekly stock-up. Today, our deli and prepared foods drive more than a third of total trips, and we have outsized share of wallet that continues to grow in this area.
At the heart of our mission, we are deepening the personal, digital, and loyalty relationship, connecting online and in-store experiences so customers feel recognized, seen, and valued wherever they engage with us. The outcome we’re driving here is simple. Customers don’t just shop with us, they choose us. We’re very clear-eyed about today’s consumer. They remain focused on value, making a balanced value proposition more critical than ever. Our approach to this is deliberate and sustainable.
Scale is a real advantage that we will leverage every day, including capitalizing on buying better together at the national level, expanding our own brand penetration, and growing our retail media platform, all to provide fuel to reinvest in value. At the same time, we’re accelerating automation and AI-enabled tools across merchandising, stores, and supply chain to improve efficiency to add further fuel for investment. We are surgically investing where it matters most to our customer. That includes getting sharper on key value items and driving own brand penetration, both funded through structural margin improvement and productivity, not short-term trade-offs. But it also includes the convenience, speed, and value we can offer with our assortment. The result is building a balanced value equation that works for customers and in turn for all stakeholders while protecting long-term returns and making us our customers’ retailer of choice.
Underpinning all of this is our team-powered, data-driven, and AI-enabled company, using technology not to replace the human element, but to amplify it. As we look ahead, our focus is on building a company that can grow sustainably through all cycles. We have a clear path to accelerating revenue growth, strengthening margins, and improving returns while staying true to what makes Albertsons distinctive.
Becoming the most loved grocer in our neighborhoods is how we bring this to life, while building on the initiatives and capabilities we’ve been focused on, making grocery personal at scale, earning customers for life, and delivering long-term value for shareholders. I’ll now turn back to the quarter to highlight the progress we are making across our priorities that continue to strengthen our foundation and position us for sustainable, profitable growth in fiscal 2026. Technology and AI sit at the center of our transformation.
Our four big bets, digital customer experience, merchandising intelligence, labor optimization, and supply chain optimization are not pilot programs. They’re all long-term structural initiatives designed to drive growth and expand margins. This quarter, we continued to see tangible progress. In digital customer experience, AI-driven capabilities are modernizing the way customers shop, delivering personalization that drives higher conversion, larger baskets, and greater loyalty.
Merchandising intelligence, automated insights and intelligent pricing tools are improving category decision-making and supporting structurally stronger margins. We are in flight with tools that are reimagining price and promotional strategy, as well as category management and assortment decisions.
Labor optimization, our generative AI scheduling tools will improve forecast accuracy, reducing complexity for associates, and driving labor efficiency.
In supply chain, our AI-powered demand forecasting and computer vision are improving availability, quality, and freshness while lowering inventory and fulfillment costs. As part of our investments in supply chain, we’ve launched Gateway, a proprietary AI-powered tool that boosts inventory efficiency and replenishment for promotional center store SKUs.
All of these initiatives are building the modern technology-enabled Albertsons that will define our competitiveness in fiscal 2026 and beyond. Our digital and e-commerce business continues to be a strong growth engine. Building on the momentum that we delivered throughout fiscal ’25, digital penetration surpassed 10% in Q4, a new milestone for our omni-channel ecosystem. Our first-party business continues to scale rapidly and contributed nearly 90% of our 16% digital growth this quarter, as we continue to elevate our customer experience.
Our AI-enabled shopping assistant, already showing meaningful lift in basket size, continues to enhance personalization, and we see significant runway ahead as customer adoption increases. The strength of our store-based fulfillment model also continues to differentiate.
Our proximity advantage enables speed and efficiency at scale as we continue to fulfill more than half of digital orders in under three hours. Additionally, the vast majority of delivery households are eligible for 30-minute flash delivery, which is our fastest-growing digital segment.
We maintain strong conviction in digital as a driver of sustainable growth and margin expansion, as we scale retail media, enhance marketing efficiency, and strengthen loyalty engagement. Our third-party business also remains a convenient choice for some customers and is a gateway for introducing new customers to our first-party offering. Our loyalty ecosystem continues to be one of our strongest competitive advantages, creating deeper stickiness and fueling our strategy. Membership grew 12% to more than 51 million members with more frequent transactions, easier reward redemption, and higher spending among engaged households. The program’s momentum reflects both simplicity and relevancy.
Customers are gravitating toward immediate value, including increasing redemption through the cash-off option, which is clear evidence that we’re meeting their needs in a value-focused environment. Loyalty is also a flywheel for growth. It enriches our data, strengthens our Media Collective, and helps us personalize promotions with increasing precision.
Across the board, loyalty is driving higher lifetime value, deeper omni-channel engagement, and a more predictable, resilient revenue base, all essential components of our long-term growth algorithm. Our media business gained further momentum in Q4, driven by deeper integration across our platform. By embedding media into the customer journey and merchant partnerships, we’re delivering targeted, measurable value at scale. In the quarter, our personalized ad pilots delivered a 90% lift in conversion and click-through rates, validating a clear path to scaled personalization, driving higher relevance, and an improved return on ad spend.
