Ladies and gentlemen, welcome to the Albertsons Companies First Quarter 2020 Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. [Operator Instructions] I would like to turn the call over to Melissa Plaisance, GVP of Treasury and Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for the Albertsons Companies First Quarter 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 first quarter 2020 results and outline recent progress against our strategic priorities. Bob will then provide the financial details of our first quarter 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 June 25, 2020, and filed pursuant to Rule 424B1. 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.

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 strength 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 was 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 in response. Our stores remain the foundation of our business. When combined with our growing suite of digital and eCommerce 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…

Thanks, Vivek, and hello, everyone. As Vivek noticed, we delivered strong performance in the first quarter 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 first quarter compared to $18.7 billion during the first quarter 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 first quarter. 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 first quarter 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 blending 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 first quarter as our selling and administrative expense rate decreased to 25.4% of sales compared to 26.4% of sales for the first quarter 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…

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 eCommerce 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 '20 at this time. To give some context for how we are thinking about the balance of the year, given our strong performance in the first quarter 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 U.S., including states where we have many stores like California and Texas, the magnitude of increases week by week have been closely correlated with…

[Operator Instructions] The first question comes from the line of Robby Ohmes with Bank of America.

Nice quarter. And Vivek, I guess my question is you called out -- 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 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?

Yes. So Robby, 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 then -- and that's what has driven it now, frankly, right, 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, that -- I was referring particularly to the time frame 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 fresh -- 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.

And then maybe just a quick follow-up. Vivek, can you give us any comments on the kind of ticket versus traffic pattern? And did -- are there any changes into July?

The traffic -- people are still coming in less often and buying large baskets, Robby. That pattern we have seen continuing for the last several months. We haven't seen a fundamental shift in that traffic pattern at all.

Our next question comes from the line of [ John Hencobob ] with Guggenheim.

I want to ask you 2 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, all right? I know we're 2 now. What's the timetable on expansion at this point?

Yes, 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 2 that we have. And now we are looking at multiple ways. So as we talk, we're talking about expanding into 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 eCommerce.

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?

Yes. 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. And as we're able to just get a lot more volume through our stores, DCs, and you can see how that adds up.

Our next question comes from the line of Ken Goldman with JPMorgan.

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.

Yes. 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 where -- 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 until -- 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 you -- as you go into the year or to the fall, you tend to see a lot more baked goods being purchased. And I think it will 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.

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 second quarter? Is it fair to assume it will 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.

Yes. 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 2 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 second quarter is going to be back to kind of our normal average.

Our next question comes from the line of Kate McShane with Goldman Sachs.

The loyalty statistics you cited were very helpful. But we were wondering how many new customers do you think you acquired during this period and how you're trying to retain them.

Kate, substantial number, several million new customers, okay? And I'll give you 2 flavors on that. One is a set of several million customers who are shopping both our store and eCommerce. And a good portion of that was just shopping eCommerce, 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 are 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. You're traveling a lot, it matters a lot. And if you're shopping a lot to buy broader -- needing home a lot, the loyalty program matters, and it's proving out to be true.

Okay. 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?

Yes. 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 second quarter, 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.

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

Vivek and Bob, could I -- 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 4 to 5 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 second quarter. But yet you seem to be guiding Q2 gross margins reasonably stable ex fuel. So -- and maybe a 4-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 second quarter?

Yes, good question. So let me tell you -- let me just play it out for you. So in 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 4, you had Memorial Day and Father's Day coming together, very close. And so we promote it. 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 are 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 4. And that's an unusual set of circumstances when you promote as you have inflation. And we don't -- not ever had -- kind of 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.

Great. 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 costs will be, particularly from like a labor standpoint in terms of like what you paid to the people in Q1, what you think you're going to be doing in Q2?

Yes. It's -- we continue to improve it because of efficiencies. And the biggest -- when you talk about an ongoing cost, given we've done a lot of the onetimers like plexiglass and those types of things, when you think of the ongoing cost, the primary costs are 2 sources. One is cleaning labor, and second is cleaning chemicals. Those are the 2 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 those -- 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 I -- 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 2 things are congruent, Edward, in my mind.

Our next question comes from the line of Scott Mushkin with R5 Capital.

So the first one I wanted to ask you about was just omnichannel. I know, Vivek, 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.

Yes. Yes. So Scott, it is less profitable than the core business, right? I mean, ultimately, we are doing the customers work for her, and we're delighted to. And so the way I think about profitability, you have to take 2 lenses to it. If you take a lens around -- if you take a customer back lens on it, what we're excited about is that the people who engage on eCommerce 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 eCommerce. 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 eCommerce business around. You can take a different lens and look at it from a unit basis, right, an eCommerce order basis. And there, what we -- 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 eCommerce operation, which is why between these 2, we are optimistic about where eCommerce will go and the ability to generate good margins from that eCommerce business. And then finally, there's the MFCs, which provide that productivity -- that added productivity in a store.

