Welcome to the Albertsons Company's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. I would like to hand the call over to Melissa Plaisance, Senior Vice President, Investor Relations, Treasury and Risk Management. Please go ahead.

Good morning, and thank you for joining us for the Albertsons Companies' Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. With me today are Vivek Sankaran, our CEO; and Sharon McCollam, our President and CFO. Today, Vivek will share insights into our fourth quarter results as well as review our progress against our strategic priorities. Sharon will then go into the financial details, before Vivek and Sharon provide a discussion on our priorities and outlook for fiscal 2022. I would like to remind you that management may make statements during this call that, are or, could include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not limited to historical facts but contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are and will be contained from time to time in our SEC filings, including on Forms 10-Q, 10-K and 8-K. Forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures, and historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA. And with that, I will hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thanks for joining us today. In the fourth quarter, our teams continued to drive top-tier operating and financial performance. We want to recognize and thank all of our retail, distribution and manufacturing teams for their commitment to, and care of our customers and their communities. We are proud of the compassion, humility and passion for excellence they have shown in an exceptionally challenging environment over the last 2 years. In Q4 '21, ID sales increased 7.5% and 19.3% on a 2-year stack. We also gained unit and dollar market share in Food and MULO on both a 1- and 2-year basis and maintained our #1 or #2 position in 68% of the 121 MSAs in which we operate. In addition, we delivered adjusted EBITDA of approximately $1.1 billion and adjusted EPS of $0.75 per share, well ahead of our expectations. During the quarter, we continued to see a rebound in store traffic and the benefits from our digital and omnichannel investments, including the expansion of Drive Up & Go and additional micro-fulfillment centers, bringing our total MFCs to 7. Omnichannel households spent 3x more than in-store-only shoppers. And during Q4, omnichannel households grew by nearly 5x versus the fourth quarter of 2019. In addition, as our investments drove increased customer engagement and retention, Q4 '21 digital sales increased 5% year-over-year and 287% on a 2-year stacked basis. In the Just for U Loyalty Program, benefit enhancements continued to accelerate membership growth, which increased 18% year-over-year to nearly 30 million members and is up approximately 45% or over 9 million members since the fourth quarter of 2019. Actively engaged members, defined as those redeeming coupons, fuel or grocery rewards, also continued to increase. And the redemption rate of these members remained over 90% at the…

Thank you, Vivek, and good morning, everyone. It's great to be here with you today. Our fourth quarter '21 results were strong across all key metrics. Identical sales were up 7.5% and up 19.3% on a 2-year stacked basis, with momentum continuing into Q1 '22. Retail price inflation as well as market share gains contributed to these results. Gross margin rate was 28.7% in Q4 2021. Excluding fuel, the gross margin rate was flat compared to last year. Productivity, improved COVID-related pharmacy margins and a favorable product mix were offset by the rate impact of increased product costs driven by the current inflationary environment and higher supply chain and LIFO expenses. Selling and administrative expenses as a percentage of sales were 24.9% in Q4 2021. Excluding fuel and a favorable pension adjustment, SG&A decreased 30 basis points compared to last year. This decrease was primarily driven by lower COVID-19-related expenses and the benefit of productivity initiatives. These decreases were partially offset by market-driven wage rate increases, a discretionary appreciation payment to our frontline associates, expenses related to the acceleration of our digital and omnichannel capabilities and higher depreciation. Q4 '21 adjusted EBITDA was $1.074 billion compared to [ $917 ] million last year. This increase was primarily driven by the flow-through from our 7.5% ID sales increase and the margin benefit related to administering COVID-19 vaccine. Q4 '21 adjusted EPS was $0.75 per fully diluted share compared to $0.60 per fully diluted share in Q4 2020. Turning to full year fiscal '21. ID sales were near flat and up 16.8% on a 2-year stack basis. We also delivered adjusted EBITDA of $4.398 billion, as our productivity initiatives and margin benefit from COVID-19 vaccines fueled strategic investments and substantially offset product, wage and other inflationary headwinds. Full year adjusted EPS came…

