Ladies and gentlemen, welcome to the Albertsons Companies Fourth Quarter 2020 Conference Call. Thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now 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 Fourth 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 share insight into our fourth quarter and fiscal 2020 year-end results as well as review our progress against our strategic priorities. Bob will then provide the financial details of our fourth quarter and full year 2020 as well as our full year 2021 outlook before handing it back over to Vivek for some closing remarks. After management's comments, we will conduct a question-and-answer session. 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 include those related to the COVID-19 pandemic. 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 Form 10-Q, 10-K and 8-K. 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 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 thank you so much for joining us today. I want to start today by thanking our associates for their unwavering commitment to take care of our customers, our communities and each other during every twist and turn of the pandemic over the last year. 2020 was a difficult year for all of us, and our hearts go out to all those directly impacted by the virus. 2020 was also a transformational year for Albertsons Companies. We deepened our relationships with customers and added many new ones through our execution in stores and through online channels. We accelerated digital transformation across our company. Almost every critical capability in our company is now enhanced with or enabled by technology. We delivered our planned productivity target, and we added to it. We further strengthened our culture, learning how to sustain the flexibility and speed that comes with being locally great, while at the same time leveraging the scale benefit that comes to being nationally strong. As I've mentioned throughout the year, our strategy is focused on building deep relationships with our customers. We support this strategy with our differentiated product offerings, anchored in fresh and Own Brands, our breadth of assortment so they can complete their shop with us, everyday execution excellence in every store and the suite of omnichannel capabilities that allow customers to conduct their shopping with us in any way they want. Our enhanced loyalty program is also resonating with customers as we provide them with personalized offerings and drive repeat shopping occasions. As a result of our team's execution, we delivered strong performance in the fourth quarter and record results for the year. Our full year results exceeded our outlook across all key metrics, with ID sales up 16.9%, adjusted EBITDA up…

Thanks, Vivek, and hello, everyone. I'm pleased to provide details on our strong fourth quarter and record fiscal 2020 results. For the quarter, total sales were $15.8 billion driven by our 11.8% increase in identical sales. Our gross profit margin increased to 28.9% during the fourth quarter of 2020 compared to 28.6% in Q4 2019. Excluding the impact of fuel, our gross profit margin increased 10 basis points primarily driven by improvements in shrink expense and sales leverage, partially offset by investments related to our growth in digital and strategic investments in price. We continued to see significant sales leverage on expenses in the fourth quarter. Excluding fuel and onetime pension charges, our selling and administrative expenses decreased 80 basis points compared to the fourth quarter last year. Incremental COVID costs during Q4 totaled approximately $110 million. Interest expense declined $28 million to $113 million during the fourth quarter of 2020 compared to $141 million during the same quarter last year primarily driven by lower average interest rates as a result of our refinancing transactions and lower outstanding borrowings. Adjusted EBITDA was $917 million compared to $756 million or $702 million excluding the extra week during the fourth quarter of fiscal 2019. The 30% growth in adjusted EBITDA represents a strong flow-through of approximately 15%. Adjusted net income was $347 million or $0.60 per fully diluted share compared to $194 million or $0.33 per diluted share during the fourth quarter last year. Turning to the full year. We delivered strong results that were above the outlook we provided last quarter. Identical sales finished the year at 16.9%, above our expectation of approximately 16.5%. Adjusted EBITDA finished the year at $4.5 billion driven by strong sales leverage, both in gross margin and in selling and administrative expenses that translated to strong…

