Albertsons Companies - Earnings Call - Q1 2020
July 27, 2020
Transcript
Operator (participant)
Ladies and gentlemen, welcome to the Albertsons Companies' Q1 2020 Conference Call, and thank you for standing by. All participants will be in a listen-only mode until the Q&A session. This call is being recorded. If you have any objections, please disconnect at this time. I would like to turn the call over to Melissa Plaisance, GVP of Treasury and Investor Relations. Thank you. You may begin.
Melissa Plaisance (VP of Treasury and Investor Relations)
Good morning, and thank you for joining us for the Albertsons Companies' Q1 2020 Earnings Conference Call. With me today from the company are Vivek Sankaran, our President and CEO, and Bob Dimond, our CFO. Today, Vivek will start with some opening remarks, share insight into our strong Q1 2020 results, and outline recent progress against our strategic priorities. Bob will then provide the financial details of our Q1 before handing it back over to Vivek for some closing remarks. After management comments, we will conduct a question-and-answer session. I would 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.
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. These risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include those related to the COVID-19 pandemic, about which there are still many unknowns, including the duration of the pandemic and the extent of its impact. 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 Form 10-K, 10-Q, 8-K, and our prospectus dated 25 June 2020, and filed pursuant to Rule 424(b)(1).
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. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures, and the 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.
Vivek Sankaran (CEO)
Thank you, Melissa. Good morning, everyone, and thanks for joining us today. As you all know, Albertsons Companies went public just over a month ago, and I'm very pleased to welcome the equity investment community to this call. This is an important new chapter for us. So before we discuss our strong Q1 results, I'd like to first share some brief comments about our journey, especially for those on the call who may not be as familiar with the Albertsons story. Following the successful completion of the Safeway integration in 2019, we began the next phase of our transformation.
We studied the competitive environment and secular trends and formulated a clear strategy that enhances our focus on the customer, leverages our strengths as a leader in attractive markets, and further strengthens our capabilities to efficiently meet the changing needs and preferences of our customers by modernizing all aspects of our company. We sought out and put the best talent from inside and outside the company into pivotal positions and pushed ourselves to set new expectations that better reflect the full sustainable growth and earnings power of this business. Our results in 2019 were solid, with steady improvement in performance with each successive quarter. We were primed for even stronger performance in 2020, and while no one expected the impact of COVID-19, we moved swiftly to adapt our business and response. Our stores remain the foundation of our business.
When combined with our growing suite of digital and e-commerce offerings and loyalty programs, we are well positioned to respond quickly and effectively to changing consumer behaviors. Let me now turn to our priorities in this new chapter, along with some key highlights from the quarter and disciplined actions we have taken to navigate the pandemic over the past few months. Our strategy is predicated on leveraging our operational expertise as well as building deep and lasting relationships with customers that result in long-term growth and lifetime value. We celebrate local ownership in how we run our stores and support them with our national scale, which we believe makes us unique. In fact, everyone at Albertsons is guided by a common goal to be locally great and nationally strong.
I'm pleased to report that we had a record quarter by all measures, with 26.5% identical sales growth that drove adjusted EBITDA of $1.7 billion. This represents an increase in adjusted EBITDA of over 90% versus the same period last year and flow through of approximately 20% on incremental sales. Our performance is the direct result of the steadfast commitment of all our associates to serve customers and support our communities through the challenges they have endured over the last few months and support each other in these very difficult and uncertain times. I'm so proud of them and thank them for all they do. I'm also pleased to note that we gained market share across our footprint and did even better in markets where we're not the market share leader. We're very focused on retaining our new customers and retaining the incremental spend of our current customers.
Our rapidly growing loyalty program is a key enabler that will allow us to increase retention of customers. In addition to our efforts to enhance our in-store execution, breadth of offerings, and omnichannel capabilities, which I will touch on in a moment, we offer fuel rewards, grocery rewards, and hundreds of millions of personalized deals to our customers. We have expanded our pool of loyal customers, broadened their engagement with us, and retained their business. For example, in Q1, we saw a 27% increase in the number of households that signed up for our loyalty program to 22.5 million, driven by the expansion of the program in key geographies. The number of members in our program who redeemed digital deals and coupons was also up 32% year on year, with the average weekly spend being two times that of customers that are not engaged in the digital deals and coupons.
Members who redeem rewards drive an average weekly spend 3.8 times that of customers that are not engaged in rewards. Sales from households that are redeeming in our loyalty program, just for U, digital deals, coupons, and rewards, are up 28% versus their spend last year. Our retention rates were the highest in years among our loyal households during Q1, with over 40% of our existing shoppers moving up the loyalty ladder as customers were rewarded with more personalized deals and expanded the number of categories they shop with us. Going forward, we're focused on expanding our enrollment in geographies that have historically not had it and working towards strengthening engagement in geographies with high enrollment.
Overall, the customer is at the center of everything we do, and picking the right priorities and putting resources and energy behind them will help us deliver value both for our customers and our stockholders. You've heard us talk about a framework that revolves around a few key themes: growth, productivity, technology, talent, and culture. With that in mind, I wanted to spend the next few minutes providing insight into our strategic priorities within that framework. Our first strategic priority is driving growth through in-store excellence across our fleet of stores throughout the country. We fulfill this commitment in several different ways, so let me share a few examples. We're providing a compelling breadth of services and assortment, especially through our fresh offerings, which has proven to be very important as customers eat more at home, which is driving sales.
Over the years, we have invested in relationships with farmers on a global, national, and local basis and in our broader supply chain to give our customers the best quality and availability of fresh food. Those investments are paying off as we saw our fresh market share increase, with meat driving the highest sales and share gains in Q1. Part of this increase was also driven by promotions for Memorial Day, when we featured some grilling items to support holiday weekend needs, such as Signature Farms pork back ribs, as well as sausages and hot dogs that achieved record sales. We have constantly focused on innovation and continuing to grow our Own Brands portfolio, which is another advantage for us.
