Albertsons Companies, Inc. (ACI) Q4 2020 Earnings Report, Transcript and Summary

Welcome to the Albertsons Companies Fourth Quarter and Fiscal 2019 Earnings Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would like to hand the call over to Melissa Plaisance, GVP, Treasury and Investor Relations. Please go ahead, ma'am.

Good morning, and thank you for joining us for the Albertsons Companies Fourth Quarter 2019 Earnings Conference Call. With me today from the company are Vivek Sankaran, our President and CEO; and Bob Dimond, our CFO. Today, Vivek will make some opening remarks and touch on our fourth quarter and fiscal 2019 results. Bob Dimond will then provide the details regarding our fourth quarter and full year results. Vivek will then provide a detailed update on the company's response to the COVID-19 pandemic. Bob will provide our fiscal 2020 outlook, and Vivek will make 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. 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 could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including 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 will be contained from time to time in our SEC filings, including on Form 10-Q, 10-K and 8-K and may be in our registration statement on Form S-1 filed on March 6, 2020. 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 EBITDA. And with that, I will hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thank you for joining us today. Throughout the country, we find ourselves in unprecedented times, battling against the coronavirus and coping with the challenges created by the COVID-19 pandemic. Our highest priority over the last 2 months has been ensuring the safety of our associates and customers while delivering the essential services we provide in our communities. We cannot be thankful enough for the contributions of our store, distribution and manufacturing associates, who have tirelessly served a surge in demand while embracing new safety conditions. In addition, I want to thank our corporate and division associates for working around the clock to innovate on safety and the supply of products as well as their flexibility in adapting to new ways of working. I will elaborate on all this shortly. But before I do that, I want to provide an overview of our results and progress on a number of key areas for the fourth quarter and fiscal year 2019. While none of us can predict the next several months with certainty, it is clear to us as we finish the year that our strategy is working, we are executing better and our locally great, nationally strong approach is allowing us to leverage our scale while remaining nimble. As many of you have seen, we closed the fourth quarter of fiscal 2019 with strong performance, with Q4 identical sales of 1.8% and adjusted EBITDA of $756 million, which was slightly ahead of our internal expectations. Q4 was our ninth consecutive quarter of identical sales growth, and we grew market share during the quarter. For the full year, we had identical sales growth of 2.1% and adjusted EBITDA of $2.834 billion. I will now touch on our progress in several key areas in our fourth quarter and fiscal 2019. First, on growth. Related to our growth initiatives in our stores, which are the core of everything we do, we continue to invest in remodels with a sharp focus on making our stores easy, exciting and friendly for our shoppers and to enhance productivity. For instance, we completed 90 store remodels in Q4 and a total of 243 in fiscal 2019. These remodeled projects range from minor facelifts to major remodels. Some of these remodels included updating our assortment and adjacencies in the center store, which drove strong sales growth. In addition, we installed 146 new self-checkout lanes in the fourth quarter. And we installed nearly 2,400 self-checkout lanes during the full year, which enhances productivity, helping people with smaller orders check out quickly. In eCommerce, we grew our sales by 32% in the fourth quarter and 39% for the full year in fiscal 2019. Fourth quarter growth was driven by continued expansion of our Drive Up and Go that we refer to as DUG and own delivery offerings as well as third-party delivery. In 2019, we increased our DUG store count by 300 plus. In Q4, we made changes to existing DUG stores, enhancing the presence of this offering with new parking lot and in-store signage. Over the next 2 years, we will be accelerating our DUG buildout to include 1,600-plus stores. Several system enhancements were made to our eCommerce platform in 2019 that significantly improves the overall customer experience. We created a single sign-on and simplified the registration experience. We replatform-ed the cart, checkout and other added functionality to improve performance. We also integrated a single shoppable home page, allowing customers to easily add to cart, created more user-friendly search functionality and made product recommendations available. In our Own Brands portfolio, which contains over 12,000 products across 9 primary brands, we continue to innovate and introduce new items to the portfolio, launching over 900 new products during 2019. For example, in the fourth quarter, we launched Signature Reserve bourbon barrel-aged maple syrup, O Organics coconut milk, Open Nature oat milk and in our Signature