Thank you, Bob. Before we turn to Q&A, I want to share a few closing remarks. Fiscal 2020 was a transformational year for Albertsons Companies, and we believe the changes we have made to our business have enhanced our ability to retain our customers, continue to drive share growth and grow from a higher baseline relative to our pre-pandemic trajectory. We have learned a lot from the pandemic, both in terms of customer behavior and how to operate the business more efficiently. We are emerging from this crisis more digitally focused, both in-store and online, and elevating the service our customers expect, while at the same time, being more productive and doing so delivering more profitable growth. We further strengthened our financial position. We've generated strong free cash flow, allowing us to accelerate investments in initiatives that will support future growth, reduce debt, pay our dividend and repurchase shares. And through debt reduction and refinancings, we have truly transformed the balance sheet, and we are approaching the future from a much stronger position. And we are continuing to develop and execute our ESG agenda, enhancing the sustainability of our operations, supporting the communities in which we operate and investing in people with an unwavering commitment to diversity and inclusion across the organization. As I reflect on some recent topics of interest in our industry, I would like to share some insights on the first 7 weeks of fiscal year '21. I realize this is unusual, but we live in unusual times, and you will ask us these questions anyway. So here goes. Our sales momentum continues with growth in market share in food and on a 2-year basis in MULO. When looking at our average weekly sales dollars, sales are trending at approximately the same levels that we exited the…

[Operator Instructions] Our first question today is coming from Edward Kelly from Wells Fargo.

Vivek, I just wanted to first just clarify one thing that you said about quarter-to-date trends. I think you said in line with the exit of Q4. So I guess at the end of the day, are you talking about quarter-to-date trends that are above the high end, that 11% number that you talked about for the 2-year stack expectation for 2021?

No, Ed. The way to think of it is what we've tried to do -- because it's so difficult to think about the laps and such, we have tried to model the business on dollar sales on a weekly basis, okay? And the assumption we had made going into the year is that the dollar sales on a weekly basis will kind of remain like the way we closed out the year, the last few months of how we closed out last year and of course, adjusting it seasonally. And that's what we're seeing. So Bob, would you add anything to that from a...

Yes.

Stack standpoint.

Yes. From a stack perspective, there will be some differences by quarter. But we think the right way to try to make sure that we forecast the quarter is as Vivek suggested, which is taking a look at the absolute sales dollars and trend those forward. And that's what we've done to begin the year, and we're tracking along that very closely.

Okay. And just thoughts around how you think about the cadence of the IDs throughout the year. If you're -- if we're back to this like 9.5% to 11% stack, I would assume that we have some deceleration in the back half. How are you thinking about the cadence of that? And then I did have a follow-up on this, the differences geographically because you've said that they've been kind of consistent. Maybe just more color there because I don't think dining out trends are consistent, right? There do seem to be differences with, say, states that have less restrictions, for instance.

Yes, Ed. So the way we've thought about the business, the further out you go, the harder it comes to predict what the top line is going to be, which is why we've said we want to have strong productivity programs yielding in the second half of the year. So if the sales turn out to be better than we have imagined, it will be a strong second half on multiple dimensions. But we've made sure that we have that cushion of productivity in the second half of the year. Now the -- on your second point, in terms of geographic, in Q4, we certainly didn't see it. But what happens when you get into Q1, you're seeing some very big differences in laps across regions, right? So part of it, so we're going through a very noisy period right now between what happened last year and what's happening now. So I'm not going to conclude that we are not going to see differences in reopenings this quarter. What -- the statement we made in the discussion was about last quarter.

Okay. And then just last one for you. The incremental $500 million in cost saves, can you just provide a bit more color around where they came from? And then I assume some of this maybe gets reinvested in the business. How do we think about sort of like what's reinvested, what's not and the priorities there?

Yes. So let's start with that philosophy. We -- where we generate productivity, there's always productivity that's going into reinvesting in the business to make us stronger, be ahead on capabilities. And there's some productivity that's always there for a rainy day, right, to take to the bottom line. That's how we think about it. And we'll always have that mindset in this business. And so now let's talk about the $500 million. I would frame it this way. The -- we -- one of the great things about our company is that we are incredibly locally nimble. And we've learned a lot through this pandemic how that is an advantage to us and how we are able to react with speed. But we've also learned through the pandemic. One of that is extremely important to preserve, okay? And we're going to preserve that. But we also -- we have 13 divisions that -- we have 13 supply chains in the company, and we have 13 buying organizations in the company. They're going to change some aspects of that. And by changing some aspects of that, we get a lot of leverage, both in the supply chain and the design of the supply chain and what -- and making things easier for our supplier partners and in the discussions on how we buy. So those are completely 2 new topics that are substantial programs that we've launched and will continue over the next 2 years.

Our next question is coming from Ken Goldman from JPMorgan.

