Albertsons Companies Inc
NYSE:ACI
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Albertsons Companies Inc
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Welcome to the Albertsons Companies Fourth Quarter and Fiscal Year-end 2017 Conference Call. Thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I'd now like to turn the conference over to Ms. Melissa Plaisance, GVP of Treasury and Investor Relations. Please go ahead, ma'am.
Hello, and thank you for joining us for the Albertsons Companies' Fourth Quarter and Fiscal Year-end 2017 Earnings Conference Call. With me today from the company are Bob Miller, Chairman and CEO; Jim Donald, President and COO; and Bob Dimond, our CFO.
Today, Bob Miller will provide a brief introduction and will touch on our recent results and trends, discuss some of our latest milestones and plans to grow and improve our business. Then Jim Donald will discuss the latest developments in real estate and technology, further development and synergies. Bob Dimond will then provide an overview of our fourth quarter results and Bob Miller will provide some closing comments.
I'd like to remind you that management may make statements during this call that 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 as well as statements regarding the company's proposed merger with Rite Aid Corporation. These include statements that relate to the benefits, expected synergies and revenue opportunities in the proposed merger, integration plans, estimates for growth, management and governance of the combined company and expected timing of the proposed merger. 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 will be contained from time to time in our SEC filings, including on S-1, S-4, 10-Q, 10-K and 8-K, as well as Rite Aid's SEC filings.
Any forward-looking statements we make today are only as of today's date. And we undertake no obligation to update or revise 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 EBITDA. And with that, I'll hand the call over to Bob Miller.
Thank you, Melissa. Good afternoon, thank you for joining us. During quarter 4 total sales increased 1.6% to $14 billion, primarily due to our ID sales increase of 0.6% and higher fuel sales. The investments we made in promotions and pricing during quarter 3 were refined in quarter 4 and were effective in driving an improvement in ID sales from minus 1.8% in quarter 3 to plus 0.6%, representing a sequential improvement of 2.4%. At the same time, our year-over-year gross profit margin decline for quarter 4 moderated to 34 bps, much improvement from the 140 bps decline we reported in quarter 3. As a result, a more strategic and targeted investments and improvement in shrink expense compared to quarter 3.
Adjusted EBITDA increased $25 million to $712 million compared to the prior year and was 5.1% of sales, the company's strongest fourth quarter since the acquisition of Safeway. Our team continues its focus on making our stores the favorite local supermarket in the neighborhoods that we serve. At the same time, our eCommerce and digital marketing teams are very focused on meeting consumer's changing needs. With our growing home delivery business, our Drive-Up and Go pick-up at the store offering, which is expected to be available in more than 500 stores in fiscal 2018. The initial rollout of Plated meal-kits in our stores and our alliance with Instacart, we are positioning ourselves to serve our customers whenever, wherever and however they prefer. Once the Instacart platform is fully implemented, customers across many of our key markets will have access to same-day delivery in as little as an hour. We expect Instacart's delivery service to be available in more than 2,000 of our stores in fiscal 2018. In addition, our Own Brand group continues to develop new products to meet our customers changing needs and desires.
I would also like to mention that we continue to contribute to the communities we serve. We made approximately $248 million in food donations to local food banks in 2017 and almost $45 million in cash donations, helping over 2,000 organizations and individuals, including victims of hurricanes and wildfires in our operating areas. In addition, our employees donated countless volunteer hours to help those in need in their local neighborhoods.
As we look forward, we believe our announced merger with Rite Aid will create a differentiated leader in food, health and wellness and will position us to meet our customer's needs with a wide network of pharmacies, lower cost and enhanced Own Brand offerings in health and beauty aid care. We believe the combination will enhance shareholder returns and generate strong free cash flow to reduce debt and improve our financial flexibility.
Since our third quarter conference call, Jim Donald has joined our team as our new President and Chief Operating Officer. He has assumed responsibility for retail operation, marketing and merchandising, distribution and manufacturing, as well as human resources, labor and public affairs. I've known Jim for decades, dating back to when we worked together running divisions for Joe Albertsons many years ago. With his vast experience, leading other well-known companies in our industry, I'm confident that Jim will make significant contributions to the company's success. I would now like to ask Jim to share some commentary with you. So Jim, what have you've been doing?