This portfolio includes nine brands, over 12,000 products, and was a $13 billion business in 2019, growing faster than our branded business and, on average, contributes a thousand basis point advantage in gross margin versus national brands. Own brands have been growing steadily as a proportion of our overall sales in recent years, and we intend to increase own brands penetration from 25.4% in 2019 to 30% in the next few years. During the pandemic, our own brands continued to be a source of growth. O Organics and Open Nature grew faster than our overall business, with 31% and 28% growth, respectively. In Q1, we introduced over 400 new items in our Own Brands portfolio. This includes many exciting additions to our ice cream lines in both traditional and non-dairy, plant-based options such as Signature Select Cinnamon Churro Ice Cream and Open Nature Oat Non-Dairy Blueberry Oatmeal Crumble.
We are seeing growing interest from our customers in plant-based offerings, so we're focused on expanding our efforts in this area as we look to accommodate all lifestyle needs and customer preferences. We also continue to invest in our stores, completing 46 store remodels during Q1, which are a proven driver of ID sales. Our second strategic priority is supercharging our digital and e-commerce offerings. As we began transforming the business last year, we prioritized e-commerce as an area for improvement and have allocated a lot of resources and attention to doing so. We brought new leaders and fresh thinking into the company, significantly stepped up our digital investments to enhance our customer experience, formulated an omnichannel strategy that leverages our store's central locations in communities, offering Drive-Up & Go and delivery, and piloted micro fulfillment centers to enhance productivity. We are seeing the benefits of our investments.
During Q1, we saw a significant step change in our e-commerce business, with an increase of 276% in digital sales compared to the Q1 last year. Growth was driven by accelerated expansion of our Drive-Up and Go, or DUG, curbside service, which is now available in 731 stores, up from 600 at the beginning of the fiscal year, a testament to how quickly the team was able to adapt and execute. We also now have our own delivery offerings in nearly 65% of our stores, as well as third-party delivery, which in total covers over 90% of our stores. We see significant growth potential in e-commerce and plan to expand our DUG offerings to nearly 1,400 stores by the end of this fiscal year, on our way to achieve our target of 1,600-plus stores within two years.
While the trend towards omnichannel was already occurring, the pandemic has dramatically accelerated this trend, and we have positioned ourselves to support our customers with the solutions they want and need right now. We're committed to supporting this expansion with the full resources of our organization. As we approach this work, we're balancing the need to expand our capability quickly with the knowledge that we have to provide an exceptional experience every time for our customers. It is the only way to build on the strengths of our great stores and keep the customers who are testing our new capabilities. This requires us to move deliberately and also prioritize building a profitable and scalable omnichannel model for the long term.
I'm certain that we will expand our capabilities to the vast majority of our stores over time, but we will do so in a way that does not compromise our competitive differentiators or our business model. Going forward, we will continue to build on and refine our capabilities and invest in the digital and physical experience of our customers, including experimenting with new delivery assets while implementing new technologies to drive productivity and working with our partners to streamline the omnichannel supply chain. Our third strategic priority is driving productivity. We're intensely focused on delivering operational efficiencies to help offset cost inflation and fuel reinvestment in the business. This includes leveraging the national scale of our organization to maximize efficiencies in our supply chain and drive operational leverage.
While we sustain momentum on initiatives such as strategic sourcing, we took a brief pause in the first half of the quarter on others, especially those that required travel and contact between associates. However, we reactivated these efforts towards the end of the quarter and expect them to be a benefit going forward. Furthermore, a crucial enabler of our productivity initiatives is our focus on technology and automation. In the Q1, we accelerated our technology agenda to scale our e-commerce business, transitioned many of our teams to work from home, and monetized our technology stack to drive enhancements for our customers, store operations, merchandising, and supply chain. We're pleased with the progress we've made in modernizing the data and technology platforms, leveraging the public cloud, software-defined network, and upgrading core applications to be more agile, scalable, and secure.
We're also making good progress on ramping up automation in our stores, including the deployment of self-checkout, as well as our automated forecast and replenishment system, FAR, and VisionPro, our production planning tool. Both use AI to manage our in-stock position and reduce our shrink. To give you an example, we launched VisionPro company-wide in produce and have seen reductions in shrink of over 40 basis points. Our FAR automated replenishment system has helped us reduce excess inventory in one of our divisions by over seven pallets per store, and we're experiencing similar results as it launches company-wide. We've also leveraged technology to deliver training for these great tools virtually and creating a safer environment while also reducing the cost of travel.
We believe these productivity initiatives will drive tangible improvements in customer satisfaction and will be a key driver in increasing customer loyalty, a key differentiator for us, as I mentioned earlier. We're confident that we will achieve our $1 billion of productivity over the next three years. Our fourth strategic priority is to build on the unique culture that we have created, which marries our local focus with the advantages of our national scale. This is a critical differentiator for us, as deep knowledge of the local needs of our customers helps us remain relevant and build loyalty, maximizing the lifetime value of the relationship we have with each and every one of our customers.
This approach is proving itself to be more important in this time of heightened need, where our teams are working tirelessly to ensure the safety and well-being of our people and our customers while supporting the communities in which we operate. In support of this priority, this quarter, we spent nearly $300 million in appreciation pay and extended sick pay for associates, including a final lump sum reward payment to our teams totaling nearly $40 million at the end of the quarter. We implemented safety measures, including plexiglass barriers in every check lane and enhanced health screenings for all of our teams to help ensure our associates, customers, and communities were afforded a safe, secure shopping experience. We also recently announced that we now require customers across all of our locations to wear face coverings when shopping for the protection of our customers and associates.
We contributed $53 million in cash towards COVID-19-related hunger relief and another $5 million to support social justice. To further strengthen our culture, we're also continuing to build out our team and have made several key hires over the past few months. Our former General Counsel, Bob Gordon, retired in mid-June, and Juliette Pryor was named Executive Vice President and General Counsel. She joins us from Cox Enterprises, where she served as General Counsel and Corporate Secretary. Prior to that, she was at US Foods, where she served as General Counsel and Chief Compliance Officer, among other roles over time. I thank Bob for his service and welcome Juliet to the company and the team. At the same time, we hired more than 80,000 associates to date since the pandemic began to support the surge in demand in e-commerce, our stores, and our DCs.
As we look forward, we remain focused on balancing the opportunity we have to leverage our national scale for efficiencies without compromising our commitment to empower store-level decision-makers to take care of the unique needs of our customers across the markets where we do business. This will further align the interests of those who directly manage our customer relationships on a daily basis with our commitment to creating value for all our stakeholders, including our stockholders. I'll come back with some closing thoughts in a few minutes, but now I will turn the call over to Bob to cover our Q1 results. Bob?
