Flowers Foods, Inc. (FLO) Earnings Call Transcript & Summary

Thanks so much, and welcome, everybody, to this morning's session. We put out the results for our first quarter last night. You can find both the earnings release and the quarterly slides presentation posted in the Investors section of the Flowers Foods website. The 10-Q is up on the SEC website as well. Before we get into our discussion, I want to remind you that it could contain forward-looking statements regarding the Company's performance and other matters, including the impact of the COVID-19 pandemic. While we consider these statements reasonable, risks and uncertainties could cause actual results to differ materially. Beyond the items we'll cover on the call, important factors relating to Flowers Foods' business are fully detailed in our SEC filings. Joining us this morning are Ryals McMullian, Flowers Foods' Chief Executive Officer, and Steve Kinsey, Chief Financial Officer. Ryals, I'll hand the call over to you.

All right. Thank you, J.T. Good morning, everyone. I realize this is among the final calls you'll sit through during what has no doubt been an extremely frenzied stretch of earnings reports for each of you. So we appreciate you being here with us today. Speaking for Flowers, I want to say that my hope is that you, your family, and those you hold dear remain safe and are coping with all of this as well as possible. This is undoubtedly a difficult period for everyone; every one of us has essentially had to change virtually every part of our daily existence, at home as well as on the job. All of us are keeping those touched by the virus in our thoughts and prayers, and that includes people within our own Flowers family. While we do the work of getting through this crisis, three main priorities have continued to guide us: First and most importantly, clearly, keeping our workplace safe and giving our employees every form of support we can is essential; second, meeting our responsibility as a vital component of the country's food supply is critical; and third, just as we always have, we remain dedicated to backing the communities we serve. When it comes to our team, words really can't fully capture how tremendously proud I feel to work alongside them. Throughout our Company — from plant operations to sales, distribution, head office, and support staff — what they've delivered has been simply remarkable. My strong conviction is that the results we achieved this quarter are a direct reflection of the loyalty, commitment, and passion our team shares. Service, integrity, and character — our core values — have always guided us and always will. Those values held us steady as we made our way through waters we had never charted before. I feel particular gratitude for the effort, devotion, and personal sacrifices made by those on our front lines. During the last month, we handed out additional bonuses to those heroes of ours in acknowledgment of what they've done beyond the ordinary. At this point, protecting the health and safety of our team sits at the very top of our list; in those first days of the crisis, we put together a pandemic steering committee along with a task force headed by senior Flowers executives. We paid close attention to what health authorities advised, and we've put in place numerous protective measures for our employees, among them stronger sanitation, wellness and temperature checks, limits on travel, masks supplied by the Company, working remotely, and naturally social distancing. We've also strengthened our benefit offerings, which allow employees touched by the virus to look after themselves and their loved ones. Even with all of that, we've had a number of confirmed cases. And although even a single employee affected is far too many, we've been lucky in that the total number of cases we've seen has been comparatively small. I believe the extensive training in our bakeries, the guidance we've received, the vigilance we've maintained, and the steady flow of communication from our pandemic task force are in large part why we've gotten this outcome. I want to start by expressing genuine gratitude to everyone on the steering committee and the task force, along with our regional VPs, the general managers at our plants, and the entire team, for the work you've done to keep our facilities operating safely. Feeding America is something we treat as a serious obligation, and making sure our products remain easily accessible to shoppers is a massive responsibility we carry. Since our bakeries sit in strategic spots across the country, positioned near the markets they supply, we managed to keep the market stocked even with the unprecedented surge in retail demand. When panic buying peaked in March, we cut back our product variety — the same approach we take before a hurricane arrives — except this time it happened pretty much across the entire country. Doing that let us boost output by concentrating on extended runs of the items that sell best. On top of that, we shifted a portion of our foodservice output over to meet the rising need in the retail channel. The folks on our production teams performed remarkably, adapting to a marketplace in flux and making sure both our customers and consumers received what they required; for several weeks, they truly operated 24 hours a day. Our independent distributor partners were also essential, and they kept serving their markets loyally even when facing personal danger. Last, we share a strong bond with the numerous communities we serve, and as we always do, we're standing behind them through this difficult period. That means our bakeries nationwide are giving food and supplies to local food banks, hospitals, and first responders. As is the case with lots of businesses, our annual shareholder meeting is being held virtually this year, so we chose to give part of the money set aside for that event to Second Harvest of South Georgia, working alongside Feeding America. Flowers serves as a Feeding America mission partner, having donated baked goods valued at over $10 million in the prior year, and this newest contribution makes possible roughly 450,000 meals for people facing hunger right here in South Georgia. A few of our bakeries that have foodservice lines running below capacity have partnered with Feeding America's regional warehouses to supply millions of buns to food kitchens that need them; so these three priorities — keeping the workplace safe, helping feed America, and backing our communities — have served as our North Star and guided us through. Later on in this call, I'll go over the current business environment and what steps we're taking to handle this extraordinary situation. But before that, I'd like to hand things to Steve so he can walk through the quarter's details and share our present outlook for 2020. Steve?