I wanted to follow-up on Ed's question but not from this quarter, from last quarter when Ed asked, I think, about the gross margin. And Bob, I think at the time, you said it should be relatively flat. You weren't quantifying it necessarily, but I just wanted to see if there was any update there. Anything you could tell us about your gross margin ex fuel for 2021 with the benefit of a little more time.

Yes. We're still -- well, first of all, I'll start off a little bit with the comment that Vivek just made. Because of some of the productivity initiatives that we have, we actually generate tailwinds, as we call them, to our gross margin. And so because we have that benefit, we do feel confident that kind of overall, we're going to end up with gross margin for fiscal '21 to be directional to what we saw here for the full year in 2020. Now it won't necessarily be exactly the same cadence by quarter because there were some kind of big swings in the first couple of quarters. So you need to kind of seasonalize that to a typical year. But overall, we feel very good about our ability to kind of keep gross margins at the full year level. And the -- which is a nice step-up from where we were running in 2019, of course.

Yes, Ken, I mean, if you think about -- I'll give you 4 initiatives. All of these are substantial, right? So I've always talked to you about this notion of we're going to have gross margin tailwinds and that we judiciously invest back so that we can strengthen the business. So 4 big ones. First is Own Brands penetration coming back, 1,000 basis points on every one of those items. The second is we are excited about our shrink initiatives. It's redoubling our confidence that our shrink initiatives are working. And then we just added 2 big ones: supply chain and the entirely -- the entire cost of goods that buying the cost -- buying those things differently, right? Those things that are mostly national. Those are substantial pools of gross margin tailwinds. And then there's the mix issues. But -- and even those, so I'll stop with those 4. And we see a lot of upside there.

Okay. No, that is helpful. And then, Vivek, I wanted to follow up. You gave some examples of some categories that continued to do well after some areas have reopened, meat, seafood, cereal, wine, I think.

Yes.

You also gave some examples. I think you said soup and pasta, maybe pasta sauce that are sort of below recent levels. I wanted to know if you -- and I don't mean to put you on the spot here, but I can understand the meat and the seafood side, the wine side, surely. But what is the distinction between certain sort of center store categories, whether it's cereal or pasta or soup? What do you think is driving one to continue to do better versus another that isn't necessarily doing quite as well? Or is it really just a question of, hey, people stock up on things like soup and pasta, and you're just lapping it. Is that the issue?

That's it, Ken. You got -- so what you're seeing is so, hey, nobody is short on paper now, right? So I think we're seeing things that have been loaded in the store, and so that's -- sorry, in the pantry. So you've got that. That's always there. And -- but you're working more from home, and you're eating more breakfast at home, and you're eating more lunches at home, which is continuing to drive that fresh consumption. So it's remarkable. We're continuing to see steady fresh consumption and the same kind of frequency of purchases on fresh. And people are feeling comfortable that they've got enough in the pantry on some other products.

Our next question today is coming from Robby Ohmes from Bank of America Merrill Lynch.

Vivek, I was hoping you could talk a little bit more about the 1% to 2% food-at-home inflation assumptions that you guys are thinking about for this year. And maybe weave into that a lot of the CPG companies have obviously been talking about pushing through a fair amount of price increases this year. How does that play out in your thinking? And maybe about -- you guys mentioned in the press release strategic price investments that you made this quarter. How are you thinking about price investments this year? And we're seeing competitive promotions are coming back within the industry. You can see it in the Nielsen data. Maybe you could just tell us about the scenarios you've been thinking about for how food inflation could play out this year?