Thanks, Bob. A lot. I've been doing lots of travel around the clock, 7 days a week over the last 6 or 7 weeks. In every company that I've had the opportunity to lead, I followed a similar game plan. However, this company is much bigger, more complex and spread out than the others. We have a variety of business units, hence, the full-court press I mentioned above. While our company has a great history as a food retailer, we are embarking on a journey that is designed to ensure our success from many different but contributing business units. My travels to the various functions and business units has allowed me to stress test the organization for infrastructure strengths and weaknesses with a set of fresh eyes and ideas to prepare us for not only the grocery battles and a full-law environment but also a no-law environment. And let me delve into those areas. Digital eCommerce and loyalty. We are accelerating investments in an expansion of our capabilities in eCommerce, digital marketing and loyalty programs to provide value to our customers, offer our customers additional methods of shopping with us, and in turn, drive sales.
At the fiscal year-end 2017, we are offering grocery home delivery in 34 markets, 8 of the top 10 MSAs. We're pleased to report that our eCommerce home delivery business established within Safeway in 2001 continued its double-digit growth for the full year. Our in-house home delivery offering stands apart from many of our competitors as our employees pick the order in our stores, the orders are loaded by our employees into company-owned temperature controlled trucks and ultimately are hand delivered into our customers' kitchens. In addition, we've been able to utilize our well-located stores to rapidly expand our Drive-Up and Go pick-up service to provide additional options for our customers. We expand this offering to 102 stores by fiscal year-end 2017 and planned to expand further to over 500 stores in fiscal year 2018. We'll also upgrade our mobile app for delivery and Drive-Up and Go to make it more appealing and easier to use.
As discussed, we've also begun our new alliance with Instacart and are pleased with the initial customer response in geographies where it's been rolled out. Instacart was operating in over 1,300 stores at the end of fiscal 2017 and currently covers 1,700 stores. We continue to see growth in our pharmacy delivery business which includes mail order MedCart and specialty drug delivery that are also seeing double-digit growth in quarter 4 over the last year. We continue to make data-driven personalized offers to our customers through just for U, which is expanding into new markets. In fact, in fiscal 2017, our registrations for just for U, MyMixx and United loyalty program combined increased 26%. We also continued to expand fuel rewards and on a limited basis, grocery rewards. The weekly average sales of participants in these 2 programs is significantly higher than nonusers, which is very encouraging.
The Owned Brands (sic) [ Own Brands ] portfolio consist of more than 10,000 high-quality well-received products with sales in 2017 $11.5 billion, and these resonate well with our shoppers. In fiscal 2017, we demonstrated great progress in our Own Brands and increased sales penetration of Own Brands by 60 basis points to 23% and Own Brand volume penetration by 71 basis points to 24%, excluding pharmacy, fuel and Starbucks sales. Own Brands continues to deliver on innovation with approximately 550 new items launched in 2017, and we have over 1,400 new items in the pipeline for 2018. We're excited about our O Organics brand which posted 17.1% growth in sales year-over-year in the fourth quarter. We offer almost 1,200 items, O Organics items, and have plans to introduce 300 additional new items in 2018. O Organics Lucerne, Signature and Signature Café have all achieved the distinction of being billion-dollar brands. In addition to the new item innovation and brand development, Own Brands continues to focus on package redesign to refresh shelf presence and comply with regulatory nutrition guideline changes.