Thank you, Ryals. Good morning to all of you as well. I want to join Ryals in what he said and give my heartfelt appreciation to our team, whose work throughout this period has been simply exceptional. The results for our quarter matter; however, in these unprecedented circumstances, we believe it matters even more to move past merely reporting figures and instead offer the greatest possible clarity regarding what shaped our performance during the quarter, what we are currently observing, and what might take place across the rest of the year. Our ability to see what lies ahead is no greater than anyone else's. Even so, we are making a commitment to provide the maximum transparency we can, in light of these uncertain times in which we find ourselves; now, let's turn to the quarterly results. Because our first quarter spans 16 weeks and takes in the first two weeks of April, COVID-19 had a strong effect on our results. If we examine how our top-line moved through the quarter, we—like most food companies—went through a soft January. Sales got better across February and early March, before shelter-in-place orders became widespread. After those orders took effect in mid to late March, our retail sales picked up speed, since consumers started eating more meals at home. As a result, we achieved all-time highs in both profit and revenue, and for a second consecutive quarter we improved our adjusted EBITDA margin. Sales on a consolidated basis increased by $85.5 million, which works out to 6.8% compared with the prior quarter. Our estimate is that roughly 6.5% to 7.5% of that growth came from the effects of the COVID-19 pandemic during the period. Of the overall sales gain, price mix contributed 6.2%, driven mainly by a shift in mix toward branded retail products, largely since people were preparing more of their meals at home. Volume contributed 0.6% to the total increase, as growth in the retail channel made up for lower results in foodservice and other non-retail channels. Turning now to sales broken out by channel: branded retail sales climbed $133.8 million, an increase of 17.7%. The performance of our brands continued to be very good, and we saw particularly notable results from Nature's Own, Canyon Bakehouse, Dave's Killer Bread and Wonder. On the store branded side, retail sales were down about $1 million, a decline of 50 basis points. We picked up sales in breads, buns and rolls, but those gains were more than offset by the loss of store branded breakfast business along with reduced volumes in store branded cakes. In foodservice and other non-retail, sales declined $47.3 million, which works out to 15%. Most of that decrease came from lower volumes tied to pandemic-related business disruption affecting the majority of our non-retail customers, and the declines showed up in every category of our foodservice business, including QSR, broadline distribution, and schools and other institutions. This quarter, our gross margin—when you strip out depreciation and amortization—went up 190 basis points. What drove that was a shift in mix toward branded retail products that carry higher prices. Working against that gain were two things: $4.1 million in appreciation bonuses for frontline workers, and $1.7 million in startup costs from converting our Lynchburg, Virginia facility into an Organic bakery, which is still underway. If you set aside the items affecting compatibility that are laid out in the release, adjusted SG&A expense as a share of sales came in 70 basis points higher. The reason is that moving away from non-retail and into branded retail altered our product mix, which in turn drove up the fees we pay distributors. Regarding our workforce, expenses rose, driven mostly by $2.1 million in appreciation bonuses