SELECT brand, 6 varieties of Asian-inspired cooking sauces. We also launched a plant-based platform that expanded to 38 items across 7 categories, with $30 million of sales in 2019. We take pride in these great quality products to meet all lifestyle needs and customer preferences. Open Nature, our free-from brand, is a great example where customers are seeking cleaner and more eco-friendly ingredients. Sales continue to grow in our Open Nature brand, up 9% in Q4 and 13% in 2019. Overall, Own Brands continues to contribute to identical sales, and sales penetration reached a new Q4 high at 25.4%. We aim to grow our Own Brands penetration to at least 30% over time through increased merchandising and promotions in underpenetrated geographies and through the addition of new, innovative, high-quality products that appeal to our customers. Our loyalty program continues to build our base of engaged shoppers and increased share of wallet. During Q4, our just for U household registrations reached nearly 21 million, up 26% versus a year ago. Our just for U digital offer redemptions increased 37% versus a year ago, demonstrating improved engagement. Active loyalty program users spent 3.8x more than those who are not using our loyalty program. Over the course of 2019, we accomplished a number of milestones that have driven the increases in participation and engagement in our loyalty program and improved our ability to communicate with our customers. In fiscal 2019, we launched just for U in our Jewel division, completing the rollout of just for U across our entire business. We expanded our rewards partnership with ExxonMobil in our eastern markets, and we added a new capability to personalize receipts that can deliver targeted offers and communications. We have continued to use our digital and in-store assets to grow our loyalty program. For example, in Q4, we ran a weeklong just for U registration drive in 6 divisions: North Cal, Seattle, Jewel, Southern, Acme and Shaw's that added 100,000 new registrations in just a week. These actions have allowed us to build deeper customer relationships, ultimately resulting in improved retention, sales growth and share of wallet. Our productivity initiatives are intended to drive efficiencies to offset cost inflation and support earnings growth. As we've outlined, these include taking better advantage of our scale and purchasing, working with our vendors to create winning partnerships, improving shrink in our stores and improving labor efficiency across the enterprise. We have been ramping up our efforts around automation at the store level, focused first on the production planning and order-writing processes. [ Visionpro ] , which uses AI to manage our in-stock positions and reduce our shrink, is live in our fresh-cut departments. [ Far ], our computer-assisted ordering system, is launching in certain stores, which is designed to enable our store teams to improve in-stock conditions and reduce unnecessary backroom inventory. While certain projects are well underway and contributing as expected, in other cases, we have temporarily paused some of our initiatives to ensure we are first taking care of our customers and our communities while focusing on the safety of our associates during this national crisis. Turning to our technology agenda. We continue to modernize the key elements of our firm-wide technology infrastructure, digitalizing our core capabilities and investing in automation. Technology underpins everything we do from a growth and productivity perspective. In our fourth quarter of 2019, we enabled the rollout of advanced demand forecasting, inventory management and computer-assisted replenishment solutions for our stores and distribution centers. And the early results for improving in-stock levels, optimizing inventory levels and labor efficiency are very promising. We began piloting micro fulfillment centers in 2 locations to greatly increase eCommerce picking efficiency and continued investments in our digital platforms to enhance our eCommerce capabilities and mobile experience. Finally, we launched a major program to modernize our technology platforms, including moving to the cloud, software-defined networks and application modernization. And finally, I'd like to turn our focus to our people, our communities, our planet and our products. I'll share a few key highlights from 2019. Over 241,000 employees have completed diversity and inclusion training. We donated more than 100 million pounds of food to Feeding America, making us one of their visionary partners. We have partnered with 146 local organizations and food banks in 35 states to provide hunger relief. And we enable 70 million breakfast to be given to children in need through Hunger Aid. We recycled more than 25 million pounds of plastic film and 780 million pounds of cardboard from our facilities. We completed over 1,400 energy efficiency projects in over 475 stores and warehouses. We won the EPA Safer Choice Partner of the Year Award for the third year in a row. And our Own Brands fresh and frozen seafood items are responsibly caught or raised. And our new packaging carries the Responsible Choice logo to convey our commitment to sustainability in this important category. Now I will ask Bob to cover our fourth quarter and full year results.