All right. That's -- I appreciate that. And my follow-up question is just around kind of the uses of capital as you look forward. Obviously, you talked about the 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.

Yes. So let me provide a little bit of context. And Bob, just add to that. We -- you noticed, we were planning to spend $1.6 billion. We were at $1.5 billion. We pulled up $100 million because, Scott, we are seeing in this environment, there are some areas that require immediate and quick investment such as eCommerce, a lot of the technology platforms that we're putting. We've 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 are 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. And we are also -- 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. And those might be opportunities that strengthen the network or strengthen some of the other growth priorities that we have talked about. Scott, can you -- Bob, can you talk about other uses that -- versus dividend, debt and so on?

Yes. 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 3 components.

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

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 nonrecurring 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 -- it sounded like you're signaling a much lower number in terms of recurring.

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 it is -- there is significant optimization of that going on, while at the same time, meeting the CDC guidelines.

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?

But also recognize that, that in that 16-week, it was not the optimized number, right? And we continue to improve on that, Karen.

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 2 tranches specifically were the ones that you added back?

Yes, 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 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 have been paying throughout the quarter. And that was kind of a onetime kind of payment, somewhat duplicative if you would have just had it lumped in with the rest.

Okay. That's helpful. And then in terms of eComm, I guess I'm kind of backing into eComm 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 eComm, 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 then -- and/or into -- in 1Q or into 2Q? And then what was the negative impact of removing it to gross margin?

Yes. 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 eCommerce 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 business.

Our next question comes from the line of Greg Badishkanian with Wolfe Research.

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?

Yes. Cycling the 2021, it will 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 will 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 food -- 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, in-home -- out-of-home consumption does not change dramatically. It goes up in small increments each year, and that's in the best of circumstances.

Our next question comes from the line of Paul Trussell with Deutsche Bank.

Yes. To start, you -- on the top line, you had very good relative performance in the first quarter. 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.

Yes, 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 2 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 eCommerce. 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 when they -- even when they want to eat at home and probably don't want to cook themselves -- by themselves. So those are a few of the things, Paul. And then we continue to build the eCommerce engine, as we talked about, which drives retention and incrementality for us.

And just a 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.

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 derisk our future funding requirements. But I will tell you, we have a preferred strategy. And that preferred strategy as we look at these MEP 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 annuity plans.

Talk about leverage, too.

Yes. And then finally, as far as leverage, as you've seen, our leverage is -- on a net basis, has decreased dramatically here as of the end of the first quarter. We believe that we can continue to get us down to the 2x range once you kind of normalize sales or EBITDA, and we'll be able to do that here in the next year or 2.

Our next question comes from the line of Kelly Bania with BMO Capital.

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 -- the next few years really.

Yes. 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 turns, 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 as -- in things such as our growth in eComm and have balanced things out.

Yes. 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 that -- and the Own Brands program that contribute to margin growth. And something like eCommerce is -- 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 that. 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.

And maybe just a follow-up, you mentioned the kind of volatile inflation in June, particularly against the promotional activity you did. Just -- can you help us think -- understand what to think about how July looks? And if you have any visibility at all into inflation or deflation outlook as we go through the rest of the year.

More generally, a tendency towards inflation in everything that we're seeing with this heightened level of demand, that would be -- it will 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 time frame, after the Memorial Day time frame, let me put it that way.

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

This is Michael Kessler. It's actually Mike on for Simeon. A question on eCommerce. 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 eCommerce demand theoretically normalizes. And also thinking about any changes to strategy as far as your own in-house eCommerce, is that -- do 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 are at 65% or so today?

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 a...

Yes, it was just around you made a number of hires that have been employees for eCommerce. Do you kind of feel that it just -- that becomes part of eCommerce offering going forward to support demand? Or do you see that normalizing at all? I guess the outlook.

Oh, the overall eCommerce 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 eCommerce and stay with us. I don't know where it settles out, but the predictions are it will drop a little bit as we go forward and things normalize, drop but stay at a higher level. Depending on what you read outside, you -- maybe it'd be 2x 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.

Okay. That's helpful. And just one other question, similar to an earlier question, but when we think about the new 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?

Look, there's 2 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 will 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 margins. 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.

Our next question comes from the line of Paul Lejuez with Citi.

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 first quarter on a year-over-year basis, fresh versus the rest of the store? And then secondly, just coming 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.

Yes. 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 are 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?

Yes. 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 how -- 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...

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?

Yes. We haven't broken that out separately, Paul.

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.

Thank you all.

Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.