given to frontline workers, plus we recorded increased employee incentive costs linked to performance. Because of economic uncertainty, we booked an extra $2.7 million in bad debt allowances for the quarter related to certain retail — for certain foodservice customers. GAAP diluted EPS was a loss of $0.03 per share for the quarter. That loss resulted from a $0.41 non-cash charge associated with terminating a defined benefit pension plan. During this quarter, we transferred the outstanding benefit obligations and administrative duties tied to our biggest defined benefit plan to an insurer with strong ratings. That step was one piece of our approach to reducing pension risk, and it has substantially lowered how much we're exposed to shifts in pension liabilities caused by declining interest rates. We're pleased that the deal closed consistent with the financial effect we'd projected, both in cash and non-cash terms. When you exclude that charge, together with the other comparability-related items laid out in the release, adjusted diluted EPS came to $0.41 per share for the quarter, an increase of $0.09 versus the same quarter a year ago. Using our best judgment and analysis, we estimate that marketplace changes brought about by the pandemic raised GAAP and adjusted EPS by roughly $0.09 to $0.10 per share. Now to our balance sheet, liquidity and cash flow; in the first quarter of fiscal 2020, cash flow from operating activities rose $10 million to $106.2 million, capital expenditures totaled $21.7 million, and dividends paid came to $40.3 million. Our financial position is still strong. At quarter's end, net debt for trailing 12-month adjusted EBITDA was roughly 1.8 times, compared with 2 times at 2019 year-end. Given the severe impact of COVID-19 on worldwide financial markets, and wanting to exercise extra prudence to preserve liquidity amid such unpredictability, during the quarter the Company pulled down an additional $200 million from its credit facility. When the quarter closed, we had roughly $253 million in cash and cash equivalents, along with $266.6 million still available to borrow under that credit line. Overall, we've been satisfied with how the business has weathered this uncertain environment, and over time we anticipate paying down these excess borrowings. Now, shifting to what we expect for the remainder of 2020. In planning for the year ahead, we — like most companies — are operating within a business climate that remains uncertain. When we developed our guidance, we weighed how unusually strong the first quarter had been against different situations that might play out for the remainder of the year. Taking that review and the scenarios deemed most probable into account, our projection calls for sales growth of 2% to 4%. Included in that figure is the 53rd week, which we anticipate contributing about 1.5%. For adjusted EPS, our guidance ranges from $1 to $1.08 per share, a number that accounts for how the COVID-19 pandemic has affected us. As I noted earlier, results may differ substantially, and some possibilities could drive both sales and adjusted EPS past the ranges we have provided today. Shortly, Ryals will provide additional detail on the factors taken into account when we set guidance; when it comes to 2020, our capital expenditures target sits between $95 million and $105 million, and that includes about $19 million tied to converting our Lynchburg bakery into an organic production facility. We anticipate that cash flow generation will stay strong. Also, our priorities and philosophy for capital allocation stay aligned with our emphasis on preserving and maximizing return on invested capital while growing shareholder value. Thank you. And now, I'll hand the call back to Ryals.