Bob Dimond (CFO)
Thanks, Vivek, and hello, everyone. As Vivek noticed, we delivered strong performance in the Q1, driven by continued successful execution against our priorities and an unprecedented increase in demand driven by the COVID-19 pandemic.
Total sales were $22.8 billion during the Q1, compared to $18.7 billion during the Q1 last year. Our increase in sales was primarily driven by our 26.5% increase in identical sales. ID growth was at 47% in March, 21% in both April and May, and 17% in June, as lockdowns and stockpiling behavior were followed by initial reopenings across the country. We are continuing to see elevated identical sales in the mid-teens since the end of the Q1. While it isn't our practice to give monthly ID sales, we thought it would be helpful in this environment. Our gross profit margin increased to 29.8% during the Q1 of fiscal 2020, compared to 28% in Q1 2019. Excluding the impact of fuel, our gross profit margin increased 80 basis points.
The increase was primarily attributable to lower shrink expense as a result of the significantly higher than normal sales volumes. During late May and June, we increased our promotions as supply levels improved, and we focused on winning the Memorial Day and Father's Day holidays. As Vivek mentioned earlier, we believe this increased promotional activity contributed to our strong identical sales. Turning to selling and administrative expenses, we saw significant sales leverage throughout the Q1 as our selling and administrative expense rate decreased to 25.4% of sales compared to 26.4% of sales for the Q1 of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales were 190 basis points lower than the prior year.
Overall, the improved sales leverage, including strong cost control, more than offset incremental COVID-19 costs, totaling approximately $615 million, including approximately $400 million in one-time or non-recurring expenses. As we continue to optimize our procedures and procurement of PPE and cleaning supplies, we expect to incur less ongoing COVID-related expenses during the Q2. As I just mentioned, we are seeing continued strong ID sales growth and believe that these expenses will more than be offset by the increased revenue. Interest expense was $180.6 million during the Q1 of fiscal 2020, compared to $225.2 million during the same quarter last year. The decrease in interest expense is primarily attributable to lower average outstanding borrowings compared to the Q1 of fiscal 2019 and lower average interest rates.
The weighted average interest rate during the Q1 of fiscal 2020 was 6% compared to 6.5% in the Q1 of fiscal 2019. Adjusted EBITDA was $1.7 billion during the Q1 of fiscal 2020, compared to $877 million during the Q1 of fiscal 2019. The increase in adjusted EBITDA primarily reflects our record identical sales and improved gross margin and lower selling and administrative expense rate. Adjusted net income for the quarter was $801 million. An adjusted EPS was $1.35 per share using our fully diluted shares outstanding, compared to $177.30 per share during the Q1 last year. From a capital expenditure perspective, we spent approximately $400 million during the Q1. As Vivek mentioned, we completed 46 remodels in Q1 and also accelerated technology-related investments, including those in digital and e-commerce.
For the full year, we expect to spend approximately $1.6 billion in total capital expenditures. We generated record free cash flow during the quarter, driven by the strong identical sales and adjusted EBITDA, in addition to improved working capital trends driven by the increased volumes. As a result, we finished the quarter with over $2 billion in cash, and our net debt to adjusted EBITDA improved to 1.8 times on an LTM basis, or 2.4 times our 2019 adjusted EBITDA. Looking forward, as we disclosed in our prospectus, we expect our board of directors will be authorizing an annual dividend of $0.40 per share payable quarterly, with the first declaration and payment dates occurring during our Q3 of fiscal 2020.
As many of you saw last week, we announced a tentative agreement with the UFCW local unions regarding pension benefits for 5,100 of our associates in the Union Industry Pension Fund, which is referred to as the National Fund. Upon ratification of the agreement by nine local UFCW unions, we expect to incur a pre-tax charge of approximately $286 million, or $213 million after tax, to record the withdrawal liability, likely in the Q3 of fiscal 2020. This charge will not affect adjusted EBITDA and adjusted net income for fiscal 2020. The payments into the National Fund will be made in three or four installments over the next three years. We will also be establishing a variable annuity pension plan to provide future benefits for our employees and will be making a payment of $8 to 9 million into this new plan within 30 days of its establishment.
And now, Vivek will provide some closing remarks.
Vivek Sankaran (CEO)
Thank you, Bob. These last few months have been unprecedented in our company, our industry, and our country. We have dealt with the challenges posed by a global pandemic and faced tragic racism, which in turn led to civil unrest. Our team really stepped up, and their perseverance and dedication to serve our customers and our communities are demonstrated in our record results, with identical sales growth and adjusted EBITDA growth of 26.5% and more than 90%, respectively. I could not be more proud of our associates all around the country. We're also pleased to see that our success is being recognized, with Supermarket News naming Albertsons its Retailer of the Year. We feel good about how the business has been performing.
We are progressing towards our goals and are very focused on retaining our new customers through the variety of ways you heard me address earlier, including our loyalty program, an excellent shopping experience in our stores, and our digital and e-commerce offerings. It is clear that we will remain in a period of heightened volatility related to the pandemic for some time, and its impact will continue to be felt in varying degrees across the markets in which we operate. As a result, we will not be providing guidance for fiscal year 2020 at this time. To give some context for how we are thinking about the balance of the year, given our strong performance in the Q1 and our plan for the remainder of the year, we would expect to meet or exceed $3.7 billion of adjusted EBITDA for the year.
With the recent flare-ups of COVID-19 in several parts of the US, including states where we have many stores like California and Texas, the magnitude of increases week by week have been closely correlated with the level of consumer concern about the virus. We have continued to see strong customer demand this month. I estimate that July ID sales growth will be in the mid-teens. Given the current dynamics, we expect demand levels to remain elevated as customers are likely to continue to eat at home for an extended period. Looking at our history, we know that the types of changes to consumer behavior that we are currently seeing tend to have long duration when they do occur.
This is why it is so important to focus on both strong execution in this moment of heightened need while also prioritizing the strategic work that we are doing to build on our competitive strengths. We will continue to invest in our people, our capabilities, our technology, and our stores. It will ensure that we sustain the momentum that we currently have and build a lasting change in preference with our customers. When I step back and look at where we are, I have great confidence that our well-located stores, broad assortment with a focus on high-quality fresh product, strong loyalty program, and rapidly expanding omnichannel offerings position us well to build these lasting relationships with customers and sustain the market share gains we have generated.