Thanks, Vivek, and hello, everyone. I'll begin by walking through our fourth quarter in some detail before providing a few updates relative to the full year fiscal 2019 results. Total sales were $15.4 billion during the fourth quarter compared to $14 billion during the fourth quarter last year. Our increase in sales was primarily driven by the extra week in the fourth quarter of fiscal 2019, which contributed approximately $1.1 billion and the company's 1.8% increase in identical sales. Our identical sales of 1.8% during Q4 were driven by increases in both customer traffic and average ticket size. Our fourth quarter sales were negatively impacted by approximately 30 basis points due to the timing shift in the Thanksgiving holiday, whereby the slow sales week following Thanksgiving was the first week of the fourth quarter compared to the last week of the third quarter a year ago. Given the timing of our quarter end, which was February 29, we did not experience significant volume increases related to the COVID-19 pandemic until the first quarter of fiscal 2020. Our gross profit margin decreased to 28.6% during the fourth quarter of 2019 compared to 29% in Q4 2018. Excluding the impact of fuel, our gross profit margin decreased 20 basis points. The decrease was primarily attributable to incremental rent expense related to the company's previously completed sale-leaseback of certain distribution centers, higher LIFO expense and selective investments in price compared to the fourth quarter a year ago. The reduction in our gross margin rate compared to a year ago was in line with our internal expectations. On the expense side, selling and administrative expenses decreased to 26.5% of sales during the fourth quarter of fiscal 2019 compared to 26.9% of sales for the fourth quarter of fiscal 2018. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales were 30 basis points lower than the prior year. The decrease in selling and administrative expenses was primarily driven by lower depreciation and amortization expense, lower acquisition and integration costs and lower employee-related costs as a percentage of sales, partially offset by investments in strategic, digital and technology initiatives and higher rent expense. Interest expense was $141 million during the fourth quarter of 2019 compared to $168 million last year. The decrease in interest expense is primarily attributable to lower average outstanding borrowings compared to the fourth quarter of fiscal 2018 and lower average interest rates. The weighted average interest rate during the fourth quarter of fiscal 2019 and the fourth quarter of fiscal 2018 was 6.1% and 6.5%, respectively. Adjusted EBITDA was $756 million during the fourth quarter of fiscal 2019 compared to $727 million during the fourth quarter of fiscal 2018. The increase in adjusted EBITDA primarily reflects the extra week in the fourth quarter of fiscal 2019 and higher identical sales, partially offset by lower fuel margins compared to a year ago, incremental rent expense related to our sale-leaseback transactions and investments in strategic, digital and technology initiatives. We expect our investments in digital and technology initiatives will be a catalyst for our growth and productivity initiatives in fiscal 2020 and beyond. As we reflect on the full year in fiscal 2019, we are proud of the growth we delivered year-over-year. This progress was driven by a combination of our identical sales increases, improved shrink expense and higher fuel margins. Identical sales increased 2.1% for the full year in fiscal 2019. We delivered growth in adjusted EBITDA while making meaningful strategic investments in digital and technology initiatives that we expect to help drive productivity in 2020 and beyond to fund growth. Net cash provided by operating activities increased to over $1.9 billion in fiscal 2019, up from $1.7 billion in fiscal 2018. The increase in cash flow from operations compared to last year is primarily due to our improvements in adjusted EBITDA, lower acquisition and integration costs, lower interest paid, lower pension payments due to our voluntary contribution in 2018, partially offset by an increase in income taxes paid, which was primarily due to the sale-leaseback transactions completed during the year and changes in working capital. Our ability to produce strong free cash flow positions us well and provides financial flexibility to invest in initiatives, fund our capital expenditure program to drive consistently strong return on our investments and ultimately, to continue deleveraging the balance sheet. From a capital expenditure perspective, we spent approximately $1.5 billion during fiscal 2019, including nearly $400 million on our technology investments as we seek to optimize our infrastructure. We also completed 243 remodels during fiscal 2019 and opened 14 new stores. During the fourth quarter, we issued $2.35 billion in aggregate principal amount of new senior unsecured notes across 3 tranches. The net proceeds received from the issuance of the new notes, together with cash on hand, were used to fully repay our secured term loan facility. We made significant progress in delevering the balance sheet in fiscal 2019, reducing our principal debt balance by approximately $2 billion. At the end of fiscal 2019, our total net debt to adjusted EBITDA ratio was 2.9x. Over time, we intend to continue to use our free cash flow to reduce total leverage and improve financial flexibility. I will now turn the call back to Vivek to provide an update on our recent business trends as well as actions we have taken to help ensure the safety of our customers and associates. Vivek?