Thank you, Sharon. As we look forward to fiscal '22, we are entering the next phase of our transformation strategy, Customers for Life. Our belief and the evidence is that when we are at our best in the brick-and-mortar and digital world, our customers never leave us and keep spend more of their wallet with us. Customers for Life is built around this belief that satisfied customers create outsized lifetime value and that everything we do should enable more stickiness. Customers for Life is anchored on placing the customer at the center of everything we do, with the ultimate goal of supporting our customers every day, every week and for a lifetime. We want our customers to interact with us daily, not only to shop, but sometimes to simply consume relevant content about food or planned meals or find information to inspire their well-being. Our business model is pivoting to one that is loyalty-based, doubling down on our omnichannel engagement with customers beyond just transactions. We will elevate the in-store experience when they shop with us, expand our services and content-rich offerings and build a set of competitive and timeless capabilities that create a compelling reason for our customers to seek a lifetime relationship with our team members and our banners. To support this pivot, we will be investing in the following strategic priorities: digitally connecting and engaging all customers through our mobile app and website, so they can enjoy integrated and curated experiences in e-commerce, the community, loyalty, health and media; differentiating our store experience by deepening engagement through the use of technology, removing team member pain points to allow them to focus on customer service versus just tasks; and simplifying the end-to-end shopping journey and evolving store operations to support omnichannel growth; enhancing what we offer by elevating our distinctiveness in fresh, expanding our Own Brands products and services, including our Ready Meals program and enhancing product offerings in set of store to address customers' changing needs and preferences; modernizing our capabilities in part through an improved supply chain, enhanced data and data analytics and ongoing productivity, all built on the foundation of being locally great and nationally strong; and finally, further embedding ESG throughout our operations. Success against these priorities will be measured based on increased digital engagement, expanded merchandise and service offerings, a competitively differentiated omnichannel experience and an accelerated set of digital and supply chain capabilities. I will now turn the call over to Sharon to discuss the financial outlook for 2022.

As Vivek said, we're entering fiscal '22 and the next phase of our transformation with continued momentum and strength in our core business, evidenced by our Q1-to-date, mid-single-digit ID sales increase. We are gaining market share, and the investments we have made in growth and productivity are delivering better-than-expected returns. Throughout the pandemic, we capitalized on the opportunity to attract new customers and have entered 2022 with $30 million Just for U Loyalty members,a 45% increase versus year-end 2019. With that as the backdrop, our fiscal '22 outlook assumes the following we expect fiscal '22 ID sales to increase 2% to 3%, driven by continued inflation and market share gains. In the first half of the year, we expect ID sales to be above the full year range. In the back half, we expect ID sales to be below the full year rate due to cycling heightened inflation in the back half of fiscal '21. We expect adjusted EBITDA in the range of $4.15 billion to $4.25 billion, reflecting continued growth in the business and stable gross margins. In fiscal '22, in our core business, excluding fuel, we are expecting gross margin rate expansion, driven by productivity tailwinds. We are also expecting, however, a 65% decline in COVID vaccinations and related margins, the impact of which will be greater than the core business margin rate expansion. Therefore, factoring in both drivers, we are expecting the gross margin rate, excluding fuel, to be down slightly in fiscal '22. In selling and administrative expense, we are incrementally investing in our strategic priorities, including our digital transformation, the Albertsons Media Collective and the modernization of our supply chain, which will increase our SG&A rate in fiscal '22 that drive long-term benefits. Productivity tailwinds are also substantially offsetting a significant increase in hourly wages and benefits for our frontline associates. That brings us to adjusted EPS, which we expect will be in the range of $2.70 to $2.85 per share based on our current fully diluted share count. To support this outlook, we expect capital expenditures to be in the range of $2 billion to $2.1 billion, with more than half of the spending invested in modernization and digitization in our stores and the remaining in the expansion of our digital offerings and optimization of our supply chain. I'd also like to share with you our latest view on additional productivity. By the end of fiscal '22, we will have delivered on our 3-year commitment of $1.5 billion in productivity. As that is coming to a close, we have started framing the next wave of productivity and have already identified $750 million in future savings that we are committing to between fiscal '23 and fiscal '25 in the areas of automation and digital tools, scalable workforce management, modernization of our supply chain and SG&A optimization. I'll now turn the call back over to Vivek for closing remarks.