We have the financial engine to support this ambition as we are operating from a position of strength and liquidity and generating strong free cash flow. We have a disciplined approach to assess and prioritize the opportunities to reinvest our cash in areas with the highest returns, a broad range of productivity projects that create additional fuel for reinvestment, while maintaining our commitment to return of capital to stockholders through our dividend and continued reduction of debt over time. We expect this combination of strong execution and strategic reinvestment by a fully aligned and talented organization will drive long-term growth, enhance our profitability, and support double-digit stockholder returns well beyond the period of heightened COVID-19-related demand. I will now turn the call back to the operator for questions.
Operator (participant)
At this time, we will be conducting a question-and-answer session.
If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. The first question comes from the line of Robbie Ohmes with Bank of America. You may proceed with your question.
Robbie Ohmes (Managing Director and Senior Retail Analyst)
Hi, Robbie. Nice quarter. And Vivek, I guess my question is, you called out, I thought it was interesting how you called out in the markets where you're not the market share leader, you're doing even better there. Could you maybe talk a little bit more?
Is that all just because you are being a lot more promotional than the competition, or are there other things you're doing? Maybe talk about the meat market share gains as well. Again, is that all promotionally driven, or are there other things you're doing there? And maybe the last thing is all part of this one question is, could you give us some sense of how much stronger your fresh side of your business comps are versus the balance of the store?
Vivek Sankaran (CEO)
So Robbie, let me tell you. I think in the—what I'm so proud of in this type of an environment, it all comes down to execution, right, and it's having the right supply and having execution, being able to put a lot through our stores. And that's what has driven it, now, frankly, driven our share gains.
And I think we have out-executed much of the competition in some of those markets. In terms of the share gains on meat itself, I will tell you that I was referring particularly to the timeframe around the Memorial Day holiday. That was the first window, first big holiday of the year going into the summer. And so we promoted there, and that was part of the share gains in meat that was on top of what were typical share gains week on week as we went through the quarter. And so I hope that gives you a sense for, and our fresh business continues to grow. Our produce came back really fast. And then as the meat supply started stabilizing, we started gaining real momentum in meat. So our entire fresh business is growing really well.
In fact, it's become the more stable and predictable side of our business from a growth standpoint because people are coming back every week to replenish it,
Robbie Ohmes (Managing Director and Senior Retail Analyst)
and then maybe just a quick follow-up. Vivek, can you give us any comments on the kind of ticket versus traffic pattern, and are there any changes into July?
Vivek Sankaran (CEO)
The people are still coming in less often and buying large baskets, Robbie. That pattern we have seen continuing for the last several months. We haven't seen a fundamental shift in that traffic pattern at all. Terrific.
Robbie Ohmes (Managing Director and Senior Retail Analyst)
Thanks so much.
Vivek Sankaran (CEO)
Thank you, Robbie.
Operator (participant)
Our next question comes from the line of John Heinbockel with Guggenheim. You may proceed with your question.
John Heinbockel (Managing Director)
Can you guys hear me?
Vivek Sankaran (CEO)
Hey, John. Morning.
John Heinbockel (Managing Director)
I want to ask you two things on digital. It looks like you're pulling forward the DUG expansion by a full year, right?
I think you said to get to 1,400 by the end of this year. Is that right? And how do you think about staging that and managing that? That's a lot of installations, right? I assume you're going to try to get a lot of that done before Thanksgiving. And then where are you on MFCs, right? I know we're two now. What's the timetable on expansion at this point?
Vivek Sankaran (CEO)
Yeah, John, so one yes. We are pulling it forward. We are excited about Drive Up and Go. It is the fastest growing in our portfolio, and so we're pulling it forward. The biggest constraint is less so the capital and the technology and such. It's always about getting the right people and embedding it in the team the right way.
And the team has been working on that, and you saw we added about 130 or so in the first few months. And so we now have a formula on how best to expand that. With micro fulfillment centers, we're excited about the two that we have, and now we're looking at multiple ways. So as we talk, we're talking about expanding it to different markets. One, doing it the way we did, which is putting it as part of a store, but we're also exploring other options where it doesn't have to be part of a store. So that will be the next phase to think about various models in which we can implement a micro fulfillment center. And when we get comfortable about that, we'll accelerate the expansion. But it's another critical part of our productivity journey, let me put it that way, in e-commerce.
John Heinbockel (Managing Director)
Okay.
And then maybe for Bob, do you think that when you think about going forward, incremental margin on a double-digit comp, is that still likely to be close to 20%, or because of some of these investments, it ends up being less than that?
Vivek Sankaran (CEO)
Yeah. I think you'll see that our gross margin rate is going to continue, I think, somewhat comparable to where we've been. We're not necessarily seeing that it's going to be deviating a lot from there. In fact, our strategy really isn't to grow margin rate, although as we grow fresh faster, it just kind of automatically, and private label for that matter, kind of automatically will grow our margin if we don't spend it to grow our top line, which we try to do each year and have a nice balance there.
And you're seeing the flow through, John, because of the leverage below that line in the P&L, right, as we're able to just get a lot more volume through our stores, DCs, and you can see how that adds up.
John Heinbockel (Managing Director)
Thank you.
Operator (participant)
Our next question comes from the line of Ken Goldman with J.P. Morgan. You may proceed with your question.
Vivek Sankaran (CEO)
Hi, Ken Morgan.
Ken Goldman (Managing Director and Senior Equity Research Analyst)
Thank you. Hi, everybody. Hi. Vivek, I wanted to ask about what you're seeing from your competitors in terms of pricing and promos right now. You talked about maybe in some categories where supply has gotten a little bit better, maybe taking your promos back a little bit, which makes some sense. But I'm just curious, what are you seeing from some of your major competitors along these same lines? Are you seeing anyone restore promotions that were taken away in the center store, for example,
I just kind of wanted to pick your brain a little bit about the more broad-based kind of environment out there.