This approach is translating into a structurally attractive profit stream that amplifies and fuels our core retail business. Our customer value proposition continues to strengthen, making shopping more affordable, intuitive, and personalized across our market. By combining our rich store, customer, and category-level data with disciplined price investments, we are delivering clearer, more consistent value. Through targeted pricing actions, improved loyalty-driven promotions, and continued own brand innovation, we’re reinforcing trust with customers who increasingly expect transparency and consistency in their weekly shop.
Our approach remains deliberate, protect affordability, sharpen value perception, and use data-driven personalization to meet customers where they are across income levels, trip types, and missions. The result, a value engine that supports growth and protects margins through all cycles.
In pharmacy, we delivered improved profitability despite top-line pressure from the government-mandated Inflation Reduction Act that took effect mid-quarter. This performance reinforces our confidence in our strategy to improve pharmacy’s standalone profitability while also driving materially higher customer lifetime value among customers who shop both pharmacy and grocery. Looking ahead to 2026, we remain focused on increasing operational productivity through expanded central fill, enhanced procurement, and the scaling of higher-margin services while maintaining disciplined management of reimbursement and regulatory headwinds. Finally, productivity remains a foundational pillar of our strategy and a meaningful source of both fuel and flexibility.
Across fiscal ’25, our teams executed with discipline, unlocking efficiencies across labor, store operations, supply chain, merchandising, and global capability centers. This included a deliberate focus on reducing shrinking expense and improving units per labor hour, driving better in-store execution and structurally lower cost. Importantly, this work does not reset in 2026. It builds.
As we enter fiscal ’26, we are scaling the same productivity engine further through a $2 billion three-year productivity program, supported by our technology agenda and our four big bets in AI. Our progress continues to strengthen our operating model and reinforce our ability to grow through all cycles. Our teams delivered a strong close to fiscal ’25, and we are entering fiscal ’26 from a position of confidence, clarity, and momentum.
With that, I’ll turn it over to Sharon to walk through our financial results and 2026 outlook.
Sharon McCollam — President and Chief Financial Officer
Thank you, Susan, and good morning, everyone. It’s great to be here with you today. Before turning to results, I want to briefly update you on this morning’s announcement of our proposed nationwide opioid legal settlement framework. This framework provides for a $774 million settlement payable over nine years that was recorded during the fourth quarter. This proposed settlement is a meaningful step toward resolving our opioid-related litigation without any admission of wrongdoing or liability.
We remain committed to patient safety, strong pharmacy practices, and being a constructive partner in addressing the opioid crisis as communities’ needs evolve.
Now let me turn back to our fourth quarter results. In Q4, we delivered better-than-expected adjusted EBITDA and adjusted EPS, despite industry-wide pharmacy dynamics that pressured reported identical sales.
ID sales in Q4 increased 0.7%, net of approximately 145 basis points of pharmacy-related headwinds, versus the expectation we provided in our Q3 outlook of approximately 65 basis points to 70 basis points. These headwinds were primarily driven by a greater impact from the Inflation Reduction Act, which I will call IRA, and broader industry affordability dynamics.
Specifically, IRA pricing and mix pressure accelerated more quickly than expected, while the industry shifted toward a higher generic-to-brand mix. Together, these factors represented an approximate 105 basis point headwind to ID sales in the quarter. Importantly, while the top-line impact was meaningful, the margin impact was favorable as generics are structurally more accretive. In addition, we saw a greater moderation in GLP-1 growth, driven by tighter payer criteria and increased direct-to-consumer penetration.
This represented an incremental 40 basis point headwind to identical sales compared to our Q3 outlook. So in total, Pharmacy created an approximate 145 basis point headwind to our Q4 ID sales expectation, with better-than-expected adjusted EBITDA flow-through.
In Grocery, units and ID sales in Q4 remained pressured in our lowest income cohorts. Egg deflation also created a meaningful sales headwind as we cycled the significant egg shortages from a year ago, a dynamic that we expect to persist into the first quarter of 2026.
Gross margin in Q4 was 27.2%, a decline of 25 basis points year-over-year, excluding fuel and LIFO. The decrease in gross margin rate continued to be driven by the mix-shift impact of outsized growth in digital sales, while productivity benefits offset our surgical price investments.
The gross margin rate also reflected the favorable rate impact associated with lower sales due to the pharmacy IRA. Selling and administrative expense, excluding the impact of fuel and the opioid settlement framework, improved by 2 basis points year-over-year as we continued to accelerate productivity and cost containment discipline.