Thank you, Sharon. As Sharon just mentioned, we are pleased with our 2021 results and the continuing momentum we are seeing as we enter 2022. Our relative performance, evidenced by our profitable ID sales growth, and market share gains continues to be strong. Our strategy is working, and we're executing well against industry-wide pressures than the transformation we began before the pandemic has significantly strengthened our company. And on our stores, we have accelerated remodels, implemented technology-enabled core processes and advanced our capabilities in Fresh. Leveraging our store base, we have built a scaled omnichannel capability, including Drive Up & Go and online delivery that is proving to be sticky with customers to engage across channels. We have developed a robust loyalty platform and a unified mobile app that engages customers and personalizes offers for our 30 million just for U members. We have learned to leverage our scale in vital capabilities such as pricing and promotions, merchandising and supply chain, without compromising agility and local ownership. We have proven that we can deliver productivity at scale and are adding an incremental wave. All of these foundational capabilities have created a springboard for Customers for Life and our next phase of growth. While we recognize there are a number of uncertainties in the macroeconomic environment, as we enter 2022, we have demonstrated a proven track record in the execution of our strategy and remain confident in our ability to deliver against the 2022 priorities that we laid out for you today. But none of this will be possible without the unwavering commitment of our associates and the ongoing support of our vendor partners and shareholders. We will now open the call for questions.

[Operator Instructions] And our first question will be coming from the line of Robby Ohmes with Bank of America.

Great quarter. I'll just do my 2 questions upfront. The first one is just on the ID sales guidance, maybe a little more color. We just had the March food at home inflation came out around 10%. I think, Sharon, you said you're seeing sort of mid-single-digit trends to date. That seems like you'd be falling behind the overall food-at-home inflation numbers. Maybe more color on why that may be and some thoughts on that. And then, Vivek, you talked about enhancing center store for needs and preferences. I was hoping to get some more color from you on what that means and what you're seeing in center store changing.

Robby, thank you. I'll take your first question on the mid-single-digit comp sales that we're currently seeing. We feel very good about the strength of our business. We have a substantial Easter shift. That's not an Albertsons dynamic, that's an industry dynamic because last year, at this time, Easter would have already happened, and it won't be happening now for a couple of weeks. So we'll see how the rest of the quarter plays out, but we wanted to make sure that we gave you guys color on where we are at this point in time, and we are running in the mid-single-digit range. So I'll let Vivek take the other part of your question.

Yes. And Robby, on the center store, recall, we started this way of buying differently, right? And so now that we have a more consolidated approach to going to the market, especially in the center store, we now also have an opportunity to start taking decisions on categories where we under index. And there are some very meaningful categories that are growing that we under-index in our space. So those are examples of the types of things that we're going to continue to do and we can do that at a national scale so that we can get the best bang for the buck. So that's primarily around the center store. The other area, I mean, it's not so much at a store, but I don't know where it fits. It's the whole meal solution, right? It kind of fits with what -- when I talked about the layout and optimizing things, those are the types of things we're also working on so that we can allow people to have quick and fast scripts, you'll see it in some of our stores, that are oriented towards those solving for a meal solution for the evening to get in and ou,t, with a few center-store categories but primarily the meals. Those are the types of things we're working on, Robby.

The next question comes from the line of Edward Kelly with Wells Fargo.

First, a quick follow-up on inflation. There is a growing sort of consensus concern, I guess, that we could see elevated food price inflation for some time now with the war in Ukraine. I guess what is your expectation for when inflation may peak based upon kind of what you're hearing from vendors in your work? I mean your guidance seems to suggest that maybe you think it's peaking now. And then in terms of elasticity, it's hard to imagine that elasticity stays so low. Like Robby said, we see 10% food CPI today. What are you seeing from a consumer behavior standpoint? And then what are you expecting from an elasticity standpoint from here?

First, on inflation, let me just provide a little bit of context there. I hope you guys are able to see that we are managing the inflation very, very well, right? And so when you think about what we're trying to optimize here is we want to make sure that we're competitive. And the way we measure that is market gains, dollar share and unit share both in food and meal. And we've got a nice track record all through the quarter with sustaining a track record of market share gains and at the same time, not compromising gross margins. So that's the equation that we're trying to work through, and we are doing very well with it because we're giving people choices, customers' choices, they're managing mix, where -- and we are allowing customers to get in a competitive basket, right, by doing that. What we have done is that we have estimated that the current level of inflation, I think Q4 CPI was 7.4%, okay? And I just saw news this morning that the inflation overall was 8% or so. We suspect that this rate of inflation will continue until it cycles itself around September, which will be the beginning of our second half. And the assumption we've made is that this inflation will moderate in the second half. And that's the assumption we made. So you could argue that if you think that what's happening in Ukraine will create more inflation, then our assumption there is conservative. But the way we've approached it is assume that the inflation will be lighter and moderate in the second half of the year, deliver the business that way because we're going to drive more productivity and other things over there, right? And if inflation came up, then it gets to your second question. Now if the consumer behaves like she's behaving now, where, honestly, we are not seeing a change in behavior well. We are still seeing the consumers very strong. We're not seeing any meaningful trade down. I'll give you an example. Organic sales penetration is up, not down in our business, okay? So we think the consumer is still strong. Whether the consumer will stay that way, even if we go to the second half or past the fall and inflation continues to be at 8%, 9%, I don't know. I would imagine you'd see some elasticities. But that's the approach we've taken. We wanted -- we expect it to moderate in the second half. I hope that gives you enough color on how we've thought about it, Ed.