All right. Thanks, Steve. I think it's fair to say that what we're dealing with right now is truly unprecedented. To give everyone some context, I want to take you through what the first quarter looked like for us, the way we reacted, and then what we've been observing so far in quarter two. As Steve mentioned, we opened the quarter with sales essentially level through the first 10 weeks. Similar to much of the food sector, January proved especially soft for us. We faced a tough year-over-year comparison, largely because of early SNAP disbursements and winter storms that hit back in '19. Things started turning around during February and the early part of March. Then, as the crisis hit, net sales spiked, with week 11 climbing about 12% as shoppers started loading up on groceries ahead of stay-at-home mandates, and that trend held until the quarter's final week, which was measured against a very strong Easter the year before. Momentum returned in quarter two, with the first three weeks running roughly 7% to 8% above the prior year. Our branded retail business has been the main engine behind that sales growth, expanding at a pace well beyond what we'd typically see in a normal environment, rising 17.7% in quarter one. At the height of demand in March, our branded retail sales were growing more than 70% on a weekly basis compared with a year earlier. Toward the end of the quarter, that growth rate did ease but stayed high, around 20% above the prior year. Now turning to the category overall. It delivered solid growth, and I'm pleased to say we beat the category by a wide gap. According to IRI data, fresh packaged bread dollar sales rose 13% during the quarter, while Flowers branded bread sales in the track channels climbed 21.2%. Our biggest brands turned in particularly strong results. Tastykake gained 3%, Nature's Own gained 18%, Wonder gained 30%, Dave's Killer Bread gained 32%, and Canyon Bakehouse gained 77%. As I said before, our financial results for the quarter stemmed mainly from how quickly we could react to what the market demanded. Right from the start of the crisis, we simplified production and accelerated service to market, and by and large our customers' shelves stayed well stocked. New items from our leading brands also helped drive share gains, since they kept drawing shoppers in, along with our DSD distribution model. When demand surges as fast as it did during the quarter, that edge stands out even more, because our IDPs work relentlessly to keep product on the shelves. That distribution edge didn't just produce stronger sales for the quarter — it also brought us significantly more consumer trials. To illustrate, a large retail partner told us that over 2 million households sampled our brands for the first time in the quarter. And that's only a single retailer. We credit that mostly to the quality we deliver and the fact that our products were available. So we definitely aim to keep quite a few of these new consumers and gain a longer term payoff from that. With people spending more hours at home, the way they shop has shifted too, with fewer trips to stores and more online purchasing. And we expect that pattern to persist. So in order to draw in and hold onto these new digital shoppers, we moved advertising funds out of traditional media and boosted our e-commerce spending. What came from the change in consumer behavior and our heavier focus on the e-commerce category was a big lift in bread sales through that channel during the quarter, a large portion of which happened in the last six weeks. E-commerce sales and track channels with Nature's Own fresh bread and rolls climbed 80%, DKB rose 86% and Wonder jumped 274%. We think the strengths of powerful brands stand out even more in the expanding online channel. And we intend to bring in many of these new buyers by striving to create strong, meaningful connections with them. Now, unlike the robust retail sales, foodservice results have come under pressure, since many restaurants shut down or had to drastically cut back service. The timing of that drop lines up exactly with the far higher retail demand we witnessed as the crisis unfolded. As states started putting stay-at-home orders and other business restrictions in place, our foodservice results took a negative hit starting in mid-March and then got worse into April. So, to give you a sense of how big that decline was, in the last four weeks of our first quarter, non-retail sales fell more than 40%, against the prior year period. Even with the drop in non-retail sales, our adjusted EBITDA margins still grew 120 basis points. Again, a key reason for that margin expansion is how flexible our bakeries are, since many of them can make a range of products that serve both retail and non-retail customers; so, as foodservice demand declined, we could move production over to our retail products, which clearly were seeing far greater demand. So, even though total volume in the quarter was fairly flat, it was that mix shift paired with lower stale product return that mainly fueled the margin expansion in the quarter. Opportunities often arrive disguised as problems. And our recent results are especially instructive when it comes to one of our strategic priorities, portfolio optimization, which we keep working on, even while managing through the crisis. Our performance in the quarter shows the considerable potential of our optimization work. Pairing the right portfolio mix with an optimal bakery network structure can generate meaningful margin improvement. These outcomes have reinforced our team's determination to speed up our efforts in this area and put ourselves in a position to produce better margin performance as time goes on; that is essentially what took place during the quarter and how we reacted. And I truly hope our results make clear to you the strength and dedication of our team, along with the actions we have taken to secure our success moving forward; now, to give you a feel for what we are observing thus far in the second quarter, branded retail sales did stay under the peak levels from March but are holding up well, with year-over-year growth rates of more than 20%. Foodservice results have come up a bit from the first quarter, yet they are still depressed. So, as I mentioned, on the whole, so far in the second quarter, we are seeing total year-over-year weekly sales growth of roughly 7% to 8%. Going forward, where the market will find equilibrium is truly anyone's guess. As I am sure many of you have, I have gone through white papers and other resources, and it appears to me that research can be found to back almost any position you wish to adopt. To borrow from Churchill, life would be intolerable if we could foresee to any large extent the unfolding course of events.