The SG&A rate also reflected the unfavorable rate impact associated with lower sales due to the pharmacy IRA. Q4 interest expense increased $40 million to $141 million, compared to $101 million last year, due to higher borrowings and the extra week in the fourth quarter of 2025 compared to 2024. Adjusted EBITDA in Q4 was $903 million, including approximately $68 million related to the 53rd week, and adjusted EPS was $0.48 per diluted share, as productivity continued to drive fuel for investment and the bottom line.
For the full year, identical sales increased 2% and we generated $3.9 billion of adjusted EBITDA. This performance reflects the resilience of our operating model and our ability to continue to drive productivity across the business. These results reflect our financial agility to both reinvest in the business and return capital to shareholders, which brings us to capital allocation. I want to reiterate our capital allocation priorities. First, invest in the business to drive growth and value for our customers.
Next, maintain and grow our dividend, which we increased 13% this morning to $0.68 per share. And finally, opportunistically repurchase shares while maintaining a strong balance sheet. In order of these priorities, we invested $1.84 billion in capital expenditures in fiscal ’25 to modernize our store fleet, advance our AI, digital, and technology capabilities, and elevate our supply chain.
In the store fleet, we remodeled 94 stores and opened nine stores as we refresh the asset base for long-term growth. In AI, digital, and technology, we accelerate our investment in our four big bets as we create greater structural cost advantages, deepen customer loyalty, and unlock new profit pools.
Also in fiscal ’25, from a cash return to shareholders perspective, we returned $1.8 billion of capital to shareholders, including $322 million in dividends and nearly $1.5 billion in share repurchases, including the completion of our $750 million accelerated share repurchase program. As we look forward to 2026 and beyond, we remain confident in the strength of our balance sheet and our cash flow generation. As such, now that the ASR is complete, the Board has again increased our remaining share repurchase authorization to $2 billion in total, which we expect to opportunistically complete over approximately the next three years.
We ended the year with our net debt to adjusted EBITDA ratio at 2.24 times, demonstrating the strength of our balance sheet and capacity to fund growth and return capital to our shareholders. Finally, in the fourth quarter, we opportunistically refinanced $2.1 billion of existing bonds in two tranches, $1.2 billion of 5.625% notes due 2032 and $900 million of 5.75% tack-on notes due 2034. These proceeds were used to refinance our $1.35 billion 2027 and $750 million 2028 note maturities.
I’ll now walk through our 2026 outlook. As we look ahead to 2026, we view the year as an important step in returning the business to earnings growth while continuing to invest in the capabilities that support sustainable long-term value creation. Our strategy remains focused on the areas where we see the greatest opportunity to drive profitable growth.
Digital continues to be a powerful engine as we expand our base of loyal, engaged customers and scale the business in a disciplined and increasingly profitable way. At the same time, our focus on cost control and productivity remains central to our approach, enabling us to reinvest in high-impact initiatives, expand margins, and maintain financial strength.
In pharmacy, we expect continued improvement in the underlying trajectory of the business. Excluding the top-line headwinds associated with the IRA, we believe pharmacy scripts will continue to grow, supported by immunizations and value-added clinical services that enhance customer engagement and profitability. With that backdrop, our fiscal ’26 outlook represents a year in line with our long-term algorithm and a double-digit TSR, including our expected dividend yield and share repurchases.
Identical sales are expected to be in the range of 0% to 1%, or 1.5% to 2.5%, excluding the 150 basis point headwind from the IRA and assuming near flat reported pharmacy sales.
Looking at quarterly cadence, we expect identical sales in the first quarter to track below our full-year range, including the IRA and significant ongoing egg deflation. As we move beyond this dynamic, we anticipate a sequential improvement in sales trends throughout the year. Adjusted EBITDA is expected to be in the range of $3.85 billion to $3.925 billion, representing growth of approximately 2.5% at the top end of the range, excluding the 53rd week impact in 2025. Adjusted EPS is expected to be in the range of $2.22 to $2.32, including approximately $600 million of share repurchases during fiscal ’26, underscoring our confidence in the business and our commitment to returning capital to shareholders.
The effective income tax rate is expected to be in the range of 24% to 25%, and capital expenditures are expected to be in the range of $2 billion to $2.2 billion, as we accelerate our investment in new stores, remodels, AI-powered technologies, and digital capabilities. Taken together, we believe fiscal ’26 marks an important step forward, delivering adjusted EBITDA growth, strengthening earnings resilience, and positioning the Company to create sustained value.
And with that, I’ll turn it back to Susan for closing remarks.
Susan Morris — Chief Executive Officer
Thanks, Sharon. As we look ahead, three things should be clear. First, Albertsons has a differentiated growth model built to win in a highly competitive industry and is rooted in proximity, customer centricity, and balanced value. Second, fiscal 2026 is the year where the investments that we’ve made begin to translate into accelerating earnings power and improving returns. And third, our confidence is grounded in the strength of our productivity engine, efficiencies we are driving across the business that expand margins, fund reinvestment, and give us the flexibility to grow through cycles. The environment remains dynamic and competitive intensity across food retail is not easing, but our strategy is built for this reality.