As we move forward, we will be focused on a number of key operating initiatives to delight our customers and improve our results. We plan to continue to remerchandise and refresh our store base, partner with differentiated brands, leverage our pharmacy and specialty pharmacy business, expand fuel centers and convenience stores, leverage data analytics to improve the customer experience, grow our loyalty program membership, accelerate eCommerce rollout and capabilities, as well as further strengthen our Own Brands portfolio and expand our natural organic, specialty health and ethnic offerings. In addition, we've made progress on our new cost reduction efforts throughout the company, but we have identified more than $150 million of additional cost savings for fiscal year 2018 in areas including corporate and division overhead, advertising circular and tag cost, product packaging cost and store over cost for services and supplies, just to name a few. These initiatives are being pursued with great energy and speed, and we're encouraged that they will enhance our performance as we move in 2018. We continue our disciplined approach towards managing capital expenditures. For fiscal 2017, we spent approximately $1.25 billion, including approximately $203 million for Safeway's integrated-related capital expenditures, and we completed 166 upgrade and remodel projects and opened 20 new and acquired stores. That'd be 15 new and 5 acquired. In fiscal 2018, we expect to spend approximately $1.2 billion of CapEx, which includes the increase in our investments in technology and automation.
As we mentioned last quarter, we're planning to automate several distribution centers over the next 2 years which will greatly improve labor productivity, increase storage density, enhance inventory management and shorten stocking time lines. Our first automated distribution center in Tolleson, Arizona, that became operational in the fourth quarter of 2017. While the automation of our distribution center requires a substantial capital investment, we expect this automation will generate substantial EBITDA improvements going forward.
On the technology side of business, this will begin the conversion of the Albertsons stores to our in-house Safeway IT platform in late June 2015. We have completed the transitions of 8 divisions; Southern, Houston, Denver, Intermountain, Seattle, Portland, Southern California and the Southwest. We're currently converting stores, and our Shaw’s division have completed 78 and 153 stores in that division. In total, we've converted 534 stores and 10 distribution centers across the company to date. Every single converted store has opened on time and been able to seamlessly serve its customers. Conversions are on schedule. They're on budget, and we continue to improve both our approach and efficiency with every incremental division. Upon the completion of the Shaw’s division, we will convert the Jewel-Osco division followed by ACME and expect to finish all store conversions by mid-September of this year.
In addition to our conversion activities, we are currently in the process of consolidating distribution centers in our Southwest division to reduce supply chain cost.
Also pleased to report the realization of the synergies continues to go very well. We delivered synergies of approximately $675 million in fiscal 2017 with the year-end run rate of $750 million and expect to deliver approximately $823 million of synergies on annual run rate basis by the end of fiscal 2018. And of course, there's people. I met with one of our largest vendors recently, and he say, "Hey, Jim, welcome back. Pretty interesting times to be back in the supermarket business. How do you like your chances?" This is what I told him. Our future has never been brighter. Our company is set up for success by having those closest to our customer and their community making the day-to-day decisions. Our ability to execute in real time is about as good as it gets compared with any other place I've ever worked. To further encourage this, I've been communicating with our 275,000 employees on a regular basis, telling them that our future has never been brighter, including conversations with every division President, VP of Merchant Ops and other division and backstage teams. The opportunity for this industry to attract new talent is also stronger than ever. In fact, during a visit with millennial employees, on one of our curbside pickup services in our United division in Lubbock, I was reminded, when I was their age, when I first started to work in Albertsons store back in 1976. Today's career paths are being defined more than ever through a variety of channels, including our distribution centers, self-manufacturing plants, technology offices and culinary kitchen and technical center in Pleasanton, California, as well as our stores in backstage offices. I've seen it, and I've been reporting it to our -- reporting it weekly to our associates. All in all, not only is our infrastructure in good shape but as Bob mentioned, regarding our announced merger with Rite Aid, we're ready and we're very excited to partner with Rite Aid in the upcoming months. With that, I'll turn the call over to Bob Dimond, our Chief Financial Officer, for an overview of our fourth quarter results.
Thanks, Jim. And hello, everyone. Sales and other revenue grew 1.6% to $14 billion in the fourth quarter of fiscal 2017, compared to $13.8 billion in the fourth quarter last year. Contributing to the increase was our 0.6% increase in identical store sales, increased fuel sales and new stores and acquisitions. During the quarter, we've refined our investments in promotions in pricing to be more targeted, and we've been able to successfully pass along inflation in food prices. As Bob Miller indicated, our fourth quarter identical store sales increased 0.6%, which benefited from sequential improvements over Q3, in customer traffic and in increased basket size.