Yes. So Robby, let me give you some context, and then I'll let Bob add color to it, too. So the 1% to 2% is a planning assumption. And we like that because we know we can -- at a 3% to 4% inflation, it's a better thing for our business, right? It's a better outcome in our P&L. So we plan at the 1% to 2% and then see how -- and then go from there. We're seeing a 3% to 4% inflation, like you've all seen it. Now I have no idea where the inflation is going to land. We don't, right? But here's a few things to consider. One is that the demand is still ahead of supply in so many categories. It's still the case, okay? Two, we've got a consumer -- I -- we should never generalize this. But by and large, the consumer is healthy. They've got cash. And so to me, if it's a demand-driven inflation, I think you're going to see consumers still shopping these categories. Now when it comes -- if it goes beyond that 3% to 4%, then here's what's going to happen. We are going to be -- we're going to have difficult conversations about how much we can accept because we're not going to pass-through all of it. And we're going to have difficult conversations up and down the supply chain if it gets to a place where it's going to exceed that 3% to 4%. The last thing I'll leave you with is yes, these -- a lot of this inflation that you're hearing about from CPGs and others, the nice thing about when it is planned and when it is -- when you have some sense for how it might shape up, it's more manageable. The ones we worry about are the spikes. And we're not seeing any of those emerging at this time, Robby, but that's the planning approach we've taken to inflation. Bob, anything else you'd add?

I think you've covered it well. The 1% to 2% really is just our baseline planning process, and any upside from that typically will flow through either to the bottom line or we may choose to utilize that to drive the top line. But I think you've covered it well.

And in pricing, Robby, our pricing investments continue. We do it surgically. We're doing it in all the time, every quarter in different markets. And when it comes to promotions, we are not seeing a significant step-up anywhere in the market. We think it's quite rational, and we're all going more digital. So it's not going to be -- it's not going to see a big step-up in the Wednesday flyer from 4 pages to 10 pages.

That's really helpful. And just a quick follow-up on DUG profitability. It sounds like you're feeling better about it going forward. Is that more about efficiencies you figured out on executing that, that's made it a lot more profitable at the store level? Or are you seeing something on the MFCs working that makes you feel like you maybe figured something out there?

Both. So what happens with DUG is as you see the orders per store going up, you can literally see the labor cost curve, right? It comes down pretty rapidly. It's an exponential curve. And so you see that, and you -- so when you get to a certain level of orders per store, your labor cost becomes better. And we're starting to get to that, right, in many of our stores. The second thing we have done, we've launched new picking algorithms. And the other thing, when you get a lot more scale, your picking becomes more efficient, right? That's why your cost comes down. We've got new picking software in place. And the third thing we're seeing is that as things get better in stock, right, and you're having -- you're not having to go out of the MFC to go pick in the store, you're seeing better efficiencies in the MFC itself. So we're adding all these up, Robby, and starting to feel really good that DUG can be a profitable engine within the eCommerce offerings that we have.

Our next question today is coming from Simeon Gutman from Morgan Stanley.

This is actually Michael Kessler on for Simeon. First question, actually, on your guys kind of promotional strategies, and you've talked a lot about being more targeted and surgical with high level. And I would just love to get an update on the progress you guys have made. Are there any, I don't know, examples you can point to? And maybe I don't know if you have kind of an inning or kind of a road map for how that plays out? And also how does that kind of interplay with the price investments that you guys have spoke to and how that's trending?

Yes. So think of 2 different things that we're doing. One is we have -- now all our promotions are made on one platform across the company, okay? And it's a platform that our merchants access. And because it's all technology and we can see the data, our pricing team can look at the totality of the promotions and get a sense for where people are heading. So we -- what that does is it allows us to maintain that local nature of being reactive and appropriate in the market yet being able to see the full picture from here because we are now on one technology platform. So that's tremendously helpful. The second thing I mentioned to you is that we now have 25.4 million people on just for U. And so we've just added another 1 million -- 1.1 million just last quarter. And those 25.4 million people get promotions targeted to them, right? It's -- we can access them. They can access it digitally, we access them digitally. So at the underlying all of these promotions is a technology capability, right? So on that -- on the second one, we've had it for a long time, we just get smarter and smarter about using it. The first one I mentioned, we rolled it out across last -- during the pandemic, we've rolled it out. And we are continuing to improve it. On that one, I'd say, if that was a baseball game, we're probably in our third inning there, right? We have a lot more to go in terms of optimizing it.