We have a defensible footprint that creates everyday convenience, distinct fresh experiences, a differentiated digital and loyalty ecosystem that deepens engagement and lifetime value, a pharmacy business with long-term earnings power, and an AI-enabled operating model that strengthens margins, improves execution, and compounds returns over time.
Above all, our confidence in the year ahead comes from our people. To our 280,000 associates, thank you. Your resilience, your commitment to customers, and pride in our banners bring our strategy to life every day. Whether it’s delivering fresh, high-quality food, supporting customers on their wellness journeys, or serving communities with care, you are the foundation of our success. And as we advance our transformation, we will continue to invest in the tools, technology, and support systems to help you do your best work. I want to thank all of you on the call today for your time and support.
We know who we are, how we win, and where we’re going. And we’re building a company that can grow sustainably, generate strong cash flow, and deliver long-term value for shareholders. We look forward to sharing our progress with you in the quarters ahead.
I’ll now turn the call over to the operator for questions and answers.
Questions and Answers:
Operator
Thank you. [Operator Instructions] And our first question is from the line of Leah Jordan with Goldman Sachs. Please proceed with your questions.
Leah Jordan
Thank you. Good morning. Hi, Susan and Sharon. I wanted to start out on productivity. You talked about your efforts building as we go through ’26. Just can you go provide more detail on what you’ve embedded regarding productivity within the guide as we move through the year, and how we should think about the split between COGS and SG&A at this point?
Sharon McCollam
Leah, we just reset our productivity to $2 billion over the next three years. You can think of that ratably over that period of time. And when you look at the big areas that that comes out of, it’s going to be our store operations, including shrinkage and RX. You’re going to see us buying better together, sourcing both GNFR and in the admin areas we expect to see benefits, supply chain. So we have amplified our activities in this area materially, and we feel very confident in the delivery of this new productivity target over the next three years.
Susan Morris
Leah, what I would add to that is that the strength of the productivity really shown through for us in FY ’25. We showed that we can fund strong investments, still deliver EBITDA. And as Sharon mentioned, as we think about the shape of productivity moving forward, the fact that we raised our expectations there from $1.5 billion to $2 billion over the next three years, that shows that we believe there’s more to be had.
We’ve mentioned our AI big bets. We’re starting to see returns there on those investments. Our buying better together is yielding strong results, and we can talk more about that. The bulk of the savings, though, will be coming through the SG&A side of the business.
Leah Jordan
Okay, that’s very helpful. Thank you. And then I just wanted to follow up on the ID sales guide. Thanks for the color, Sharon, on the improving sequential outlook for the year. But just seeing if you can provide more detail on the grocery side of the house your view of volumes and inflation as we move through the year.
Susan Morris
So Leah, what I would say there, and I’ll hand it over to Sharon, is first, remember, and we shared this in the script, the reported IDs of 0% to 1% include about 150 basis point headwind from the IRA. So if you think about that, the underlying business will be running closer to 1.5% to 2% range.
Also, remember that we’re thinking about this not just about how we grow top line, but the quality of top-line growth. There are several things that we mentioned in the call. We’ve got the advantage of proximity and trip frequency. We’re now looking at how we can optimize our stores to drive better returns. From a customer-centric perspective, we’re really engaging deeply in loyalty, digital, personalization, and increasing our fresh penetration to drive frequency and lifetime value.
And from a pricing perspective, we’re closing pricing gaps where it matters, but we’re doing it with productivity funding, not through margin erosion. Sharon, anything to add?
Sharon McCollam
Yes. And Leah, your question is how do we see the cadence ex RX as we move through the year? We’re expecting the industry units to remain pressured, particularly in the first half of the year, and expect Q1, we said it’ll actually be below our guidance range in total, including IRA. And then we will have sequential improvement as we move through the year and expect likely to be positive in the back half.
Leah Jordan
Okay, great. Thank you.
Operator
Our next questions are from the line of Mark Carden with UBS. Please proceed with your questions.
Mark Carden
Good morning. Thanks so much for taking the questions. So to start, just on the pricing front, some of your larger competitors continue to talk about investing in their value propositions. Have you seen much of a step change on this front? And then you talked about being able to fund your anticipated changes with your productivity initiatives. Just curious if you see much risk or need to make any deeper investments in the year ahead in any of your specific markets like you did this past year. Thank you.
Susan Morris
Hi, Mark. Thanks for the question. So, a couple of things. First of all, we closed the gap on pricing versus MULO in the fourth quarter. So we are seeing improvements there. And I think we shared a year ago, we have a very different price position across the many markets that we operate in. So our approach is very surgical, not broad-based. We’re investing where it matters most to customer value perception, especially in key value items on our private label, or our own brands, and also through loyalty and personalization.
We’re funding that through structural productivity and margin improvement, not looking for short-term trade-offs. And that’s how we’re improving the price competitive perspective of our business, but also protecting long-term gross margin growth.