Thank you, Bob. Let me pick back up on the last couple of months. We've been relentlessly focused on safety and supply to help ensure the safety of our associates and customers and the supply of product. I'm so proud of our entire team for their work ethic in this crisis, for their unflinching commitment to customers, for their innovative thinking and above all, for the integrity they demonstrate every day in doing the right thing for our associates and customers. The positive response for our customers is simply an outcome of their hard work. Since the close of our fourth quarter on February 29, our business has picked up substantially, with a sharp increase in identical sales of 47% during the first 4 weeks of March and 21% during the second 4 weeks, which is April, making the first quarter-to-date through 8 weeks up 34%. We're also seeing increased demand for eCommerce in fiscal 2020 as a result of the COVID-19 pandemic and are taking rapid action to support this growth. Total eCommerce sales were up 109% during March. Strong growth in demand has continued during April with sales growth of 374% compared to last year, bringing our total quarter-to-date sales to an increase of 243%. To support this growth, we have also hired over 55,000 new associates into our retail stores, into our DCs and plants and into eCommerce. We have partnered with 35 companies across various industries to provide temporary jobs to their employees who have been furloughed or who has had their hours cut. While we expect some of these temporary hires to return to their prior companies at the end of this crisis, we will continue hiring efforts until we have met demand. We have also seen some changes in customer behavior and have adapted our loyalty program to the changing and difficult environment. We saw a significant increase in loyalty program usage during the first 2 weeks of Q1. Just for U digital offer redemption was up 70% versus the same time last year. However, due to significant stock-up behavior, like many other food retailers, we experienced out of stocks in a number of products. As a result, we pulled back from some of our offers on the just for U platform to avoid disappointing customers during this difficult time. As supply conditions improve, we plan to add more offers to the platform. With shelter-in-place orders in many of our markets, customers are driving less and as a result, unable to use their gas rewards for gas discounts. In response, we have extended expiration of all gas rewards until the end of May 2020. We have implemented several steps to help ensure the safety of the people who work in and shop at our stores. These steps fall into 3 key areas: enhanced cleaning procedures, social distancing and protective equipment protocols and health screenings. In enhanced cleaning, we've taken enhanced measures to clean and disinfect all departments, restrooms and other high-touch points of the store throughout the day as well as a deep clean at the end of each business day. Cart wipes and hand sanitizer stations are available at key locations within the store for the convenience of our customers. In social distancing and personal protective equipment, many of our stores have adjusted hours to give our teams the time they need to rest, restock shelves, thoroughly sanitize the store and get ready to serve the community. We've installed Plexiglas in our checkout lanes in all of our stores. The Plexiglas serves as a protective barrier between customers and cashiers and provides added reassurance and peace of mind. We have procured protective masks and gloves for our employees. We have set aside dedicated shopping hours for senior citizens and other at-risk populations such as pregnant women or those with compromised immune systems, who have been advised to avoid leaving home as much as possible. We have limited store occupancy to help ensure proper social distancing during all hours and further limited occupancy during times reserved for our most vulnerable customers to improve their safety. We have removed the requirements for signatures that were traditionally needed when picking up prescriptions in our pharmacies. And we're working with states to remove barriers so pharmacists can dedicate more time to patient care instead of administrative tasks. We have also instituted one-way aisles to minimize customer contact and are constantly looking for solutions to help us improve social distancing in our stores. In health screenings, we have asked all of our employees and our vendor partners to perform self-screens or participate in an assisted screening process where key questions are asked prior to allowing an employee to start work. In many stores and all of our distribution centers and manufacturing plants, this also includes a temperature check. In addition, I would like to share some of the steps we have taken to help ensure our associates are taken care of while handling the increased demand created by the COVID-19 pandemic. We announced a temporary $2 per hour work increase for frontline associates above and beyond their regular hourly pay and overtime. Associates who are impacted by COVID-19 will be supported with paid time-off during the quarantine period. We cannot express enough gratitude to all our associates' dedication and commitment during this unprecedented time as they work to support their neighbors and provide essential services to communities across the country. I want to share with you that we have also set up a $50 million hunger relief fund to assist those impacted by COVID-19 in the communities we serve. And now I'll ask Bob to provide our 2020 outlook. Bob?