Ultimately, none of us has superior insight into the precise manner or timing of a market shift, yet it appears sensible to believe that retail purchases will at some point go back to growth that is more typical once individuals head back to jobs and classrooms and devote less time to dining at home. Once that happens, we'd anticipate gains for our non-retail segment as eateries resume something closer to regular operations alongside schools and offices, fueling cafeteria, vending and drive sales. What truly matters is the shape and pace of that rebound; you could envision substantial pent-up desire, with shoppers eager to re-engage with the world once restrictions started lifting. Yet you could equally envision a great many shoppers staying wary for a while longer, until they feel confident that dining out carries an acceptable level of risk. My thoughts turn especially to travel and lodging, and the length of time those sectors might need for a full rebound. To my mind, reduced business travel translates into far fewer meals enjoyed at restaurants. Regardless, a complete return to normal life right away seems improbable. On top of that, summer vacation expenditures might stay subdued to fit celebrations limited to one household. Indeed, 1/3 of consumers already say their Memorial Day intentions will look different in 2020 because of the virus. The way such altered plans could influence the summer bun season represents merely one among the numerous, numerous elements we've factored in while considering our view for the rest of the year. With businesses closed and unemployment running high as a result, it's likewise probable that a recession is already underway. Our product portfolio is diversified, aimed at a range of price points. Still, margins might suffer should shoppers choose to move away from premium brands toward cheaper options. Fortunately for us, since the overwhelming majority of what we do is fresh DSD, we can respond rapidly to shifting market conditions and rebalance our mix to satisfy whatever demand arises. So, turning to what lies ahead, as Steve noted, although our year began very strongly, the truth remains that limited visibility renders forecasting quite hard; we've attempted to offer you at least a feel for which variables, favorable and unfavorable, might affect our business. Absent exceptional events, we're at ease that the guidance range we currently have is suitable. Though some scenarios certainly exist where our earnings might land above the range for the time being, given what we know today, and bearing in mind that the summer bun season still lies in front of us, we anticipate results landing inside existing guidance. To wrap up, we'll strive to put ourselves in a position to prosper regardless of conditions; as I've regularly reminded our team, managing effectively through the crisis mattered enormously, and managing effectively on the way out of it matters just as much. So because of that, we have to keep looking ahead while staying true to our 4 strategic pillars: putting emphasis on our brands, making better margins a priority, seeking out smart M&A, and building up the team. Our brands are powerful, and they're fueling expansion. For 2 straight quarters, our margins have gotten better. And going forward, we anticipate our supply chain and portfolio optimization program will drive even more improvement. In fact, even with the disruption caused by the virus, we're still committed to the $10 million to $20 million in savings for 2020 that we told you about in February. And although we can't speak to specific M&A targets, the acquisitions we've made recently keep delivering strong results. We're also actively looking for similar acquisitions to help fuel future growth. And last, our gifted and committed team is doing extraordinarily well in very challenging conditions. They've adapted well to working remotely, using various technologies to remain connected with one another and with the business; in fact, I personally have been quite pleasantly surprised by how effectively this has worked for us; and like many companies, we'll probably look at greater use of these technology platforms and lasting adjustments to remote work policies down the road. During this time of increased uncertainty, our business is positioned well to prosper; with weekly sales trend data, the capacity to change our production mix rapidly, an advantaged distribution network, and a strong liquid capital position, we can seize opportunities as they arise; and rest assured, we're doing everything we can to do exactly that. With that, Julie, if you're ready, we'll open the line for questions.