Vivek Sankaran (CEO)
Ken, the way I'd characterize it, nobody is back to the way promotions were before the crisis, and that's simply because of supply challenges, right, but that said, what I think you'll see is continued behavior around the critical holidays that everybody promotes to make sure that we're retaining the customers that we have. We don't want to give anybody a reason to go elsewhere to shop. And then there are some categories which, my suspicion is, until supply really catches up or demand substantially changes, you probably won't see much promotion. Examples, things like sanitizers. And I think even in some of the baked goods where, as you go into the year, the fall, you tend to see a lot more baked goods being purchased.
And I think it'll be harder to promote because of supply issues in some aspects of baked goods. I'm not seeing any. Let me put it this way. We're not seeing any competitors moving dramatically from the general perspective I provided on promotions.
Ken Goldman (Managing Director and Senior Equity Research Analyst)
Okay. No, that's helpful. And then my follow-up, thank you for the quarter-to-date ID sale number or the range. I realize you're not providing a full outlook today, but in light of sort of the June gross margin, how should we think about modeling just broadly your gross margin or your merchandising margin in the Q2? Is it fair to assume it'll potentially look a little more similar toward the last month of your quarter than the first few months? Any commentary you can provide there would be helpful. Thank you.
Vivek Sankaran (CEO)
Yeah. Ken, I'll start out here.
I think what you need to look at is kind of, look at the total quarter. We did have the period that had essentially two holidays in it, right, that, the promotional activity pulled it down a little bit, but there's not any quarter where you have that in every period, and when you balance it out, I would think that the Q2 is going to be back to kind of our normal average. Yeah.
Ken Goldman (Managing Director and Senior Equity Research Analyst)
Great. Thanks so much.
Operator (participant)
Our next question comes from the line of Kate McShane with Goldman Sachs. You may proceed with your question.
Kate McShane (Managing Director)
Hi. Good morning. Thanks for taking my question. The loyalty statistics you cited were very helpful. We were wondering how many new customers do you think you acquired during this period and how you're trying to retain them.
Bob Dimond (CFO)
Kate, good morning. Kate, substantial number, several million new customers, okay?
And I'll give you two flavors on that. One is a set of several million customers who are shopping both our store and e-commerce, and a good portion of that who are just shopping e-commerce, which is what's exciting to us because we know that that's 100% incremental. And so let me put it that way. And we feel really good about what we're seeing as we go through the last several weeks also about retaining those customers. This loyalty engine we're excited about, and it's. Here's how I think about it, right, if you're not traveling a lot, you don't care about the airline loyalty program. If you're traveling a lot, it matters a lot. And if you're shopping a lot to buy product and eating home a lot, the loyalty program matters, and it's proving out to be true.
Kate McShane (Managing Director)
Okay. Thank you. That's helpful.
And if I can ask one follow-up unrelated question, just wondering how you're thinking about fuel for the remainder of the year. Have fuel margins now returned to a more normal level versus history?
Bob Dimond (CFO)
Yeah. That's a great question, Kate. I think that as we look at it, it's really, as you'll recall, last year had some real peaks and valleys in it. And so I think that as we look at, for example, the Q2, it was pretty elevated last year. So we see kind of an elevated or a modest headwind as we think about the comparisons year-over-year. Although remember, fuel isn't a huge impact to our business relative to some others that have a lot bigger fuel business.
Kate McShane (Managing Director)
Thank you.
Operator (participant)
Our next question comes from the line of Edward Kelly with Wells Fargo. You may proceed with your question. Yeah.
Edward Kelly (Managing Director and Senior Equity Research Analyst)
Hi. Good morning, guys.
Hey, morning. Vivek and Bob, I want to go back to the gross margin. Could you just maybe talk about your promotional strategy a bit more broadly? Because if we look at Q1, the gross margin was very strong until about the last four to five weeks or so, it seems. And then it looks like it was actually probably down year-over-year. I think there's some concern out there that that means maybe there's something sort of lurking from a promotional standpoint, either with your strategy or from a competitive standpoint in terms of how we should think about Q2. But yet you seem to be guiding Q2 gross margins reasonably stable, ex-fuel. And maybe a four-week period just doesn't make a trend.
So could you just sort of walk through that for us and why we should have comfort around the gross margin in the Q2?
Vivek Sankaran (CEO)
Hey, good morning. Yeah. Good question. So let me just tell you. Let me just play it out for you. So what we knew we were going into, I think of the summer as being extremely important for a company like us, right? Winning the summer. And it was important for us to make sure that we didn't give our shoppers, especially the ones who came in, any reason to go anywhere when you got into these big holiday windows. And in period four, you had both Memorial Day and Father's Day coming together very close. And so we promoted, and we wanted to promote, especially in things like meat, which is a big holiday for Memorial Day.
And at the same time, we were hit with a lot of inflation in meat, okay, in that particular window. And we chose to make sure we're competitive on prices so that we can retain those shoppers and keep them in our franchise. And that was the dynamic that played out in period four. And that's an unusual set of circumstances when you promote as you have inflation. And we don't. Will that ever? I never say never happens, but that was an unusual scenario we saw in P4, which is why Bob gave you that perspective on the rest of the year. Right.
Edward Kelly (Managing Director and Senior Equity Research Analyst)
And then I wanted to follow up just to ask you on costs related to COVID. Can you just talk about what you're sort of expecting from here? Obviously, we've had a resurgence of the virus, and we've had some reopening issues in some states.
How does that impact what the cost will be, particularly from a labor standpoint in terms of what you paid out to people in Q1, what you think you're going to be doing in Q2?
Bob Dimond (CFO)
Yeah. We continue to improve it because of efficiencies, and when you talk about an ongoing cost, given we've done a lot of the one-timers like Plexiglas and those types of things, when you think of the ongoing cost, the primary costs are two sources. One is cleaning labor, and second is cleaning chemicals. Those are the two that you see, and there's a little bit of if somebody's got symptoms or if they've been in contact, we quarantine them, and we make sure that they're taken care of for those couple of weeks when they're in quarantine, so that's the nature of the cost. In all of these, we continue to drive efficiencies.
But what you should recognize is this: that as long as the virus is around, we will ensure that our stores are safe for our associates and for our customers. We'll be more productive. We'll always meet the CDC guidelines, but we'll ensure that safety. But the way I think about it is, as long as the virus is around and there are safety concerns, we should also see the elevated volumes in our business. I think those two things are congruent, Edward, in my mind.