Thanks, Vivek. Prior to the COVID-19 pandemic, our plan for fiscal 2020 included the following: identical sales of 2%; adjusted EBITDA of $2.875 billion, which represents approximately 4.1% growth after adjusting for the 53rd week in fiscal 2019 and incremental sale-leaseback rent, which we will incur in the first quarter of fiscal 2020 until we are at full run rate on rent expense; operating income of $1.3 billion; and capital expenditures of $1.5 billion. As we just noted, during the first 8 weeks of fiscal 2020, our identical sales increased 34%. And we generated higher-than-normal flow-through to operating income and adjusted EBITDA. Although we are unable to predict the continued impact of COVID-19 on sales, gross profit and expenses for the balance of the year, we currently expect that we can achieve or exceed our original plan. In addition, to preserve financial flexibility during the COVID-19 pandemic, in March 2020, we drew down $2 billion on our $4 billion ABL facility. While we don't anticipate using the cash, the proceeds of the borrowing under the ABL facility was a precautionary measure in order to increase our cash position in light of the uncertainty resulting from COVID-19. Since the start of fiscal 2020, we have experienced a material increase in identical sales, which has led to increased inventory turns, reduced inventory levels and incremental cash flows. As a result, our cash balance as of last Friday, April 24, was approximately $4 billion, which includes the proceeds from the ABL facility. And our total debt, net of cash, was approximately $6.7 billion. And now Vivek will provide some closing remarks.

In summary, we were pleased to see the momentum we gained in fiscal 2019 as our efforts, both in-store and online, resonated with our customers. In the near term, our focus is on taking care of our customers, associates and the communities in which we operate during this unprecedented health crisis. We continue to reflect and refine our long-term strategy. While we assure many elements of our pre-COVID-19 strategy will remain in place, we are also keenly aware that there will be changes and new opportunities. We are very fortunate to have plenty of liquidity and a strong balance sheet. And finally, we will be watching the markets to determine the right timing for our initial public offering. I will now turn the call back to the operator for questions.

[Operator Instructions] Today's first question comes from Karru Martinson with Jefferies.

That's a huge number for the eCommerce expansion. I was wondering, what are the costs associated with ramping up that quickly? And where do we stand today as a percentage of your sales?

Thanks for the patience, everyone. I know it was a little longer than our usual start of a call in the commentary, but these are not usual circumstances, and we wanted to be thorough and transparent. On the eCommerce, we've -- I think of it as in 2 phases, and I think there's many more to go, of course. In March, we saw the surge in demand. And our biggest bottleneck was labor, the ability to pick product and the ability to deliver the product. And so the primary focus in the month of March was to ramp up labor, both for pickers and for delivery. And so you saw the big jump in growth from March to April, and we are still focused on that. We think we can continue to add labor to drive more growth in picking and delivery. But it's important also to recognize that the eCommerce business, the growth that we are getting from eCommerce is new growth, right? There is incremental business over and above the significant business you saw we have, growth we are seeing in our stores. So while we're adding the costs, and it's primarily labor, we're also getting the revenues, Karru, to support that and cover that. Now while the eCommerce business has grown a lot, remember that our store business has grown substantially, too. I mean unprecedented numbers. And so from a proportional standpoint, it's not materially different from where we were in the past.

Okay. And then in terms of the bottlenecks, labor certainly being one, but where are we on the manufacturing and the supply chain bottlenecks that we've been reading about?

Yes. I'll tell you, part of what we do, we are focused -- there's 3 things we focus on relentlessly now. I think of it as it's safety, it's supply and speed. And a part of our organization we've talked about is this notion of being nationally strong and locally great, right? We give our operators in the field a lot of independence to do things around supply. And so we have -- part of -- and we've been working at that since early March in making sure we can get very different ways of, means of supply. Examples of that would be -- even take something as simple as sanitizers for our frontline. Back in March, we had trouble getting sanitizers, enough of it. And we found a source through an executive. We got drums of sanitizers in, bottled it in our factory in our bottling -- in our beverage bottling plant and sent it out to the stores so that we'll never be short of sanitizers. From a supply standpoint, we connected with many of the national food distributors who are distributing into away from home. And we had no problem picking up bulk chicken from them because, as you know, we have butchers in our stores. And so we were able to process those things quickly and make it available. And we're still doing that today. So we've got a good supply chain connection with the away-from-home supply chain. And we are able to make those readily available for customers in what might be more for home consumption. And so we do that. Our produce supply has come back really nicely. And it came back -- about 3 or 4 weeks ago, we started seeing really stable produce supply. Now you're hearing about things in the marketplace, and we'll continue to hear it, right? There are processors who are having trouble in meat and so on. I think we will continue to hear that for several months until this disease is fully under control. And the -- and we just are nimble around it. And so we feel good about it. But -- and what I'll emphasize, I don't think there's any reason for anyone to panic on supply. I think we'll get to a state of steadiness here, and we are in a state of steadiness, and we'll keep that.