Yes. No, that's great. And just a quick follow-up, Sharon, on the guidance for the gross margin. The compare to 2019 is kind of different throughout the year. It's much harder in the first half than it is in the back half. How do we think about sort of like first half gross margins?

Yes. So we're not guiding by quarter. I tried to give you a little more color on the gross margins as we walk through the year. One thing to think about is that, just as you think about 2022, as it relates to COVID, you're going to see the most significant impacts from COVID vaccinations in Q1. And then in Q2, our numbers were down last year in COVID, then Q3 picked up and Q4 picked up. So when you think about modeling that, those -- the flow-through on COVID is substantial on these vaccinations. So I hope that will be [ get ] a little more help. I've already talked about the pressure of the COVID vaccinations, but that's a pressure that you need to model. But think about Q1, 3 and 4 as being the biggest COVID quarters. And honestly, Q3 and 4 were the bigger of the 4 quarters.

The next question is coming from the line of John Heinbockel with Guggenheim.

Guys, first question, can you, in some way, size the dollar opportunity? When I think about your best customers versus maybe the average, right, I would think there is a several hundred dollar annual spend opportunity there. And then with that in mind, if you think about a 2 to 3 comp longer term, can you think you drive the vast majority of that just from the best 15% or 20% of your customer base, can you do that?

John, first, on your first question, it's not several hundred, it's several thousands, okay, for the customers who are most deeply engaged with us. And the way we think about it, if I can give you a little context here, if you go back even to our IPO document, you'll see that we talked about this notion of customers who engage in multiple parts of our business, stay longer with us and spend more with us, okay? That was evident, but it was not at the kind of scale we have today. What do I mean by that? Today, we have 30 million customers engaged in our loyalty program. We have 1 app that they can go through. And in that 1 app, it's a portal to the whole company, whether -- and it's not the whole yet, but it will be there. Where you can go into the pharmacy business, you can engage in e-commerce, you can get content on meals and recipes and so on and so forth. So we've got that. We've got an e-commerce business now that's national, right? With Drive Up & Go and delivery and many, many choices of delivery, we have a revitalized pharmacy business. And so you put all of these together, it gets us at a scale -- national scale, an ability to create what we call stickiness with our customers. So the first part of your question, yes, it's thousands of dollars, not hundreds of dollars. And the second part of your question, absolutely yes. We imagine driving more and more of our sales from this group of customers. And the big way to do it is by driving more retention with these customers. And the reason we have retention is all of the touch points we have just become stronger and at scale. Does that help, John?

Okay. Yes. And then maybe secondly, you talked about the [ $750 million ] productivity for the next 3 years that you've just started. I assume you will not finish there. Is it possible or likely that, that ends up being similar to the last 3, right, the $1.5 billion? And then your thought process on the new -- if there is a new secular algo versus the old one, right? Is this the same on a higher base? Or is it possible that this algo is a little higher than the old one?

Let me start with the productivity question. As we said in the prepared remarks, we have just started framing this next phase of productivity over the last 6 months since I joined. And it's a perpetual productivity engine. So there is absolutely the expectation that over time, that number will continue to grow. So that's the first question. And then on the second question, Vivek, do you want to take that?

Yes, I think, John, the way I think about it is when we went out -- when we went to the IPO, we were at [ 2.25% ], if I'm right, long-term algorithm. Obviously, we've sustained a much higher number than that, not even -- not just on an absolute basis, but on a relative basis, it's been incredibly good. And we put a lot of different things in place. Let me put it this way. I'd be disappointed if that's where we ended up in the long term. But we need to lap what we're going through this year before we can establish a pattern on that.