Mark Carden
Great. That’s helpful. Thank you. And then with everything that’s going on in the Middle East, can you walk through the main implications you expect to see from higher fuel prices? Do you see demand destruction or trade down tend to accelerate when the price of gasoline hits a certain level? Does it change your inflation outlook? And just broadly speaking, how impactful do you expect it to be on your fuel margins?
Susan Morris
Yeah. So, we’re still expecting industry inflation, food inflation to run around that 2% range. That said, you should know that we have not been passing through that inflation at the 2% rate. We’ve been working on that to help bolster our price position surgically across the company. And as we look forward from a fuel perspective, what I would say is maybe this, and just thinking about the consumer for a second. We do see units remaining pressured across the industry, and that pressure certainly is unevenly distributed.
What we’re seeing is increasing pressure on the lower-income cohorts. It’s reflected in ongoing affordability changes. We’re seeing further pressure from SNAP regulations and so forth. So — and by the way, the middle and income customers remain more stable in terms of the pressures that we’re seeing there. But that said, we recognize our customers are focused on value.
Our lower-income households are most elastic, and that’s why we continue to describe our value actions as very surgical. We’re trying to improve the value perception where it changes behavior, again, while protecting long-term returns through productivity funding.
Mark Carden
Great. Thanks so much and good luck.
Susan Morris
Thank you.
Operator
Our next questions are from the line of Edward Kelly with Wells Fargo. Please proceed with your questions.
Edward Kelly
Yeah. Hi. Good morning. Could we just start with the gross margin? And I’m curious if you could provide a bit more color on how you’re thinking about the gross margin in the upcoming year. There’s a number of, I think, puts and takes here. And just curious as to whether you think that’s a line item that will continue to improve?
Sharon McCollam
Yes. So in 2026, we will continue to see benefit from the IRA. So you can anticipate that there will be a positive coming from that piece of it. On the mix shift side, where we are seeing the digital business continue to grow, while less than previous years because of the improvement we’re seeing in profitability in the digital business, it’s still not running, obviously, margins of the grocery business. So we see the digital mix still playing out.
And on the investments that we’re making, price and others, we’ve got the productivity to offset it. So we should see the margin flat to slightly better as we progress through the year in 2026. And when we think about that, the previous question about how is the Iran situation affecting us, one of the things to keep in mind is what we know at this point. We’ve included the pressures that the higher fuel costs will provide related to our transportation and the distribution expenses, etc.
Obviously, we’re expecting that, hoping that this comes to an end in some shorter period of time. If that continues throughout the year, there could be some incremental pressure. But we are very comfortable right now with what we’ve included in our outlook.
Edward Kelly
Okay. And then I just wanted to follow up on the guidance that you talked about with share repo. I think you mentioned $600 million this year and $2 billion in three years. With capex going up, and the opioid settlement, there’s roughly, I think, a $300 million incremental headwind there. Can you just talk about what the offsets are to that, how you’re thinking about leverage, within the context of all of that? Just kind of curious as to the drivers of the cash flow to deliver the share repo.
Sharon McCollam
Yes. So one area, when you look at the big bets and you listen to the initiatives that are underlying our productivity, we are expecting in 2026, an improvement in working capital. And our guess would be that half of that probably will be funded by working capital improvements. In addition to that, we continue to believe that we are going to be able to take this capex and invest it, improve the store fleet, see the benefits in the back half of the year coming from the four big bets, and be able to then, at the back half of the year, further accelerate working capital.
So from a leverage point of view, we’re very comfortable with where we are, and we will see how this progresses through the year, but feel very confident in the returns that we will see from those capital investments.
Edward Kelly
Thank you.
Operator
Our next questions are from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.
Simeon Gutman
Hi, Susan. Hi, Sharon. Hey. First, more of a philosophical question. It looks like the implied guidance is flattish margins. You can correct me if I’m wrong. If the comps end up being a little bit better at the high end, are you in reinvest mode at almost any cost, or do you let that flow through to earnings? How should we think about that, both this year and the next couple of years?
Susan Morris
Hey, Simeon. Thanks for the question. I’ll start, and I’ll ask Sharon to chime in a little bit as well. So first and foremost, I want to underscore the impact of our productivity agenda. And, again, as I mentioned before, when you look at the results from FY ’25, we’ve shown that we can actually deliver strong productivity and strong EBITDA flow-through. And we’re scaling that further in FY ’26, and that agenda is now accelerated and amplified by our four AI big bets, which are already yielding real results.
We’re starting to see increased customer take on AI-enabled shopping assistance. We’re seeing a basket lift size there. In merchandising, we’re already in flight with tools that help us reimagine price and promo and manage our margin spend very, very effectively.
We’ve talked about supply chain helping us with our in-stock perspective and optimizing inventory levels through our proprietary Gateway forecasting capability. So we see strong improvements there. We think it will be a very balanced year from that perspective.