Great. That's very helpful. And a follow-up actually on Robby's question on Drive Up and the profitability there and the comments, I think, Bob, you made or one of you guys made on mid to high single digits flow-through on that. I guess, number one, is that on an EBIT basis? And I'd love to hear maybe some of the assumptions that you guys have kind of used whether -- as far as incrementality, how that's factored into that number? And I guess also, does that kind of imply that given the incremental cost of delivery versus Drive Up that delivery is more like maybe flattish or even loss-making? And I guess how are you guys are thinking about looking to improve that? Or is that something where it's kind of the reality of the business as it stands right now, and you're willing to accept it for the sales?

Yes. Let me provide a little bit of context, and then I'll have Bob talk to you specifically about the flow-through and the EBIT piece. You're right. The delivery business is not profitable. The DUG business is, because it's harder to recover the delivery cost. And we -- as you know, though, we just have shifted a lot more of that where we are using third parties, and so we are on the path to improve that side of the business. But that will be the harder one to get right on profitability over time. Now here's the other thing. Yes, we are excited about the incrementality, and we can see incrementality because we know the customer. We know that she bought -- spent $100 with us typically, and now she's spending $125 with us. And so -- and that $25 is coming from eCommerce. And so we're able to track that incrementality. But we are fully cognizant that you don't build a big business all purely around incrementality because at some point, that business, too, has to become, on a unit basis, profitable. But we've got some time, right? We've got other things in our P&L that are driving productivity that can allow us to make these investments. And that's how we're working it, and I talked to you about some of those improvement initiatives in eCommerce. But Bob, can you clarify the flow-through comment?

Yes, definitely. So when we look at DUG, as you know, we had -- that was our fastest-growing segment of our eCommerce this past year. And because of that, we're getting tremendous scale benefits, which are now coming through in our latter quarters where we are seeing, on an incremental basis, the mid- to high single-digit EBITDA is what we're looking at there, which is effectively the same as EBIT in that particular business because there's not much amortization. But anyway, so we just look forward to as we continue to see that business scale even higher as well as factor in the savings from MFCs in the future that, that mid- to single -- mid- to high single-digit rate will continue to improve.

Yes. And the only thing I'll add on delivery is we have prioritized speed. We believe time is money, that people are going to expect shorter and shorter delivery windows. And we have absolutely prioritized that, and that fits with what we're doing with stores and MFCs. And we'll keep -- stay on that path for a long time.

Next question today is coming from Karen Short from Barclays.

I just wanted to go back to this weekly sales commentary as it relates to 1Q. So if I take what the weekly sales look like they were doing in 4Q, I'm not doing average weekly sales per store, but just weekly sales. And I bring that forward to 1Q, I'm backing into kind of a negative [ 9.5% ] comp in 1Q. And can you maybe just let me know if that's kind of directionally accurate? Because I think the way you described it was just a little nuanced.

Yes.

Go ahead, Bob.

Yes. I'll start off, and Vivek, you can fill in any blanks that you think I missed. First of all, what you need to do is take a -- we took the fourth quarter average weekly sale run rate, but then we had to adjust it seasonally for the first quarter because as you know, we have stronger holidays in the fourth quarter we need to kind of normalize there, if you will. So that would be maybe the one adjustment that I would say relative to what I think I heard you say.

Yes. And I'd rather not comment on comps at this time, Karen, but we wanted to give you some sense for the momentum in the business by giving you that -- those -- at least that additional information for this Q1.

Yes. And the other thing that we feel really positive about is it's not only the continued momentum there, but we're also seeing the continued momentum of market share gain.

Yes.

Right. No, no, that's helpful. I just wanted to make sure because it was a very nuanced comment. And then I wanted to just clarify. So when we look at EBITDA, by my math, I think the right number, total COVID costs embedded in the 2020 EBITDA number was $875 million. So can you just confirm that? Because I guess what I'm trying to look at is when I look at the midpoint of your guidance, call it, $3.55 billion for 2021, and I'm kind of trying to think intellectually about how that should compare to the $4.524 billion that you reported? Because presumably, that $875 million goes away in 2021? Or -- and/or doesn't increase. So like net -- it's a net flat number, right?

Yes. I think you're directionally correct there. Remember that the first quarter had the biggest chunk of it, right? And we had announced that we had roughly $600 million in the first quarter. I think we added back a small portion of that, but that was directionally the number there. And then we had an additional just over $100 million per quarter after that.