The next question coming from the line of Ken Goldman with JPMorgan.

Vivek, I think I already know the answer to this based on your tone earlier. But is it fair to say that as you are not seeing any meaningful changes in how the consumer is behaving. And this is true whether the consumer, as you define it, is considered higher end, lower end. I just wanted to get a little bit of a sense there, given how much sensitivity there is in the market right now to lower-end consumers and their spending?

Yes. Ken, I've not seen a big difference yet. We have not seen a big difference yet across income segments, right? The one thing that we have put in our plan is that as SNAP funds reduce, which we suspect will go down over -- as we go through the year, that lower-end consumer -- or the consumers that were more dependent on SNAP, let me put it that way. will reduce some spend. That said, to date, what we've seen is currency shifting. We haven't seen that behavior yet, but we don't want to conclude that and just assume that for the full year. So as we go into the second half, we have assumed that the consumer that was -- depending on Snap, will spend less. And it may be just spend less by trading down, right? And we've assumed that behavior going forward, Ken. But we haven't seen that in any of our segments to date.

And are you seeing a little bit of -- or sorry, does your outlook rather assume a little bit of incremental promotions, incremental discounting to sort of offset some of those pressures that those consumers might feel?

Yes, it does.

It does, Ken.

All right. And then my follow-up is -- and this is possibly a wasted bullet, but I'll go down this road anyway. Can you talk about what the impetus was for the strategic review? It's just so odd to see a company that IPO-ed still recently, performing well fundamentally, adding great C-suite talent to announce something like this, especially given how broad some of the wording is. So I'm just curious if you could talk about sort of what sparked all of this, which has created such noise in the market.

Yes. So Ken, it was really sparked by the fact that valuation compared to peers was not reflecting the strength of our performance. And there were reasons in our minds for some of that. Our performance has been, as you know, if you put us on the same basis at Kroger, we have different quarter ends. But if you measure us out, we outperformed Kroger in Q4. We outperformed them for the year, et cetera. So that was originally the catalyst for it. And of course, there was the overhang of the preferred shares that have hit the market, and then, of course, the IPO lockup was coming. So as opposed to playing whack-a-mole, that's an alternative, right? You could just react to each event, we felt that a much more comprehensive assessment was much more inclusive of all of the alternatives. And that is included. As you know, I don't have to read the press release to you, but the assessment of our balance sheet optimization, any kind of strategic or financial transactions, et cetera. So that's what we're looking at. And that was the catalyst for it. I said that after we put out that release, the catalyst hasn't changed. That's exactly why we're doing it. And we'll keep you guys updated as we move forward.

The next question comes from the line of Scott Miskin with R5 Capital.

And so I just wanted to go back to what Robby was talking about in the inflation rate market share. I just want to make sure, you guys are assuming or you're thinking you're going to continue to gain share, volume share and dollar share this year? Because looking at the guide, you may think that you think there's some kind of change there.

No. Scott. We're going to -- we have gained -- let me give you the share story. So when we started this year, we were lapping some significant numbers in 2020. So through the first half of 2021, fiscal '21, we were clearly gaining share in Food, but we were not gaining share versus MULO. And because I think with MULO grocery, supermarkets have outperformed the rest of the market in 2020. Now the second half of the year, everything turned positive, right? So we've gained share in MULO and in Food, on dollars and units, and the rate of share gain continues. It just continues. So we are expecting to continue to gain share. All of the different things that we're doing, I mean, we watch that, and that is our primary metric.

Okay. Perfect. And then -- just figure out which question I want to ask because I have a bunch of them. Maybe talk about competition and product availability that you're seeing right now. Is competition changing much? And clearly, we may still have some product availability and actually may get worse. I mean I think chicken is a hard commodity, chicken breast. So how are you guys thinking about that as the year goes on, both competition and product availability?

