Core-Mark Withdraws 2020 Guidance Amid Sales Volume Declines
WESTLAKE, Texas — The COVID-19 pandemic is impacting Core-Mark Holding Inc. Co.'s business, leading to several changes, including rightsizing its workforce.
"As the COVID-19 crisis continues to evolve, our primary focus is on the health and safety of our employees, our customers and the communities in which we serve," said Scott E. McPherson, president and CEO. "Given the level of uncertainty surrounding this crisis and its duration, we are withdrawing our 2020 guidance.
"Despite an initial retail surge in early March, we have now faced three consecutive weeks of material year over-year-volume declines. We have taken aggressive actions to align our cost structure with the declining volume trends, while maintaining high levels of service to our customer partners and preserving the strength of our balance sheet," McPherson explained. "Although no one can adequately prepare for a national crisis of this scale, I am confident in our ability to emerge quickly, propelled by the incredible efforts of our more than 8,000 dedicated associates and the resilience of our committed customers across the U.S. and Canada."
Given the rapidly evolving impact of COVID-19 on economic conditions in both the United States and Canada, the company is withdrawing its full-year 2020 financial guidance provided on March 2 and is not providing an updated outlook at this time.
According to Core-Mark, the company saw an acceleration in year-over-year sales growth through the first few weeks of March; however, year-over-year sales volume declined through the last week of March and into the first two weeks of April.
For the most recent week ended April 10, the company experienced a year-over-year sales decline of approximately 12 percent, reflecting a 7-percent decline in cigarette sales and a 20-percent decline in non-cigarette sales.
The majority of Core-Mark's customers are convenience store retailer that continue to operate as essential businesses. However, the novel coronavirus crisis and the increase in the level of shelter-in-place orders have driven a significant downturn in miles driven, resulting in a decline in convenience retail store visits across North America, the company said.
The company added it a continued decline in year-over-year sales trends until officials shelter-in-place orders are lifted and normal consumer traffic resumes.
In addition, the change in product mix caused by COVID-19 will have a negative impact on gross profit margin given the recent sales trends that reflect a larger decline in non-cigarette sales relative to cigarette sales. Core-Mark is also incurring material costs related to employee personal protective equipment, an escalation in facility sanitation processes and employee costs related to quarantines.
To better align operating costs with current sales volume trends, Core-Mark reduced hours for non-exempt employees and made headcount reductions. In addition to rightsizing the workforce to address the pandemic, Core-Mark suspended employer contributions to the company's 401(k) plan and made material revisions to its vacation policies.
Core-Mark also eliminated non-essential business expenses, including travel, meetings and events and other discretionary expenditures.
In addition to reducing operating expenses, Core-Mark took actions to help preserve liquidity, including deferring non-critical capital expenditures, reducing inventory levels to align with sales volumes and carefully managing accounts receivable. Its board of directors also reduced its director cash compensation for the remainder of 2020.
Core-Mark also suspended its share repurchase program due to the volatility related to COVID-19.
Westlake-based Core-Mark offers a full range of products, marketing programs and technology solutions to approximately 42,000 customer locations in the U.S. and Canada through 32 distribution centers. It services traditional convenience retailers, drug stores, box or supercenter stores, grocery stores, liquor stores and other specialty and small format stores that carry convenience products.