Our gross profit margin decreased to 28.1% for the fourth quarter of fiscal 2017, compared to 28.5% in Q4 of the prior year. Excluding the impact of fuel, our gross profit margin decreased 30 basis points. The decrease is primarily attributable to investments in promotional pricing. In addition, to an increase in shrink expense which was partially due to system conversions. While shrink increased year-over-year in the quarter, it improved as a percentage of sales from the level experienced in Q3.
Selling and administrative expenses improved from -- to 26.6% of sales in the fourth quarter of fiscal 2017, compared to 27.1% of sales in the prior year. Excluding the impact of fuel, selling and administrative expenses as a percent of sales improved 40 basis points, compared to the fourth quarter of fiscal 2016. The improvement in selling and administrative expenses as a percentage of sales was primarily attributable to leveraging of employee expenses and occupancy cost and a favorable adjustment to pension expense.
Interest expense was $195.6 million for the fourth quarter of fiscal 2017, compared to $219.8 million in last year's fourth quarter. The decrease in interest expense during the fourth quarter in fiscal 2017 is primarily due to the write-off of deferred financing fees and lower average interest rates on outstanding borrowings as a result of our financing transactions last year.
Our adjusted EBITDA in the fourth quarter was $712 million or 5.1% of sales compared to $686.5 million or 5% of sales in the prior year. The increase in adjusted EBITDA primarily reflects our improvement in operating income, compared to the same period last year.
As of February 24, 2018, we have no borrowings outstanding under our $4 billion asset-based revolving credit facility and total availability of approximately $3.1 billion net of letters of credit. Total debt was $11.9 billion at fiscal year-end 2018, which was a reduction of $462 million from the prior year.
I would like to spend a moment on our outlook for 2018, which excludes the effect of the pending Rite Aid merger. The company expects fiscal 2018 identical store sales growth of 1.5% to 2%. The company expects adjusted EBITDA of approximately $2.7 billion, which is primarily attributable to the $100 million of incremental Safeway-related integration synergies that Jim mentioned; $150 million of identified cost reduction initiatives in advertising, procurement, store services and corporate and division overhead cost; $170 million of improvement in shrink expense, which has been elevated in part by our conversion activities and an increase from the flow-through and profit from the projected incremental sales, offset in part by union contract, minimum wage and other normal increases -- normal cost increases. The company expects interest expense to remain relatively flat compared to last year. The company expects its effective tax rate to be in the range of 25% to 27%, excluding discrete items. The company expects to spend approximately $1.2 billion in capital expenditures.
As we move forward, our strategy is to continue improving operating performance with focus on driving net sales, adjusted EBITDA and free cash flow, which will allow us to pay down debt. With the pending Rite Aid merger and the anticipated synergies, we continue to feel good about our ability to deliver operationally driven improvements to our balance sheet. And now Bob Miller will provide some closing remarks.
Thanks, Bob. We're pleased to see improvement in sales momentum in quarter 4 as food inflation picked up and was able to be passed along in the marketplace. And our go-to market strategies and promotions resonated well with our customers. We believe the sales growth led by continuing to run great stores, enhancing the customer's experience, improving our digital marketing, loyalty and eCommerce efforts and innovation in Own Brands, coupled with successful cost reduction efforts and the continued execution of incremental synergies from the Safeway acquisition, should allow us to generate improvement in sales and achieve our target for adjusted EBITDA of $2.7 billion for fiscal year 2018. We also believe that the pending merger with Rite Aid will enhance our ability to serve our customers by creating a leader in food, health and wellness with a strong local network of food stores and drugstores in very attractive geographies. This combination will provide excellent coverage in key West Coast markets and a strong position in the Northeast United States. A strong presence will allow us to participate in broader alliances to serve our customers and lower cost, create fresh shopping opportunities and enhance loyalty. With incremental synergies that we expect to realize from this combination, we believe we'll enhance sales and profitability going forward, allowing us to produce attractive shareholder returns as well as pay down debt and enhance our financial flexibility. With that, operator, we'll turn it back to you for questions.