Okay. And then sorry, 2 housekeeping questions. I don't know if you did give us fuel in terms of the impact in 1Q. Is there any way you could give us fuel for the year in terms of what you thought was outsized in dollars? And then the second question I had is just on this hero pay initiative in California broadly, how have you factored that into your guidance?

Yes. I'll first take the fuel piece. Our intention was not to provide quarterly guidance for fuel or any other lines other than we wanted to call out that fuel was going to be a headwind in the first quarter. I would say, for the year, it's directionally that amount of headwind for the full year. So the impact is really a first quarter primary event. There's certainly smaller impacts by quarter, but I prefer not to try to list what those are that kind of net out.

Yes. And the hazard pay that we're seeing in certain pockets of the country, Karen, look, those are -- we are -- we think that those will abate as vaccination -- people get vaccinated. And I wouldn't want to say it's not material, but we -- it is part of our planning, and we're going to absorb it.

Next question is coming from Beth Reed from RBC Capital Markets.

I just had a couple of quick ones. On your ID sales guide, what are the embedded expectations for share gains in that? And then just wondering if you could comment on any potential impact from stimulus on quarter-to-date trends?

Yes. As far as your first question on market share gains, I mean, we would hope that we'll continue to see the trend that we're seeing now. That's kind of a hard one to predict as we move forward, though.

Yes. It's -- the thing about share gains is we had such a tremendous year in 2020. And so if you look at it on a 1-year stack, it just becomes difficult. It will be likely that we would -- share will look negative. But what we've looked at is on a 2-year basis. And on a 2-year basis, there's substantial share gains. And we're seeing that happening even through the first part of this quarter. So -- and then on the stimulus, what's interesting is that when we look at different segments of our shoppers, let me stay with income for now, we are -- we continue to see -- we haven't seen a dramatic shift in consumption patterns for lower-income households if the stimulus mattered to them. We were doing better with them prestimulus, and we continue to do well with them. So I haven't seen a substantial change from the stimulus itself, at least for us.

Okay. That's helpful. And then just going back to the gross margin for a second. Can you talk a bit about some of the mix improvements that you've been seeing there and how you see those playing out over the course of the year?

Yes. Mix improvement is a very deliberate approach we take, right? And that's been historical that the Albertsons Companies is simple as something that sell a cut watermelon or cut asparagus instead of a whole watermelon. And so those initiatives, we continue to find new ways of doing those types of things. The meals initiatives that we are rolling out are again, gross margin enhancers. And so -- and the Own Brands are gross margin enhancers. When you do well in fresh, and we continue to do well in fresh, that's a gross margin enhancer, notwithstanding all of the other things that I talked about that are productivity-oriented, right? So we -- again, I come back to both your questions and others on gross margin. We believe that we have plenty of tailwind.

Our next question is coming from Scott Mushkin from R5 Capital.

I wanted to talk a little bit about the store environment as you grow pickup and delivery. How do you keep the store environment good for people to actually want to come into the store? And then you're probably rotating labor from customer-facing activities to picking activities. And I wanted to see how you guys are attacking that issue as well.

Scott, we are not doing the latter, right? We are not saying, "Hey, we're going to sacrifice service in one part of the store to support another part of the store." So when it comes to the front-end, we have -- it's a completely different system that allocates what labor needs to go to our front-end of a store. It's based on historical and predicted demand, and we do that. And we hold people to that standard on that front. We're adding labor to the store for eCommerce, which is where -- which is why -- and you have to add that labor in kind of like block increments. You don't say it's half a personnel, you have to add a block to get it going, which is why as orders go up in a store, you see this thing -- you see the improvement in profitability. Now the other thing I'll tell you, Scott, is we are a higher index on fresh. The way you win in fresh, you don't just stock it up in the morning and then revisit it at the end of the day or the next morning. You're in the store working fresh all the time. And so part of that is a labor model that allows us to be great at fresh, right? And by the way, that same philosophy exists in much of the store. So in our stores, you'll see people working the store through the day so that the store remains fresh and stocked even while people are picking the store. And so that's the philosophy we've taken. We've not had -- run into that issue yet where a store is depleted or overcrowded for eCommerce.