Yes, Scott, product availability continues to be a challenge, continues to be a little bit of whack-a-mole. And we had imagined back then that by now, we'll see some relief, but it's not the case we are imagining that product availability will continue to be a challenge through most of this calendar year, maybe middle of this year, at least, and maybe start to get some relief in the fall, which is why we also think there might be more supply and that supply might pull down some inflation, right? So that's how we've thought about it. An example is [ X ], right? We're seeing it going into Easter. There's the flu and we've got the prices going up on -- costs going up on just the white eggs. And so we continue to have all those kinds of issues. And we are planning that we need to manage around that. Competitively, not a whole lot has changed. I'd say it's still quite stable. The competent, there is -- it's hard for somebody to get into a massively promotional mindset given the challenges in product availability.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

I'd like to paraphrase something on inflation and units, maybe for the rest of the year, Vivek. So if we look at the composition of comp, it looks like it's tracking inflation, which means maybe units are flattish, something like that. And that's different than where it was a year or so ago. And that's fine. I think that makes sense. It sounds like you're not expecting that dynamic to change even as inflation continues, if I heard that right. But there may be some sensitivity at the low end with SNAP. Does that mean there's an offset? And then it sounds like -- again, you're not expecting inflation to step up later in the year. We're going to lap it and then inflation sort of normalizes.

That's right. So we have planned that when we cycle the current level of inflation, inflation will moderate significantly. And that's going to depend on supplies coming in, too, and we think there might be supply in the latter part of the year. But that's exactly how we've thought about it when we have put the guidance forward to you, that the second half will have much more moderated inflation. And we've also assumed that the lower end customer, the SNAP customer will spend less as we go into the second half of our year.

Okay. And this is to clarify, not my follow-up. And this is based on to date, even as inflation has picked up, you're not seeing a further degradation in units? Or as it picks up, it is kind of -- it's staying flat and that gives you the confidence that we won't see that elasticity pick...

Correct. We've not seen a further degradation in units. We're seeing consistent behavior from the customer.

Okay. And then my follow-up, it might be for more Sharon-related. And this goes back to what John asked earlier. Your EBIT, if you look at it relative to 2019, is up about $1 billion, so it's pretty impressive. This year, the outlook is comps are going to grow, yet, at the midpoint, EBIT it looks like it's going to decline. Some of it could just be conservatism. We'll see how the year plays out. Some of it, there's expenses. Should we think about it as an investment year? And then as an investment year, does it normalize 1 year later? 2 years later? I understand there's a little gross margin compare issue regarding vaccines. But how should we think -- because on a 2% to 3% comp, your EBIT base probably ought to grow in the future. I think that's probably a fair assumption. But when does that begin?

Yes. So when you think about the guidance, there are 2 major pressures that -- if you go back and look at the transcript, I tried to lay it out for you in the gross margin and the SG&A. On the gross margin side, we are expecting the gross margin, and then that would flow through to the bottom line of COVID basically to decline by 65%. And let's put this in comparison to Kroger as an example. They have done 11 million-plus COVID vaccinations, and they are basically twice our revenue. And we have 12 million, so actually more COVID vaccinations than they've done and it's on half the revenue. So the impact of COVID on Albertsons is significantly higher demand. So that flow through and that pressure falls through to the bottom line. And we are talking about a significant number, and you can do the math. We helped you with that last quarter to do the math on that. And then the second thing is, to your point, we are making investments. Those investments are exactly where you are seeing the benefit that we're seeing today. You are seeing those investments in our digital transformation and the Albertsons Media Collective, and another major area is the modernization of our supply chain. That is a big project I talked to you about last quarter that's coming into 2022 and 2023. So those are the 3 areas that we're making those investments. And of course, all the labor. We, of course, have substantial increases in labor, like everyone else in the industry. And -- but the productivity has been such a strong tailwind, and that continues to offset that. But it's really COVID and these investments.

To note on productivity. Over the last 2, 3 years, we've learned how to deliver productivity at scale. So it gives us more confidence. And so the productivity becomes an engine, right? And as we've said before, there's so much more to explore in our company, given where we were and where -- and given where we began, let me say.

Next question comes from the line of Rupesh Parikh with Oppenheimer.

This is actually Erica Eiler on for Rupesh. So first, I mean, it sounds like you're not seeing any signs of trade down to date. But maybe you could talk about your expectations on the private label side this year. Are you expecting, maybe we start to see a shift more towards private label? Maybe just any thoughts you can share on private-label penetration this year would be helpful.

Yes. Private-label penetration is back up to 25.6%. If I recall, that was what it was the pandemic. So we're right back there. And I would expect private label to become a bigger and bigger part of the consumers' basket, customers' basket, only because with that, we are offering better price points, better opening price points. Now just like everybody else, we do have the supply challenges in private-label brands that the national brands have. And -- but as that comes back and if this inflation holds, it will become a bigger and bigger initiative in our gross margin agenda.

