Updates shares, adds graphic

By Juveria Tabassum

July 23 (Reuters) - Albertsons cut its annual core sales and profit forecasts on Thursday and said it would accelerate investments in prices and its digital business to better compete for cash-strapped shoppers, sending its shares down 15% to a five-year low.

Higher gas and food prices have forced U.S. households to become more selective in their spending and shop more at mass retailers such as Walmart WMT.O and private-label and discount grocers, including Aldi, hurting sales at Albertsons and peers.

"Core grocery faced increasing pressure from softer industry unit trends and a more cautious consumer," Albertsons CEO Susan Morris said in a statement.

The company ACI.N expects annual identical sales to decline in the range of 0.5% to 1.5%, compared with its prior target of flat to up 1%.

Identical sales declined 0.8% in the first quarter and are expected to show very modest improvement through the year, executives said in a post-earnings call.

Meanwhile, fuel and packaging costs are expected to increase through the year as the war in Iran escalates.

Albertsons' gross margin rate decreased 23 basis points in the second quarter, following a 25 basis point decline in the preceding three-month period.

"The read across is that industry trends and competition remain challenging for Kroger and Sprouts Farmers Market," said Evercore ISI analyst Michael Montani.

Rival Kroger's KR.N shares dropped 4%, while Sprouts Farmers Market SFM.O was down about 5%.

Meanwhile, Albertsons said its chief financial officer, Sharon McCollam, will retire later this year.

"McCollam is very well-regarded by the investment community, so we expect this news to be viewed as a negative — especially given current business challenges," said RBC Capital Markets analyst Steven Shemesh.

Expectations around consumer spending are also likely to moderate as the national average gas price hovers over the $4.00 per gallon mark amid uncertainty around the war in Iran.

As its core middle- and lower-income consumers trade down, Albertsons has already cut prices on hundreds of items, invested in improving its e-commerce channel to compete on convenience and doubled down on its private label brands.

"We are choosing to accelerate investments in our customer value proposition and the customer experience ahead of expected productivity benefits because we believe these actions will improve our growth trajectory," Morris said.

The company plans to restructure its operating model into four regional units from 11 divisions and speed up efforts to centralize merchandising functions such as pricing, promotions and supplier relationships to improve store performance.

Albertsons estimated fiscal 2026 adjusted earnings per share in the range of $1.75 to $1.85, compared with its earlier target of $2.22 to $2.32.