Sharon?
Sharon McCollam
And Simeon, as I think about if units inflected faster than we expected and we saw real momentum with our customer, we will evaluate when that moment comes. But to get that flywheel going and to get that momentum going, we will definitely invest behind the customer and the growth, because long-term, that will be a catalyst for staying in the algorithm and maybe even improving the algorithm over time, and that would be our goal for 2026.
Simeon Gutman
Okay. And then follow-up. It sounds like you have a digital advantage and you have the assets and capabilities in place to drive it. Can you tell us the KPIs when you report the e-commerce growth? Like, what level of growth are you targeting? What level of growth are you satisfied by? And are you turning — are you bending the curve across all markets? Or are you seeing some progress scattered across your regions? Thanks.
Susan Morris
Thanks, Simeon. So we’re very pleased with the results of our digital penetration. We shared on the call that it’s now surpassed 10%. Sales grew 16% in the fourth quarter, but what’s important to note there, it’s over a 40% two-year stack. And by the way, we’re not done. We think there’s still a lot of upside there. We’re excited about the growth, 90% of that roughly coming from our first party, which is very attractive for us because of the relationship with the customer and the data side.
On the other side of it, execution has been strong. More than half of our orders are delivered in less than three hours. Our flash delivery, under 35 minutes, I believe, is one of our fastest-growing verticals in that space. And then we’re really excited about the improvements that we made from a five-star service program.
We’ve gained return customers because we’re delivering better in-stock, on-time deliveries, and high-quality fresh products that we’re committing to our customers.
Simeon Gutman
Thank you.
Operator
Our next question is from the line of Paul Lejuez with Citibank. Please proceed with your questions.
Paul Lejuez
Hey, thanks, guys. Curious if we can go back to fuel for a second. I’d love to hear what your assumption is for fuel profits in F ’26, and also if you have witnessed any change in consumer behavior since gas prices have increased over the past month or so. And then also wanted to ask about your own brand performance in 4Q relative to the rest of the store, and what your assumptions are for F ’26 on own brands. Thanks.
Susan Morris
So we are seeing, again, a shift in the consumer, primarily localized with the lower-income consumers, that shift towards value. We’ve spoken about the increase in auto cashback on our loyalty program. So we are starting to see some changes there. At the same time, we’re also still seeing consumers making trips to multiple retailers. So we’ll watch that closely over time, and then we anticipate to see an uplift in our fuel rewards program moving forward.
Sharon?
Sharon McCollam
And from a fuel perspective, at this point in time, again, within our forecast, we are assuming that this conflict is going to end in a reasonable period of time. And assuming that’s the case, we’re expecting, let’s think of it in a near flat trajectory for 2026.
Paul Lejuez
And then the own brand penetration as you look out to FY ’26?
Susan Morris
So own brands, as we mentioned before, we’re seeing fairly flat penetration at this moment in time, but it’s one of our top priorities as we move forward into 2026. We’ve made some pretty significant investments in restructuring the team, in cost negotiation improvements, while also amplifying or certainly protecting the quality that we have. So one of our primary initiatives in terms of driving value, now and through the rest of 2026, is absolutely increasing own brands penetration.
Paul Lejuez
Thank you. Good luck.
Susan Morris
Thank you.
Operator
Our next question is from the line of John Heinbockel with Guggenheim Partners. Please proceed with your questions.
John Heinbockel
Hey, Susan, I want to start with, can you talk about the lag between value perception and reality, right, and how long that takes to shift? I know it’ll probably differ market by market. With that in mind, is it reasonable to think about exiting ’26 with positive food volumes, or is that ambitious given the industry backdrop?
Susan Morris
Hi, John. Thanks for the question. So it’s very philosophical of you, by the way. From a value perception to a reality perspective, what we’re seeing there is really doubling down on how we’re communicating to customers about value and what it means to them specifically. You’ll hear us talking a lot about personalization, and of course, that means personalized offers through our app and so forth. But the value perception can come in a variety of ways, simplified pricing at the shelf level. Yes, of course, personalized offers coming through our app.
But it also comes through relevance in terms of assortment at store level, variety and quality of fresh, which, by the way, as a reminder, we’re already in the neighborhoods where our customers live, so our ability to deliver that fresh fast, whether it’s in-store or online, that proximity is an advantage that we have there.
Your second part of the question was, remind me?
John Heinbockel
Well just what — is it ambitious to think about food volumes inflecting as an exit rate at the end of the year?
Susan Morris
Yes. So we absolutely see an inflection as we go throughout the year. Clearly, the consumer remains pressured in the first quarter, and we’re seeing that as much as the industry is. But we expect that to increase sequentially over time.
Sharon, would you add to that?
Sharon McCollam
And John, I just — when I answered the question about the cadence through the year of the ID sales, I said that in our outlook, we are assuming that we do get to positive at that point in time. Industry units is going to be a catalyst that underlies that, and we will see what happens with industry units as they progress through the year as well.