Okay. And as a follow-up to this question, The Wall Street Journal had an article talking about the competition for labor. And given that you guys are growing these businesses where you're going to be adding labor, how should we look at kind of labor costs as the year progresses? Is it something you guys worry about? And what are you doing to control that line item?

Yes, Scott, a lot of our labor is unionized, and we have contracts with our unions. They come up every so often for renewal, and they're typically negotiated for 3 years or 5 years. And so a lot of our wages are, in that sense, predictable. And so we really focus a lot more on hours. So you add hours in some places. You drive productivity in other places to take the hours back out. And then we have all of these initiatives, right, like we've talked about in the past: FaR, which is an ordering program, production scheduling programs, et cetera, that drive -- and automation that we're doing that continue to drive productivity in labor hours. And that's how we manage that equation.

Our next question is coming from John Heinbockel from Guggenheim.

I know you guys added 4.5 million roughly loyalty customers this year. And I know omnichannel is up 3x. How many actual omnichannel households did you add relative to that? I'm curious, how many are coming as omnichannel? And then how big is the omnichannel customer base today as part of that 25.4 million?

Yes, John, let me put it this way. We are -- our mix of eCommerce has improved dramatically. But we're still behind some others, right? And that's why we are going to continue to invest in this business because we know that it's resonating. We haven't passed out those numbers that you're -- that you just asked me about. But we are excited about the growth rate. We know who they are, and we're going to continue to do to invest in it so the eCommerce business becomes a bigger mix. We've got a few points of catch-up to do on that.

And I think you said 11 million. That was total customers? [ 4.5 ]...

Identifiable, John. Yes, identifiable. So that's pretty good, right, because we know some -- because they're identifiable, we know what they're buying. We know what they're buying, whether they're going to engage in eComm, whether -- so that's the part that we're excited about. It's 11 million identifiable customers.

That you added. The 4.5 million were loyalty, right?

That's right.

So you still -- in theory, I guess, of that 5 million -- 6.5 million that are not -- that are identifiable but not loyalty...

That's right.

What's your -- how do you go about them to be loyal customers? And how optimistic are you that you can do that?

And yes, that's -- so our loyalty team is now expanding the way they're thinking about it, John. It used to be that our loyalty program was primarily -- had a financial incentive. It was rewards on fuel or pricing. And now we're starting to open up other things that you'll see us launching in the market so that we can get more of those other 6 million customers engaged in the loyalty program. Not -- price isn't the answer for everybody. Some people care about convenience. Some people care about experiences, and that's what we're going towards.

Our next question is coming from Rupesh Parikh from Oppenheimer.

So going back to your CapEx guidance for this year, you guided for an increase in CapEx of $1.9 billion to $2 billion. As we look forward, should we think about this as a right -- the new base level to think about future years as well?

No, don't. Don't think of it as the new base level. We would -- you remember, recall, we were at about $1.5 billion in the past, and we would keep it to that ratio, a percentage of sales about, say, 2.5% of sales, what you should expect in the long run algorithm for us. We are just being opportunistic here. When we have the cash, we're pulling forward initiatives that we know are clear ROI winners, right? So we've done that. And then in that $1.9 billion, you'll see a substantial investment in our digital agenda, building digital capabilities around the company so we can monetize all those things I just told John about those 11 million additional customers.

Great. And then maybe just one follow-up question on free cash flow. I know -- I think this year, there's going to be some specific items that may weigh in your cash flow such as that payroll tax deferral. So Bob, just curious if you can just share any other discrete items we should be thinking about on the free cash flow side for this year?

You're correct on the free cash flow side -- or I'm sorry, on the CARES Act, that was about 200 -- just over $200 million that we'll have to pay back in the fourth quarter of this year. Outside of that, there's really nothing out of the ordinary.

We've reached the end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments.

Very good. Thank you, everyone, for participating today. I wanted to point out that there is an infographic that has been made available on our website summarizing many of the statistics from this call today. And if there are any follow up calls, Cody and I will be available over the course of the day and the rest of the week. Thank you so much.

Thank you, all.

Thanks.

Bye-bye.

Thank you. That does conclude today's teleconference and the webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.