And our next question today comes from Bill Reuter with BofA.

The -- my first question, you're -- it seems like you're doing all the right things in terms of increasing pay for your associates. Are you seeing any challenges of finding employees or I know you hired 50-some-thousand people. I guess, are you having any employees that are feeling anxious about working in relatively high-traffic environment?

Yes. So good question. You're right, we -- the biggest -- when it comes to a supply standpoint, there's been product supply and labor supply. And so very early on, we developed a bunch of relationships with airlines, hotel chains, et cetera, as we said, 35 different companies so that we can get their labor and get it locally. We have, from day 1, always said the employee safety comes first. So if somebody has a condition, they don't feel comfortable, if we have any sign of sickness, et cetera, we have encouraged them to stay at home. And we pay them for the first 2 weeks and give them 14 days to either get over the illness or feel better and come back. And so -- and then we also focus so much on safety conditions in the store from day 1. Early March, we had Plexiglas. We got on social distancing very quickly. We had plenty of sanitizer available for everyone. And so we created conditions; that was an important part because we knew that if we don't create the right conditions in store, we won't make -- we won't create a good atmosphere for employees to give their best and importantly, for customers to have -- to feel comfortable walking into our stores. So we haven't had -- I mean, in fact, I would -- when we look at the turnover numbers, our turnover numbers are down in this environment. And I think part of that is because of the conditions that we have created for employees who are, by the way, so committed to serving at this point in time.

That's helpful. And then from the acceleration of eCommerce from March to April, it seems like a lot of customers are trying this for the first time potentially. I guess, how does this change your perspective in terms of where you want to invest? And a lot of people are talking about that this crisis is going to change purchasing behavior permanently. I guess, how does that change your store footprint and eCommerce investment?

Yes. So we -- I mean, you're right. I do think we're seeing a lot of new customers engage in eCommerce. And we are seeing -- and that's part of the growth. So we're getting new customers in because of eCommerce, first of all, and we're seeing our customers engage more in eCommerce. And I think that trend will continue. I think there's a degree of comfort people will feel in having product, either picking it up at the store with our Drive Up and Go or it being delivered at home. So we expect that the eCommerce business, the rate of growth of eCommerce will be higher than pre-COVID, okay? And we are going to continue to invest behind it. We're investing, as I said, in labor, and we'll continue to invest in technology. We've had the plans. So now it's a matter of accelerating those investments commensurate with the growth that we're seeing in eCommerce.

All right. And then just lastly for me, given your sales in the first quarter, obviously, you're producing very strong EBITDA, but there's -- your commentary also suggests that there's a lot of working capital sourced during the quarter. I guess, do you assume that over the next couple quarters after this, we should assume that, that working capital will reverse as you're able to get inventory back in the system?

Yes. I think there will be some of that. I think there's an opportunity, depending upon where we land on ID sales growth going forward that we'll have actually an improved turns rate, which will allow us to end up with better working capital than where we started.

Yes. I think operationally, this is allowing us -- we're operating with much higher velocity at the shelf, right? And therefore, and there's an earnings support, so that should help us a lot on the working capital side.

Our next question comes from Bryan Hunt with Wells Fargo Securities.

My first question is with this massive switch to eComm, you're doing everything you can do to hire people to fulfill picking and delivery orders, but can you talk about how fast you can accelerate your Drive Up and Go program across your store base? And you gave us a long-term goal, but what kind of goal do you have for this upcoming year?