Okay. No, that's helpful. And then just switching gears to SG&A. So I mean you highlighted the puts and takes. Maybe you could just dive a little bit more into the latest you're seeing on the wage pressure front with your contracts and labor availability. And then also just in terms of the investments you're making this year. Is there anything to call out in terms of cadence? Should we think about any of the quarters being more pressured by those investments this year?

Yes. So on the SG&A side, obviously, we listed out for you in the prepared remarks, where we have finalized our contracts. Northern and Southern California are to be ratified, but we have settled there. And then we have -- the other big one in that is going to be Jewel, which is in the Midwest. So that -- as we see each of those throughout the year, what you're going to see is gradual and incremental increases coming through the year. They're starting now on all of the big ones that I laid out in the release that have been under negotiation, are happening with us today, and then the rest will come in towards midyear and toward the end of the year. So that's how you should think about it. But again, to that point, I want to go back to productivity. This is not a surprise. And I know it's not a surprise to any of you on the call and it wasn't a surprise to us. We expected to see substantial increases and as such, have planned productivity accordingly, and we're proactive on productivity in order to address that. So the thing that we're here to say today as well, first of all, we are -- it puts us in a very strong competitive position in the markets that we serve. While we, of course, nobody likes cost increases, we are investing in our associates. They are important to our mission, and we are moving forward with the highest increases that we've seen, but putting the productivity engine what Vivek talked about behind it, and that will be happening throughout the year. So those are the big drivers. And then, of course, we all want us to continue to deliver against these investments in these strategic priorities, including -- and I really want to call out the Albertsons Media Collective. This is our alternative, whatever in the industry. They're calling it alternative revenue streams. We are several years behind others in that space. We're building it. We announced it earlier this year. It's something we're really excited about. We have to build the foundation. Those investments are going in today, but the returns are going to start happening over the next couple of years, and it's substantial. So those are areas where investors want to see investment, and that's exactly where the money is going.

Our next question is from the line of Karen Short with Barclays.

I wanted to -- then apologies for the short-term orientation of the questions, but could you actually -- 2 questions. Could you actually quantify the Easter shift impact on comps in the quarter to date? And then my second question is, obviously, you've gotten a lot of questions on your EBITDA guide. I'm wondering if you could actually quantify the vaccine dollar benefit to 2021 as well as actual lapping of COVID costs in 2021, because that would just help frame the down guide on EBITDA for '22.

Yes. So Karen, until we see what happens with Easter, to quantify the Easter shift is harder to do, but we're not going to be guiding weekly sales. So we gave you where we are to date. Your second question on vaccination, we have not specifically quantified that number and what that headwind looks like. We did point out that we expect to be down about [ 65 ] % on the number of vaccinations that we give. And last quarter, you might recall that in our comp -- after our follow-up call, you found some numbers out there on the Internet that helped you sort of put a frame around that. We have arrangements and contracts that we have confidentiality agreements on, so I can't sit here today and give you the exact numbers, but needless to say that it is a substantial earnings headwind going into next year, and we have accounted for that in the EBITDA guidance.

Okay, and the COVID...

65% of 12 million, Karen, right?

Pardon me?

65% of 12 million vaccines is what we will...

And Karen, on baseline COVID cost, I think you had one other piece, which was baseline COVID costs.

Yes.

And we don't anticipate that changing. COVID is not gone. Just look at Philadelphia that just went back to mass mandate in April. COVID's not gone, and we would not anticipate on the COVID cost side to see a material change year-over-year. The cleanliness in our stores and keeping people, customers and employees safe is a top priority, and that will not change.

Okay. And if I just may ask, with respect to the valuation gap versus peers, can you just clarify exactly who you're including in your peer set? I mean I'm assuming it's not just Kroger.

Yes. We -- you can look at a lot of different peer sets, but I think that you can take a look at the places where you're pointing to in your own reports and those would be the same places we'd be looking as well.

Your next question comes from the line of Chuck Cerankosky with North Coast Research.

I'd like to have you comment on how business is looking, how the customers are behaving as gasoline prices have tracked up during your fourth quarter and thus far into the first quarter, please?