John Heinbockel
Right. And then my follow-up just on sourcing better together, and that’s always been a really large opportunity, right, given the base. Where are we on that? Because it sounds like most of the incremental productivity agenda is SG&A. Is there still an equally large opportunity in COGS, and is that still over that three-year time period?
Susan Morris
John, great question. So yes, absolutely there is more to be had from buying better together, and we were talking about this earlier. I’d say we’re somewhere around the fifth inning, if you want to think about it that way, the fourth or fifth inning. What’s materially changed is we’ve not only put new leadership in place since late last summer, we’ve also reconstructed the team here, and we’re already working differently with our vendor partners. Some examples, we used to have three national sales events. It’ll be five this year.
We’ve already worked with our vendor partners on securing, I mentioned this a moment ago, lower own brands costs. We’re now in discussions with our top vendor partners on how we can amplify the value equation for our customers, but do so in a way that protects our margins by asking them to lean in differently and helping us fund that growth as we move forward in the future.
John Heinbockel
Thank you.
Susan Morris
Thank you.
Operator
Our next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.
Rupesh Parikh
Good morning and thanks for taking my question. I just wanted to go back to the new higher capex range. Is this a new baseline level we should think about going forward? And then in terms of the plans to open up new stores, just any more color in terms of the number of new stores and if there’s a geography tint and the expectation for store closures? Thank you.
Sharon McCollam
In the new store fleet modernization program, there will be incremental new stores next year. We haven’t given a number yet, but think about maybe up 50% from this year. And then on remodels, we are amplifying our remodels materially in that number.
So do I expect it to be a new baseline? These are easily measurable. You open, you’ve remodeled, you see the result that you get, assuming that we see those kinds of returns that we’re expecting based on the work we did in 2025. We would likely remain in this range. But we’ll let you know how it’s going throughout the year, and we’ll give you an outlook for 2027 later in the year, obviously.
Rupesh Parikh
Great. And then my follow-up question, just on retail media, just curious, the key priorities for the year, and then, as you look at the efforts this past year, any major surprises of note?
Susan Morris
Rupesh, what I would just say there is that we continue to accelerate growth in our Media Collective. And over the past year, the team has done a phenomenal job of improving return on advertising spend for our vendors, speeding up the rate at which we’re able to feed back that data to our vendor partners so they can make better decisions on how they move forward. We’ve opened up inventory substantially and are leveraging that inventory well. I think we shared in the script also that we have been piloting some experiments on personalized ads, which has had incredible take rate from a customer perspective, but also delivers a really strong return from our vendors for our vendors. We’re looking at acceleration there.
So as a key driver of not only productivity and funding our digital business, we also see the Media Collective as a strong source of building relationships with customers and driving unit growth in the future.
Rupesh Parikh
Great. Thank you.
Operator
Our next question is in the line of Tom Palmer with JP Morgan. Please proceed with your questions.
Tom Palmer
Good morning. Thanks for the question. You gave some helpful detail on ID sales expectations as 2026 progresses. I just wanted to maybe tie that in with the expected cadence of earnings growth and to what extent we should think about earnings, excluding the extra week, of course, aligning with that cadence of ID sales. Thanks.
Sharon McCollam
Yeah. So in the first quarter, that’ll be our most pressured quarter because of the fact that the comp sales will be below the ID sales range due to the dynamic of the IRA and on top of that, the egg deflation. But when we start getting into Q2, Q3, and Q4, we are expecting adjusted EBITDA growth in every quarter, improving sequentially as we get through the year as our productivity kicks in.
Tom Palmer
Great. Thank you for that. And then I wanted to follow up just on the capex. You mentioned both store investments and technology and some expected benefits materializing in the second half. Is that mainly related to the technology benefits? And then when we think about some of the store-level investments, when do we start to see those becoming more of a contributor? Thanks.
Sharon McCollam
Yeah. On the early remodels we do in the year, you should start seeing benefit as you get into the back half of the year and that would — but they’re going to be coming throughout the year. So it’s a small benefit in this year, and you’ll see it obviously in 2027. And then on the investments that we are making, we’ve been making them all year on the four big bets, and many of those, like as an example, one of the ones Susan spoke to, Gateway, in her prepared remarks, actually launched nationwide in February. So the benefits from that initiative, we would start to see growing as we go throughout the year.
Tom Palmer
Okay. Thank you.
Operator
Our next question comes from the line of Scott Mushkin with R5 Capital. Please proceed with your questions.
Scott Mushkin
Hey, guys. Thanks for taking my questions. So my first one just goes to loyalty. You guys are seeing some really nice growth there. But on a unit basis, and you guys correct me if I’m wrong, but on a market share unit basis, it seems it’s in the grocery business maybe flattish to down. And so I was wondering, like kind of square that for me, because your loyalty is growing really fast. I think you said trips are up, but yet it looks like there’s a little market share erosion. So I was wondering if you kind of walk me through that.