Thanks. Good morning.

Good morning.

I'm wishing you and your families are keeping well.

I appreciate that. Same to you.

I'd like to dig a bit deeper into foodservice. Could you perhaps walk us through how that splits between quick-serve and fast-casual, and then describe your footprint — I realize retail gives you something close to nationwide reach, but what about on the foodservice side? And how does that map onto states reopening at different speeds, say California compared with Georgia?

Absolutely. Bill, we typically don't disclose foodservice results split into those specific buckets, but broadly speaking, foodservice accounts for roughly 20% of our total business; and we serve essentially every channel inside foodservice, including broadline, vending, and QSR restaurants, that kind of thing; so it's pretty wide-ranging across those categories. Naturally, when lockdowns started and restaurants shut their doors, the impact hit the foodservice business almost right away. Lately, the QSR-focused operators — those that can keep drive-thru going, plus a bit of takeout — have begun to recover somewhat. And within that, among the QSR players, some are performing better than others. Certain ones have held onto a fairly solid sales base, given the circumstances, while others have seen business fall off quite sharply. Naturally, sit-down restaurants and fast-casual establishments can't welcome any diners; they've been hit hard, which in turn hit our foodservice business hard as well.

Understood.

With states beginning to lift restrictions, my sense is that it's still a bit soon to say for sure. Like I said during the prepared remarks, volume has begun to recover, though only marginally up to this point. I'd describe it as, across just the past two or three weeks or so, there's been a modest uptick, yet that's not sufficient to label it a trend at this stage.

Understood. Now moving over to expenses, particularly promo and ad spend — I mean, what's the timing look like for your promotions or your advertising, especially given that TV ad rates are falling, and I'd guess other places too across the coming months. How are you adjusting that? And does anything offset it — I'm not sure whether you've got any plans for additional pay like bonuses or similar things included in your guidance?

Absolutely. Regarding promotions, we handle things retailer by retailer so that we can fold in whatever programs each one wants to run. Broadly speaking, I'd say promo activity has come in somewhat under prior levels lately. On the advertising dollars front, like I said, we'd set a fairly strong ad budget for the year, yet we've moved a portion of that money out of traditional media. Beyond that, we actually made some additions, aimed largely at digital plus the e-commerce channel.

Understood. Alright, I appreciate the details. Keep yourself safe.

Of course. Thanks a lot.

Excellent. Many thanks. Hello, everybody.

Hello.

I hope your families are doing well too. It sounds like the whole team at Flowers is doing a fantastic job getting bread out across the United States. So thank you for that as well. I guess I have quite a few questions. I'll try to keep it brief, though. Regarding the guidance, like you mentioned at the start, you're basically the last one among those reporting on a calendar basis; we've seen companies raise guidance, maintain guidance, boost guidance. You're keeping guidance for the year and addressing the top-line more specifically. But clearly, the first quarter came in extremely strong, thanks to the COVID lift. And then you have remarks about the first few weeks of the quarter, roughly 7% to 8%. So I guess my first question is, I'm not sure whether you can potentially break down your base case; and if we consider branded retail versus private label versus foodservice. And I ask that obviously because once you remove the 53rd week, we're kind of talking, let's say, 1% to 2% organic; but the first half of the year obviously seems fairly strong; so trying to better understand what might decelerate perhaps in that back half? And I know you mentioned buns this summer, but still, just given what that first half could be, it seemed like a little bun pressure might not be that big of a deal. And then I have a follow-up.

Sure. Well, Rob, let me begin and Steve may want to add some additional color. But I mean, we considered a range of things as we thought about guidance. Obviously where we landed was keeping what we had. As we examined various outcomes and scenarios that could occur for the rest of the year, trying to factor in, as you said, the really outsized results of the first quarter, but also balancing that against a very uncertain outlook for the remaining three quarters for us, we felt it was most prudent and most reasonable; and given what we know today, at least, the most likely outcome would be that we would land somewhere within the current guidance range. I think the real uncertainty centers on where everything settles out. And what I mean by that is, how long does the elevated retail environment stay elevated? And then, on the other side, what is — as I said, what is the trajectory and speed of that foodservice recovery, and the balance between the two. And also factoring into that foodservice recovery is how it recovers? Because, kind of to Bill's earlier question, the mix of our foodservice business. Suppose the quickest and strongest recovery ends up coming from QSR. That happens to be the foodservice segment where our margins are thinnest. So when you look at the mix within foodservice, clearly that isn't the best result for us. There are all sorts of possible scenarios. We mentioned the summer bun season. To what degree will that take a hit? In Florida, where I'm from, rentals still aren't allowed — beach rentals in Florida, for instance; and should that become permitted before Memorial Day, only in-state residents would be able to do it, no one from out of state could rent; plus there would have to be something like a 3-day waiting period between rentals. So you can see those sorts of restrictions causing some disruption to that summer bun season, which matters a great deal to us; and ultimately, it's simply too soon to make that determination. So once more, we felt the wisest, most conservative approach was to leave guidance in place, since pulling it also struck us as excessive and unnecessary. We're comfortable with the range we've put out there, yet at the same time, it's too early to make any further changes. Steve, is there anything more you'd like to add on this?