[Operator Instructions] We'll take our first question from William Reuter with Bank of America.
In terms of your expectations that same-store sales increase between 1.5% and 2% next year, do you think that, that will be a relatively consistent across the year? And I guess, if there's anything you can comment on how the first quarter has trended so far?
Let me start with -- we think in identical sales will increase as we go through the year, as we expect to see more inflation, and we think we'll have the ability to pass that on. So that's a key component of that sales increase. For this quarter, well, we haven't given guidance, but I will tell you, we expect positive comp sales for quarter 2 -- quarter 1. We also expect it in quarter 2.
Okay. And then in terms of how that 1.5% to 2% same-store sales growth would be split between traffic and ticket, is there anything even qualitatively you could talk about what that breakdown might look like?
Well, we don't break that down, but we would expect to see growth in both.
Okay. And then just lastly, you talked about the automation that you're just in the kind of early parts of getting a facility up and running on. I think this is new for many previous savings plans. Is there any way that you can talk about what might be the long-term opportunities in terms of, I don't know if it's dollars or margin percentages or any way you can share with us what that could look like.
Yes, go ahead, Bob.
Yes, from a return perspective, we think this is one of our biggest returns that we have available. Hence, why we're going to be dedicating additional CapEx dollars to this. Each facility may have a little bit different profile, but it looks like the first 3 we looked at between 20% to 25%.
Return.
Return.
And the capital investment, we have not planned all of it yet but we're going to aggressively roll this out, and we'll have more information as we move forward. But big returns should create lots of value.
[Operator Instructions] We'll go next to Bryan Hunt with Fargo -- Wells Fargo.
It's David Kuck on for Brian. First I want to touch on the same-store sales. How are stores with the delivery and Drive-up and Go, how does the same-store sales of those stores compared to those that don't offer that service currently?
Well, we don't really break that out for competitive reasons, but it's certainly is additional sales in those stores that have that.
Okay. And then looking to 2018, what can we expect for cash taxes?
Yes. They'll be pretty minimal. One of the things that was a benefit obviously is the new tax plan that's out there, the tax law that just changed. And we're going to benefit not only the reduction at rates but also the acceleration of depreciation, where effectively on a lot of personal property assets, you can take a full deduction immediately. So very minimal taxes forecasted in 2018.
Okay. And then could you break out the $1.2 billion of CapEx? Can you break that out roughly by new store builds, remodels, DC automation, et cetera?
Yes. We have 2 primary buckets that we typically talk about and that would be new stores, remodels and maintenance of stores which kind of blurs into smaller remodels. That is typically about 60% to 65% of our $1.2 billion. And then rest would include things such as the -- all of our IT efforts, which will include some of the digital projects that Jim talked about, the eCommerce project, would also include some new things we're doing at AI and as well as in the distribution side a couple of automation projects.
We'll take our next question from Carla Casella with JPMorgan.
You have made some great improvements on SG&A side and it fell lower than expected. And you commented in your remarks that there's some favorable adjustments to the pension. I'm wondering how much of that was in there and what's the driver of it? And is that something that's onetime in nature?
Yes, the pension adjustment in the fourth quarter represented about between 10 to 15 basis points. And that was a settlement adjustment for pensions that we had. So that will be -- that's onetime.
Okay, great. And then how much do you expect to contribute to the pension for next year?
Yes. From a cash perspective, we'll be contributing about $58 million in this coming year.
Okay. And then on the gross margin side, you mentioned that there was some disruption from shrinks in the DC consolidation, the distribution center consolidation. And I remembered in the third quarter, I think that was the brunt of it where you mentioned that quarter alone, it was 50 basis points impact. Do you have what -- how much for the full year was related to that additional shrink from that consolidation?
I don't, Bob. We don't have that number available right now. I don't think so.