So we've got -- we're going to roll out to 500 more stores at a minimum. And as we continue to get the labor, we'll continue to go forward. But we're going to put 500 small stores. So we'll be at 1,000 stores by the time this year is done. We're also increasing our delivery capacity and capability in different stores. So -- and the only thing stopping us is supply side issues, right, getting -- making sure we have adequate labor in different stores to provide the level of the quality. And then the second thing is supply issues itself. So as we roll this out, we want to ensure -- our belief is that in eCommerce, you need to deliver a high-quality experience for the customer to keep coming back, and we'll always keep that in mind as we build this out.

All right. Great. My next question is, is there any way you can address the total cost of COVID for us in terms of the pay bonuses? I imagine you probably expensed all the Plexiglas, the masks and gloves because some of this is going to be an ongoing expense. Just better to understand maybe the incremental cost of this environment?

Yes. So you're right. We have never made cost the condition for safety. Safety has been the #1 priority. And as Bob said in his comments, we have had good flow-through with these costs in the first couple of periods. The first -- what we are going through and doing now is we're -- the first -- our first instinct was to make sure that we provide a safe environment. And now we're going to go around and optimize it, so that we can have the efficacy around safety and a lot more efficiency as we do this. And so we're going through that journey. That will be the next phase of what we do. I suspect some of those costs will remain, but we also have the volumes to do it, right? And so the P&L is working because of the volumes we have coming in. And it's anybody's guess how all that plays out over the next several months.

And my last question is around margins. When I think about this environment, I imagine your shrink has dropped precipitously. I think people will probably buy a banana that's been run over just so they could have one. But if you think about shrink, your own manufacturing facilities are probably moved from relatively low-capacity to high-capacity utilization. Can you talk about those factors and how they may contribute to this incremental flow-through in the current period maybe going forward?

Yes. Bryan, it's -- you're exactly right. Some of those very things are contributing to a little higher flight flow-through rate. As you saw, we had a real spike in sales in March. We still have solid, solid growth here in April and continuing, but it really depends upon where things level out. I would say that whenever you can have an increase in volume like we are, shrink will definitely be a benefactor to us. And we've got tools in place now that can help us make sure that we manage that properly. Certainly, we're also managing -- our manufacturing plants are kicking out more products. But it's -- we're going to have to kind of get a trend line behind us before we really can quantify all of that for you.

In the current -- Bryan, we've got a volume effect, which is giving us a lot of leverage up and down the P&L, right? There is a mix effect. Because people are buying a whole range of products, not just what's on promotion. And so that is helpful, too. So that we're seeing -- and by the way, we're also seeing larger baskets, right? So that helps because you can optimize the labor for the stores. So we're starting to look at all of those opportunities. But net-net of the mix in the volume are driving more flow-through.

Our next question today comes from Carla Casella with JPMorgan.

This is Sarah Clark on for Carla Casella. We just wanted to dig a little bit more into the capital structure and your thoughts around that. You mentioned that you're reducing leverage. Do you have a leverage target? And do you have any thoughts around the upcoming maturities or your Safeway notes? And then I have a follow-up.

Yes. Thank you for your question. First of all, we're -- as you saw at the end of fiscal 2019, our leverage was net -- our net leverage, I should say, was 2.9x. So that's well on, I guess, we've really achieved that short-term goal that we had of getting down to 3x. And our forecasted cash flow per year over the next few years will allow us to just continue to pay down a little bit more debt each year as well. We have visibility to a clear path of getting down into the mid 2 range within a couple of years. So that is certainly something that we look forward to. In addition, on your question as to maturities, we only have a couple of small Safeway bonds this year and next year, about $130 million each that we intend to be able to pay just out of excess free cash flow. And then beyond that, we've worked real hard this past year in pushing out maturities. And we don't have any large maturities to deal with here for a few years.

Awesome. That's really helpful. And then my last question is around sale leasebacks. You mentioned that throughout the call. Do you have any plans for further sale leasebacks?

As far as sale leasebacks, we look at that opportunistically. It's been a great tool for us to help us reduce debt as you've seen over the last few years. We current -- we still have a significant amount of appraised value of real estate even after the transactions that we've done. It currently totals to about $11.2 billion. So I think I just look to -- it may be a tool that we can use if we need to. Right now, I don't have anything underway. But we continue to evaluate the markets and determine what is -- what helps us hit our goals.

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Well, thank you, everyone.

Thank you, everybody, and thanks for -- and be safe and be well. Thank you.

Thank you. This concludes today's conference call. You may now disconnect your lines, and have a wonderful day.