Chuck, one of the things we've observed with customers is that the traffic is up over last year, and it's holding very steady. But what's fascinating is that the baskets, if I compare to 2019, are substantially larger, right, even if you account for inflation. So one of the things that we are observing is I think we've got customers, consolidating shop, that behavior that started during the pandemic, I think it's still sticky, where people have consolidated trips. When fuel prices go up, it leads -- it tends to lead to even more consolidation of trips, okay? And a shift from what might be other channels that are more connected to commuting to people like us where you -- because the price points are better. So we haven't -- I mean, I'm not saying we're seeing that. I'm not seeing any material change yet because of fuel prices. But there's a new behavior that seems to have become more entrenched. It also could be because people are eating more at home, but it's leading towards more consolidation of trips.

How about in response to the fuel component to the loyalty program. Any effect there [indiscernible]?

Great point, Chuck. Great point. The fuel rewards are incredibly powerful. And there has always been, it has always been one of our best returns and one of the biggest drivers of stickiness. So over the last several weeks, we've increased the number of rewards that we provide for fuel. That will drive -- it will drive more stickiness to us, and it will drive more of that consolidation of the basket to us. You're right.

The next question is from the line of Paul Lejuez with Citi.

This is Brandon Cheatham on for Paul. I just wanted to kind of circle back to your price gaps compared to competitors. It sounds like the marketplace is being quite rational right now in passing along price to consumers. On your guidance, I think you mentioned that you expect promotions to kind of increase as the year progresses. I guess specifically, what do you expect the changes to make the marketplace a little promotional more promotional? And if there is an improvement in supply chain, how could that maybe benefit your margins to help offset some of those promotions?

Right. So the promotions are going to depend completely on supply, right? And we are an operator that does more high low or less EDLP. And so we do -- there is a set of customers, an important segment of customers who care about that, and we want to make sure that we are able to serve them. One important difference, though, from the past is that -- recall, go back to the 30 million people who are engaged in our loyalty program. They get very, very specific personalized promotions. So even as promotions come back in our sector, my belief is that the promotions will come back in an extremely granular -- in an extremely surgical way rather than what was the old approach of promoting -- putting a lot of ads on the front page and driving it out for everybody. So that's how I'd imagine it coming back, which will be good because I think it takes care of the customers that we need to take care of and protects our P&L.

Great. And then on the Media Collective, I guess, where are you in launching that? Or do you have a full team already hired? And then anything you can share on kind of like the long-term potential of this initiative and what might be considered in '22 guidance?

Yes. You should expect that to follow the pattern that you've seen with many others, right, who started this journey on a media business, if I can call it earlier. We've got -- we've hired a team that has done this before, done this and had a lot of success. We've been patient about building it because we wanted to build it the right way and in a modern way. And we've launched it in -- on February 27. So this year, it's about building it. It's -- in the following years, it will become more material in our P&L. So -- but we're very -- we feel very comfortable because at the end of the day, this is being built to serve our customers who are most engaged with us in the markets where we are the strongest. And in those markets and for those customers, we are one of the best vehicles to reach them if you want to market to that.

And recall in our guidance that we gave you this morning that it was called out as one of the areas where we have significant investment in 2022.

Our final question this morning will come from the line of Michael Montani with Evercore ISI.

Just wanted to ask, if I could, first off, on the flow-through rate. If the comp store sales do end up exceeding your guidance, what's the right flow-through rate to think of, Sharon, for every 100 bps of comp beyond the midpoint?

Yes, I would put that in the range of [ 15-ish ].

Percent of sales.

Of percent of sales.

Yes.

Sorry, is that for EBITDA or EBIT?

EBITDA.

EBITDA. Okay. And then another follow-up I had was on the gasoline side. Obviously, you had mentioned the COVID vaccines. But is there any incremental color you can share in terms of either how much tailwind that could have been last year or how much headwind to think of for this year?

As it relates to fuel?

Yes.

Yes. Just trying to think of that.

Yes, Vivek, you want to take that? Yes.

Yes. The fuel business, Michael, for us, is not terribly large. And we would expect -- I think the way we've thought about it is we've -- the volumes will be higher this year, but the margins will be lower this year. That's how we've thought about it. So it started material headwind, tailwind. Let me put it that way. It's kind of going to reflect in total, kind of what we had this year, maybe a little less in terms of profit.

Thank you, everyone, for participating today. Cody and I will be available for follow-up questions and have a great day.

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

Thank you all.