Sure, one more thing to add, Rob. Clearly, joblessness remains a matter of national worry, along with how that situation will affect shoppers. Ryals noted during his remarks that there's been a move away from premium items toward non-premium ones, including within retail. To serve the market, as he put it, we followed our usual hurricane playbook and switched over to extended production runs of items. That means fewer changeovers happen. Once the market starts to settle and you begin reintroducing part of that SKU range into the market, there's additionally the danger of the shifts, even when it comes to eating meals at home. So that element worries me too. Combine that with the path of recovery in foodservice and the way the nation reopens, and we felt it was, in Ryals's words, wise to stay put right now until things become clearer.

Alright. That's entirely coherent and logical; and as a second point, this is somewhat of a, I suppose, a somewhat hypothetical inquiry regarding DSD. You said there had been a bigger move toward online; so, I suppose, first, clearly in the short term your DSD system won't change, but more in principle, is it necessary to consider, should there be effects over a longer horizon and how would Flowers handle them? And then, very briefly, any thoughts perhaps from you Steve, regarding what lies ahead, especially in Q2 concerning any additional SG&A expenses, caused by COVID? Thanks.

Yes. Fine question, Rob. And, it's intriguing to observe these shifting market dynamics. The increase in e-commerce, on the whole it remains fairly modest. I mean, we gave you some quite elevated percentage growth figures, but keep in mind, that's from a comparatively tiny base. But, we think that a number of these altered behaviors could be lasting. And since consumers were practically pushed in a sense to embrace a different method of buying groceries, they've become increasingly at ease with it as time passed as well. I mean, you all have noticed the count of workers that Instacart for instance has grown. I mean, that by itself shows just the enormous expansion of this. And so, as the marketplace shifts, we'll need to shift alongside it. Definitely not ready to discuss any modifications to our distribution system. We currently have no intentions to do so; but, definitely, as the market shifts, it falls to us to develop along with it.

Absolutely. Rob, one last item — a follow-up regarding what Ryals said — is that the bulk of that surge purchasing took place in physical stores. It came by way of click-and-pick. That's what powered Instacart, and it powered other large retailers, where for the most part the customer was placing an order online, yet either collecting it or receiving a delivery at home; it wasn't as though they were necessarily going online to place an order and then getting it shipped via other channels. As for SG&A expenses, once again these will mainly hinge on the product mix down the road, when you consider your distribution discounts. We also anticipate certain likely increased costs tied to the workforce as this carries on, should the growth and the sort of purchasing keep going at roughly 20% — that 7% to 8% Ryals mentioned. So, nothing truly unusual; it's simply some of those same factors we've observed in the past, perhaps caused by circumstances different from those in the past, but the higher workforce. At present, we discussed increased AR write off, yet the truth is our business operates on such a short-term, weekly basis that we think we've got a solid grip on it. And absent anything catastrophic, on the whole, I don't expect that to genuinely spiral. So, we're at ease with that.

Rob, Ryals here. Let me quickly return to that guidance topic and add one more point. I want to be sure the message lands that our outlook on the business is positive. That optimism existed before the crisis hit, and it remains with us today; even so, we have an obligation to act responsibly and balance that positive feeling against how little visibility we have going forward; that said, we have real confidence in our brands, in the strategies supporting those brands, in the resources we're putting behind them, and in the fact that portfolio and supply chain optimization is delivering — every one of those is a net positive. And as I said during the prepared remarks, that effort has continued in large measure even while we navigate this process. So to a very large degree, everything there is still on schedule. So our feelings about the business remain extremely positive. It's simply that the environment is uncertain in a way we've never seen — that's all.

Excellent. You're performing really well. Many thanks.

Appreciate it, Rob.

Hey, good morning.

Good morning.

So, I have a few things I'd like to ask. Honestly, I was wondering what method you use to figure out the revenue boost that COVID gave your company? Was it simply a matter of comparing your planned figures against the prior year? How do you — what's the process for arriving at a figure of that sort?

Mitch, here's what we did: we looked backward at how things had performed from January onward and into February. From there we ran a number of scenario models, each one extending the patterns we'd observed across that initial pair of months, after which we applied certain tweaks reflecting what we believed might occur during the latter portion of Q1, taking the holiday stretch into account too; so, we believed we'd given it — we'd made our strongest effort at getting that right. We approached it through two separate parts of the organization; one was our insides group; another was our insights group, and on top of that our FP&A and accounting teams did it as well. As a result, we adopted differing perspectives regarding how sales would trend.