We do know that our shrink increase year-over-year is somewhat affected by the conversion activity. It's not just the distribution centers, this includes the rollout of our new systems into stores. And some of that is just getting people trained on how to use the new systems right and so forth. So we feel very confident in our ability to be able to pull that expense that we saw this past year increase out of the stores and to be able to see improvement year-over-year.
And Bob -- this is Jim, and that's just one of the components in the shrink area that we're working on. We're working on the old -- age-old other areas such as internal/external fast overproduction, the vendors and so all of this is a combined effort in a broad company program that we're getting -- we're starting to see rolled out and seeing some traction.
Okay, that's great. And if I understand correctly, the third quarter would've been the most disruptive quarter because you were converting the most number of systems in DCs. Is that right way to think about it?
Yes, let me take that. The third quarter, we consolidated warehouses in our biggest divisions Southern Cal. We went from 5 to 2, and that was the most disruptive. The third quarter also included our heightened promotional spending, which I will admit we didn't do as well as we should have. And we refined that in the fourth quarter and got much better results. Looks like, so far, the start of the first quarter, we have the same kind of results. So we think we're on the right track now to continue to spend promotionally to drive traffic. I will tell you that last year, through the year, since we're a promotional operator, it was harder to really get out in front of the consumer with promotional offers that set us apart, because of prolonged deflation, everybody was very promotional. And we're starting to see the competitive side a little better as we go forward. In our world it's never better. It's always there. But it looks like more rational thinking, and we continue to promote where we need to in our plans, agenda, and we're seeing good results.
That's great. I'll ask one more and then I'll just get in the queue with my other -- but have you given your store opening and closure plans for 2018?
We're going to open 15 new stores, probably 150 to 200 remodels or refreshes. And we're going to close a few stores, probably, but we don't have a number. We review every quarter, at the end of the quarter, our 10% worst stores. And we make a decision based on rent and other factors. And we always have 2 or 3 that's better to not operate. So that's an ongoing program that we'll continue and will continue to close a few stores every quarter. By the way, they're low volume, they're not making any money so the effect is a positive one.
We'll take our next question from Hale Holden with Barclays.
I just have 2. Following up on Carla's shrink question for the 2018 EBITDA bridge. The shrink improvement you're looking for, I was wondering if you could just give us some of the tenets of how that's going to be achieved, and then where that would put you on shrink on a historical basis or where you've been over the last couple of years. Is it kind of better or back in line with the last couple of years was?
Let me take the last part there and just the number. So our shrink before we started the conversion was 325 to 350. We're going to end up this year below 360, right, Jim?
Yes.
And we think we can get back to our -- we may be able to get back to our historical run rate and you're doing a lot of things to get that done I know.
Well, it's -- again, when we look at -- conversions aside, we're taking a deep dive. We put shrink leads into every division. I just happen to communicate with them twice a week on what's hot, what's not, how we're doing. But again, we're looking at those 4 primary areas that I mentioned. We do have some technology systems enhancements as well as data analytics to come that are going to help us with that. So we've made great progress, and we're still going to roll out a shrink works program in Portland next week. I'll actually be there, which is, they're going to be put a little bit of formality around us going out and looking at every single one of those components that I mentioned to drive all the improvement we can from every department.
So let me recap. In this year, we expect to improve by 60 bps over last year.
30.
30 bps, I'm sorry. We expect to improve 60 bps, but we're only counting on 30.
My thought it was [ 65 ].
30s and [ 2-7 ] right?
That's right, that's right.
Great. And then the second question I have is in the proxy filing, it looks like you may have done a second sale-leaseback in the fourth quarter. I was wondering if you can give us some color on that.
Sure. So we did an additional sale-leaseback for $268 million of proceeds, very similar to the first one that was purchased over $700 million. It was very well received. We're able to negotiate very good cap rates, so we'd be able to have some very good rent rates as we go forward on those. The other thing that we looked at here in the selection of stores were those that had high tax spaces. So this is very tax-friendly, if you will, very little tax to pay here. And it just continues to shine the light on the remaining value of our real estate, which is about $11.2 billion.