Edward Kelly (Managing Director and Senior Equity Research Analyst)
Okay. Thank you.
Operator (participant)
The next question comes from the line of Scott Mushkin with R5 Capital. You may proceed with your question.
Vivek Sankaran (CEO)
Hello, Scott.
Scott Mushkin (Founder and CEO)
Thanks for, hey, good morning. Thanks for taking my question. So the first one I wanted to ask you about was just omnichannel. I know that you touched on this.
I was wondering if you could talk us through the profitability and how you see that currently and how you expect it to trend, and then I had a follow-up. Yeah.
Vivek Sankaran (CEO)
Yeah, so, Scott, it is less profitable than the core business, right? I mean, ultimately, we are doing the customer's work for her, and we're delighted to, and so the way I think about profitability, you have to take two lenses to it. If you take a lens around, take a customer-backed lens on it, what we're excited about is that the people who engage on e-commerce with us, and we can track that because we have these different loyalty programs, and we group customers in different buckets, and we know that those who are, say, less engaged, engage a lot more now suddenly that they have e-commerce.
So it's incremental business if you take a customer lens, and that provides more profit dollars and leverages the same asset, which is the store, which we build our e-commerce business around. You can take a different lens and look at it from a unit basis, right? An e-commerce order basis. And there, what I like about what's happening is that we're starting to get to a place where we have plenty of scale, and you have scale per store. That's great because now that you have scale per store, you can start optimizing for the whole store.
And so when we take that lens, now I'm starting to see a place where you can start working the math of the overall operation rather than the math of just the e-commerce operation, which is why between these two, we are optimistic about where e-commerce will go and the ability to generate good margins from that e-commerce business. And then finally, there's the MFCs, which provide that added productivity in a store.
Scott Mushkin (Founder and CEO)
All right. I appreciate that. My follow-up question is just around kind of the uses of capital as you look forward. Obviously, you talked about a dividend of $0.40. You guys have been successful doing some M&A. So I just wanted to get your guys' thoughts on future investments.
Vivek Sankaran (CEO)
Yeah. So let me provide a little bit of context, and Bob, just to add to that.
You noticed we were going to be planning to spend $1.6 billion. We were at $1.5 billion. We pulled up $100 million. Because, Scott, we're seeing in this environment, there are some areas that require immediate and quick investment, such as e-commerce. A lot of the technology platforms that we're putting with accelerated those. It's a good time to do it because that supply community in technology, for example, there's many sectors with which they really can't do anything, and we're a place where there's plenty of work, so we're pulling that forward, and we're starting to pull forward some of the areas of merchandising, some of the things that are more promising towards meals and such. We are always looking at opportunities, M&A-type opportunities, but as I've said before, it's not a primary strategic thrust for us, but we always look at those types of things.
Those might be opportunities that strengthen the network or strengthen some of the other growth priorities that we have talked about. Scott, Bob, can you talk about other uses versus dividend debt and so on?
Bob Dimond (CFO)
Yeah. Scott, so outside of reinvesting back into the business that Vivek just talked about, obviously, a piece of our total shareholder return is paying down or reducing some debt each year. And we're committed to that as well as returning cash to shareholders via dividends. So those are kind of the three components.
Operator (participant)
All right, guys. Hey, good luck in the Q2.
Bob Dimond (CFO)
Thank you, Scott.
Operator (participant)
Our next question comes from the line of Karen Short with Barclays. You may proceed with your question.
Karen Short (Managing Director)
Hi. Thanks very much. A couple of housekeeping just to start with. So in terms of the COVID expenses, it still wasn't totally clear to me.
You gave $400 million in non-recurring out of that $615 million. So is that the right way to think about 2Q? $215 million is recurring because it doesn't sound like that's what you sounded like you were signaling a much lower number in terms of recurring.
Vivek Sankaran (CEO)
Karen, because when we think of when we started the quarter, we threw the kitchen sink at safety, right? And so that reflects everything we threw in. And now we are in a very different optimized state, and we continue to optimize that number. And it's also a 16-week number versus a 12-week number. But even on a 12-week basis, you'll see that there is significant optimization of that going on while at the same time meeting the CDC guidelines.
Karen Short (Managing Director)
Okay. But we should look at that $215 million on a 16-week basis and think about that on a 12-week basis going forward.
Is that the right way to think about it?
Vivek Sankaran (CEO)
But also recognize that in that 16-week, it was not the optimized number, right? And we continue to improve on that, Karen.
Karen Short (Managing Director)
Okay. And then I just was wondering, I know in terms of your results, you added back the $53 million and the $36.9 million to both EPS and EBITDA. Maybe just why those two tranches specifically were the ones that you added back?
Bob Dimond (CFO)
Yeah. Karen, I'll take that. So I guess as we look at that, is that we saw those as kind of discretionary categories that we've had out there, the $53 million of charitable contributions that we made to the communities for hunger relief.
And then when you think of the final reward payment of about $37 million, we saw that as being incremental to the base rate that we had been paying throughout the quarter and that that was kind of a one-time kind of payment, somewhat duplicative if you would have just had it lumped in with the rest.
Karen Short (Managing Director)
Okay. That's helpful. Thank you. And then in terms of e-com, I guess I'm kind of backing into e-com being around 9% of, and this is food sales, in the quarter. Is that kind of the right run rate to think about? And then on e-com, I was wondering if you could just talk about, I believe you eliminated the pickup fee during the height of the pandemic. So the question is, have you reintroduced it during the quarter and/or in 1Q or into 2Q?
And then what was the negative impact of removing it to gross margin?
Vivek Sankaran (CEO)
Yeah. So we have not reintroduced a pickup fee or a service fee. The only fee we have is a delivery fee. Our intent is not to, at this time, given the growth and the usage that we are seeing. I mean, it had some impact on the overall margin to the business. But at the end of the day, I go back to the biggest what we need most is driving scale. And when you get that scale, you can optimize other things. So I'd rather play it that way than optimizing any one particular order with the service fee. We don't disclose the size of the business. I can tell you that the e-commerce business, with those tripling every period-over-period, almost tripling period-over-period, tends to become pretty large.