Susan Morris
Sure. So — thanks for the question, Scott. Yes, as you stated, we definitely see industry units under pressure, and I think we saw a further decline in the industry from Q3 to Q4. That’s true for us as well. That pressure is concentrated, as we mentioned before, in our lower-income cohorts. And this is where we look at our role is to turn our footprint, our proximity, into preference for our customers through sharper values, stronger loyalty, engagement, differentiation of fresh, better omnichannel experience, and all of those types of things.
So we are — we mentioned before, units will be — are pulling tougher in the first quarter, but we expect and plan for gradual improvement as we go on throughout the year. Our initiatives are built to drive that improvement. And again, leveraging the value of our proximity, fresh and personalization are some of the key drivers that we’re using to achieve that growth over time.
Scott Mushkin
Perfect. And then my second question, just again, is like John’s, maybe a little more philosophical. When you think about your kind of natural shelf price versus your promoted price, how do you guys think about that vis-a-vis the maybe pretty high price point at the shelf without it being promoted and the impact on the value perception?
Susan Morris
Sure. So what I would go back to is what I had mentioned a few minutes ago and just speak to the fact that we definitely look at price, market by market. Our price position is very different across the country, depending where we’re at. And so that’s a very surgical approach that we take because of that, where we can massage promotional in one area, where we’re working on frontline pricing in another. In previous quarters, we mentioned the investments that we’ve made largely in frontline pricing, also in promotional pricing.
But in our three divisions, we’ve seen strong customer feedback, strong improvements. We’re very pleased with those results. But again, even across those three deployments, if you will, the execution has been slightly different. One market might need heavier promotional increases, another market might need more relief from a frontline perspective. So a very surgical approach for us moving ahead.
Scott Mushkin
Great. Thanks for the color.
Operator
Thank you. Our final question is from the line of Robbie Ohmes with Bank of America. Please proceed with your questions.
Robert Ohmes
Oh, hey, Susan and Sharon. Thanks for fitting me in. I’ll wrap it into one question. There’s actually — well, it’s really just two follow-ups. The first I think — I can’t remember, Sharon, I think you mentioned the moderation in GLP-1 growth was more than expected. I was hoping you could give a little more color on is that expected to continue and does that have a — should we think that it’s going to be a negative headwind, obviously, to store traffic?
And then the second one was on, I think, Susan, you mentioned, you have seen more increased cross-shopping. Is that again another headwind to store traffic? And overall, how is store traffic looking as digital keeps increasing as well?
Sharon McCollam
Let me take the GLP-1 comment. So in our ID sales forecast for 2026, we have assumed that this GLP-1 pressure will continue and — to some extent, and only because of the clampdown from the payers. Many health plans have made a decision not to pay for GLP-1s for consumers in 2026. So for weight loss only, where it’s being taken for weight loss only. So we do think it is possible that that will continue during the year. As far as the question related to GLP-1s and traffic, this is — many of our GLP-1 customers are already customers of the store. If they were not taking GLP-1s, I believe they will continue to come to our store. So I see this as a very unique drug and has a lot of implications as it relates to food. So I don’t know that I would immediately make that correlation.
I will let Susan talk about traffic in the stores and our customers and where we see that happening.
Susan Morris
Thanks, Sharon. And also just a side note, too, on the pharmacy, we are still growing script count. I want to make sure that comes through clearly. And that’s important for us for a variety of reasons, including the traffic side, but as well as building larger baskets and customer lifetime value.
From a traffic perspective, what I would say is we would say traffic has been fairly steady and what our focus has been is, we’ve got great proximity. We’re already in the neighborhoods that serve our customers today. So how do we stop that second trip? And that’s where we’re focused on increasing in-stock, which we’ve done. That’s where we’re focused on fair pricing, fair frontline pricing, again, surgically across the country. Great promotions funded by our productivity and then excellence in fresh.
So if we’re giving our customers what they need at prices they’re willing to pay in their neighborhood, that’s how we think about stopping that second trip. That’s why the investment in our store fleet is so important to us. That’s why we’re thinking about this customer-centric experience. Again, loyalty, digital, pharmacy, fresh penetration, all of those things, so that we can give them the balanced value equation that resonates uniquely with them.
Robert Ohmes
That sounds great. Thanks, Susan.
Susan Morris
Thank you.
Operator
Thank you. At this time, we’ve reached the end of our question and answer session. I’ll turn the floor back over to Susan for closing remarks.
Susan Morris
Before we wrap up, I just want to thank our investors and analysts for your questions and your continued engagement. And to any employees that might be listening in, thank you for the work that you do every day to serve our customers and strengthen our business. We appreciate your ongoing support and look forward to continuing dialogue. Have a great day.
Operator
[Operator Closing Remarks]