We'll take our next question from Anoop Shah with Ares Management.
A couple of questions for you. Can you kind of talk about your views on snap reduction and your exposure there? I think that read a contemplated drop of 20%, but I know that continues moving back and forth.
Yes, we're watching that closely but the good news for us while we do have some customers that use the snap program, it's about 4% of our total sales. It's going to affect the price players much heavier than it would us. But we'll watch that -- the announcement that came out, talked about us scaling back over a number of years. We'll see what that does. But we think our impact individually relative to the many others would be much smaller.
Got it, great. And then there's been some articles around SuperValu being up for sale, and I know you've got some overlap with the retail business in D.C. and Baltimore. Would those be of any interest to you?
Let me just say we always look at assets that might fit into our store network that would create value. But I could not see us buying the entire brand in any of those markets, if we buy anything or if we even look at anything. But we'll continue to look around the country for opportunities that enhance shareholder value.
Got it. And then I was wondering if you guys could comment kind of the time line here, for I think the proxy vote is early summer, I believe, kind of what would be the time line to that proposed acquisition and debt financing with it?
Well, we can estimate a guess, the S-4 is on file now. We would hope to have that approved in 30 days. Rite Aid would send out notice of a meeting to take the vote. And that could be at the middle of July, based on what we know today. That's all kind of guesstimates, but we think that's realistic.
Got it. That's helpful. And then, on the gross margin. Can you break out that 30 bps between promotion and pricing and then what the shrink component was at that 30 bps?
Yes, it was -- for the fourth quarter, it was fairly evenly spread between shrink and then the margin investment.
Okay, got it. And then you guys had commented that you've had the ability to pass on the food inflation. And I'm just kind of looking at the CPI and PPI data that came out yesterday and today. And it shows that there is inflation on the CPI side but it's nowhere near what the wholesale pricing is. I guess the -- what are you...
Certainly, it's kind of flat and hasn't done much. It went down slightly this last month. Less and less inflation. But we think with all those moving parts, we see transportation, material cost, other things, we expect to see inflation in the last half. I mean, it's hard to have a crystal ball on inflation, but we think there'll be more inflation as we go forward.
And we'll take a follow-up question from Carla Casella with JPMorgan.
So on the Rite Aid front, you mentioned the timing potential for shareholder votes. Between the shareholder vote and the close, how much time do you think or how many other hurdles or timing -- how much time do you need between that? And any update -- will the financing that's been committed and discussed be done once you know the close is or is there something you could do ahead of time to bridge the gap?
Let me just say on the timing. The timing is what it's going to be, and we're working hard to have an integration plan that will start day 1 that will create value almost immediately. And we're working together as both teams. With that, I'll turn it to Bob to answer the financing question.
Yes. And on the financing part of it, we would expect it to, of course, have that done, probably slightly ahead of when we would close.
Okay, great. And then, you've mentioned in there, your guidance you expect EBIT to be up by $280 million to $320 million. I guess, is that -- how much of that is the cost cutting versus in-store sales growth? I'm trying to get a sense for how much more investment in price should we expect with any of the savings that you're going to get going forward?
Well, as you know, our margin went down for the year in 2017. So our base is lower than the year before. We don't expect to see any margin improvement except in things like shrink improvement and private label penetration. So we can look forward to be very aggressive in 2018 and still hit our margin targets.
And we have time for one last question and the question comes from Scott Dempsey with DoubleLine Capital.
Just a quick one for me. If you could break out on the identical store sales the foot traffic versus average basket price that you've broken out in the past. And any color to current trends on foot traffic if it's trending positively?
Okay, we will give you that number. I guess we've done that in the past.
Okay, for the fourth quarter, it was minus 0.8 on our foot traffic or customer count and positive 1.4 to the basket.
And the 0.8 is substantial improvement over our trends for the last year.
Okay. Thank you, everyone, for participating today. If there's a follow-up, I'll be available. And I hope you have a good rest of the day. Thank you.
Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.