And so we're excited about the trajectory of the business. And we made a step change in the size of the business.
Karen Short (Managing Director)
Great. Thanks very much.
Operator (participant)
Our next question comes from the line of Greg Badishkanian with Wolfe Research. You may proceed with your question.
Spencer Hanus (Director & Senior Research Analyst)
Good morning. This is Spencer Hanus on for Greg. I guess if we could take a step back, can you talk about what you expect the new normal in food retail to look like? And then how are you thinking about 2021 and sort of cycling the strong performance you guys are on track for in 2020?
Bob Dimond (CFO)
Yeah. Cycling the 2021, it'll be interesting when we look at IDs. We'll have to think about it in dollars and how we're keeping the dollars and how we're keeping the customers. That'll be the metric that we'll all have to start getting our minds around.
I'll tell you my perspective on how this might play out. And I think it all depends on how much longer people are concerned about personal safety and their willingness to go out and eat out and go to games and eat there and so on and so forth, right? And so as long as there is a concern around personal safety, I think you're going to find continued in-home consumption. And then there really is a separate question on post-COVID, what happens? When people work, are we going to all work more from home? And if we work more from home, you're going to have a breakfast or a lunch at home, right, that you typically had on the road. And so does that drive more in-home consumption? We'll just have to see how it plays out.
But if history again is any lesson, out-of-home consumption does not change dramatically. It goes up in small increments each year. And that's in the best of circumstances.
Spencer Hanus (Director & Senior Research Analyst)
Thank you.
Operator (participant)
Our next question comes from the line of Paul Trussell with Deutsche Bank. You may proceed with your question.
Paul Trussell (Managing Director and Senior Equity Research Analyst)
Yes. Good morning. And thank you for being in-house.
Vivek Sankaran (CEO)
Morning, Paul.
Paul Trussell (Managing Director and Senior Equity Research Analyst)
To start, on the top line, you had very good relative performance in the Q1. I'd be interested in your gauge on your relative performance quarter to date and maybe discuss in a bit more detail the efforts and drivers to continue to take market share over the balance of the year?
Vivek Sankaran (CEO)
Yeah. Paul, I think the best indicator in an environment like this, you always have to think about relative performance. I'm glad you brought it up. We continue to see market share gains.
And we've seen good market share gains over the last several weeks. So that trend clearly is continuing. And I think a big part of that is two benefits that we provide. One is if you're eating at home, your life is going to center around a higher quality fresh portfolio. And if you're going to shop less often, you want to complete your basket in a store, in one shop. We offer both. And then on top of that, you have e-commerce. On top of that, you have the loyalty program and so on. So that's part of it. The second thing that we're doing is, of course, now that because we have a loyalty program, we're able to target customers very, very specifically with things that matter to them. And then we are accelerating things like our meals program. It's an important part of our agenda.
We're accelerating some of those things so that we give customers great choices even when they want to eat home and probably don't want to cook by themselves. So those are a few of the things, Paul. And then we continue to build the e-commerce engine, as we talked about, which drives retention and incrementality for us.
Paul Trussell (Managing Director and Senior Equity Research Analyst)
Thank you. And just to follow up, you made some comments earlier about the pension plan. Maybe just give a little bit more detail on what we should keep in mind. And also in that, Bob, maybe touch on how we should be thinking about your position on leverage and debt overall.
Vivek Sankaran (CEO)
Okay. Great, Paul.
So first of all, with regards to the pension plan that we announced a withdrawal from, I will tell you that this was a very unique set of circumstances and that we do not anticipate withdrawing from any other multi-employer plan. Now, you might ask, why did we do that? Well, we believe this avoids risk of anticipated increases in contributions in the future. We had some actuaries perform some analysis, which actually indicated that there could be very large increases in this particular plan into the future. And we believe that the best path was for us to withdraw now and de-risk our future funding requirements. But I will tell you, we have a preferred strategy. And that preferred strategy, as we look at these MEPP plans, is to, and actually, we executed a few such examples as to what I'm going to describe here in a second.
But that would be to restructure the plans by freezing them and then putting in place either a 401(k) or one of these variable defined contribution plans.
Bob Dimond (CFO)
Talk about leverage too.
Yeah, and then finally, as far as leverage, as you've seen, our leverage on a net basis has decreased dramatically here as of the end of the Q1. We believe that we can continue to get us down to the two times range once you kind of normalize sales or EBITDA. And we'll be able to do that here in the next year or two.
Paul Trussell (Managing Director and Senior Equity Research Analyst)
Thank you. My best.
Operator (participant)
Our next question comes from the line of Kelly Bania with BMO Capital. You may proceed with your question.
Vivek Sankaran (CEO)
Hello, Kelly.
Kelly Bania (Senior Equity Research Analyst)
Hi. Thank you. It's Kelly Bania from BMO Capital. Vivek and Bob, just wanted to ask about incremental margins.
I don't know if you specifically gave where you think that came out for the quarter on an ex-fuel basis and maybe even into June, and just specifically how digital impacts that as you accelerate, drive up and go over the next year or the next few years, really.
Bob Dimond (CFO)
Yeah. I'll start, and then maybe Vivek can fill it in. There's obviously a lot of puts and takes in here, but I would say that one of the things that we disclosed is that we continue to execute very well on shrink. We've had some of our new technology implementations have been focused on ways that we can on things that will reduce our shrink. Plus, I think with the elevated sales, that also helped our terms, which also reduced that to some degree.
But at the same time, we had some other items that probably grew our margin a little bit, but then we invested that in things such as our growth in e-com and balanced things out.
Vivek Sankaran (CEO)
Yeah. Kelly, I would encourage you to look at our margin puts and takes as a business in total. We have the margin tailwinds such as our fresh portfolio and meals and such and the own brands program that contribute to margin growth. And something like e-commerce, like I said earlier, is a lower margin business than our core business, and that takes away. But then also recognize we have a very robust productivity program, right? And that productivity program is addressing the effectiveness and efficiency of our promotions. It's helping us with labor in our stores and our DCs in all the goods that we buy.
So we have a productivity program too that is another tailwind, and depending on how we choose to use that. So I would encourage you to look at the overall business when you think about our margins and in any one particular area, you might see too much or too little, but it balances out.
Kelly Bania (Senior Equity Research Analyst)
Thanks. And maybe just to follow up, you mentioned the kind of volatile inflation in June, particularly against the promotional activity you did. Just can you help us understand what to think about how July looks and if you have any visibility at all into inflation or deflation outlooks as we go through the rest of the year?
Bob Dimond (CFO)
More generally, a tendency towards inflation in everything that we're seeing with this heightened level of demand. It'll be surprising to see it go the other way.
But the type of inflation we saw in meats, for example, has moderated after the July timeframe, after the Memorial Day timeframe. Let me put it that way.
Kelly Bania (Senior Equity Research Analyst)
Thank you.
Operator (participant)
Ladies and gentlemen, we have time for two more questions. Our next question comes from the line of Simeon Gutman with Morgan Stanley. You may proceed with your question.
Michael Kessler (Equity Research Analyst)
Hey, guys. This is Michael Kessler. This is actually Michael on for Simeon. Hey, thanks, Vivek and Bob. Question on e-commerce. You guys have made some investments. You pulled forward investments. You made a bunch of hires in that department. Curious how you see that normalizing as e-commerce demand theoretically normalizes. And also thinking about any changes to strategy as far as your own in-house e-commerce, is that you have any change in thought around that?
And do you actually hope maybe one day to have a fully in-house delivery operation as you at 65% or so today?
Bob Dimond (CFO)
We are building our in-house business, and we have a strong partnership with Instacart. And we just give consumers choice. Even in the in-house business, you can drive up and pick it up. We deliver it in our own trucks. So there's many ways. And we want to continue to provide customers choice. And a big part of what we're doing is strengthening our in-house business itself. What is the second part of the question? Sorry, Mike.You had another one. Yeah.
Michael Kessler (Equity Research Analyst)
Just around, yeah, you made a number of hires that have been employees for e-commerce.
Do you kind of see that as just that becomes part of the e-commerce offering going forward to support demand, or do you see that normalizing at all, I guess, the outlook?
Bob Dimond (CFO)
Oh, the overall e-commerce demand. Look, I don't know. First, there's a higher level of demand, and there are some customers who are deeply engaged in it, and I think that will continue to become a normal course of life for them, right, and the better the experience we give, the more exciting it becomes for them, and we love that because they push up our stores and e-commerce and stay with us. I don't know where it settles out, but the predictions are it'll drop a little bit as we go forward and things normalize, drop, but stay at a higher level.
Depending on what you read outside, maybe it'll be two times where two X where it started before the crisis. But we'll just have to wait and see. Our intent is to continue to build it out so that it's a great choice that we give our customers.
Michael Kessler (Equity Research Analyst)
Got it. That's helpful. And just one other question similar to an earlier question, but when we think about the normal of your business in food retail and especially your margin structure, thinking about relative to pre-COVID, has anything changed as far as how you expect the margin to kind of settle at kind of a normalized rate once we get through this period? Or has anything changed on that front? How do you view that?
Bob Dimond (CFO)
Look, there's two ways I think about that.
First is, independent of COVID, there's a set of initiatives that we do and drive so that we can get leverage within the P&L, right? It's all of the productivity and the capabilities we're putting in around pricing and promotions and so on, so that part of it will continue, and the intent of all of that is to always provide the EBITDA growth commitments that we all gave you, right, so that'll happen. Now, if some of the COVID volume remains, which we believe it will, right? Some of that will remain as we go forward, and if people continue to eat at home, remember, that is more volume going through the same asset structure, and that's a second piece of leverage that should allow us to get some of the flow through that Bob talked about that you've seen, frankly, in Q1 that should also enhance the margin.
So the first one is there in any scenario. The second one, we'll just have to wait and see how it shakes out as things return to whatever the new normal is.
Michael Kessler (Equity Research Analyst)
All right. Thanks very much. Appreciate it.
Operator (participant)
Our next question comes from the line of Paul Lejuez with Citi. You may proceed with your question.
Vivek Sankaran (CEO)
Hello, Paul.
Paul Lejuez (Managing Director)
Hey, guys. Hi. Hey there. Can you maybe talk about the margins in fresh relative to the rest of the store? And where did you see larger improvements during the Q1 on a year-over-year basis, fresh versus the rest of the store? And then secondly, just come back to the pension agreement with the withdrawal from the national fund. You guys are paying, I think, $286 million. I'm curious what was the estimated liability tied to this specific multi-employer plan in your disclosures. Thanks.
Vivek Sankaran (CEO)
Yeah.
So, from a fresh margins, they tend to be higher, right? And for us, remember, in fresh, there's a lot of fresh that we do is value-added. So the cut fruit, custom cake, and so on. So our margins tend to be higher in fresh. And we've seen that fresh business earlier in the quarter, you saw a bit of a shift because while people were buying fresh, they were buying a lot more of that center store. Now that balance has moderated. So fresh margins tend to be an attractive part of the portfolio, and it's a growing part of the portfolio. And Bob, can you address the pension question?
Bob Dimond (CFO)
Yeah. Paul, I think it's kind of a complicated analysis there. So I can't give you an exact dollar figure.
As you know, the annual number we put in our SEC filing is as of a snapshot in time. And we have actuaries who are looking at this on an ongoing basis who have estimated that had we done nothing, we would have seen some increases in this particular fund. And so after looking at where discount rates end up, there's lots of different things that affect those totals, as you probably know. So we'll have to wait and see what the underfunding balance is as we get closer to the end of the year for our overall share of that underfunding status. Anyway, so.
Paul Lejuez (Managing Director)
Bob, I guess I was asking more about this specific multi-employer plan, not the overall number that you disclosed. I mean, what was the liability tied to the national fund?
Bob Dimond (CFO)
Yeah. We haven't broken that out separately, Paul.
Paul Lejuez (Managing Director)
All right. Thank you. Good luck, guys.
Vivek Sankaran (CEO)
Thank you.
Paul Lejuez (Managing Director)
All right.
Melissa Plaisance (VP of Treasury and Investor Relations)
Okay. Thank you, everyone. We appreciate you participating in the call today, and Cody and I will be available over the balance of the week for follow-up calls and so forth, and thanks for your interest in Albertsons.
Vivek Sankaran (CEO)
Thank you all
Bob Dimond (CFO)
Thank you.
Operator (participant)
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.