George Holm: Yes. I would say that, as I said earlier, I don’t think the market’s any more competitive now than it has been, and I think the large players are going to benefit. And, our challenge and our mission is to benefit more than the other guys, I guess. But, it’s a good industry, and, it is continuing to consolidate. And, I think there’s a lot of room for a lot of people in this type of business.
Jeffrey Bernstein: Thank you.
George Holm: Thanks.
Operator: And we have our next question from Lauren Silberman with Deutsche Bank.
Lauren Silberman: Thank you. A couple on guidance. I think you said the fiscal year is tracking at the low-end of the $59 billion to $60 billion range. As you look back, is this entirely driven by lower inflation than you would have expected? Is anything else a little bit different than expectations?
Patrick Hatcher: Yes. Lauren, this is Patrick. It is due a little bit to that and it’s also due to the fact that we’ve been speaking for several quarters about our beliefs on what deflation in Foodservice would do and what inflation would do in Vistar and Convenience. Deflation in Foodservice, it’s just been a little slower, as I mentioned in my comments, to move the direction we want wanted to. It is moving in the correct direction. It just hasn’t gone to inflationary, and we would have expected that to happen a little sooner. So, it doesn’t change dramatically, but it did, impact us a little bit there. And then a little bit there, and then we’ve already touched on the January effect as well.
George Holm: Yes. And the big one for us from a deflation standpoint is cheese, particularly cheese that goes on a pizza. And we, greatly over index in that area in the way in which we run our business, where many of our customers, our agreement with them is over the block market, as far as how we price them. And often, we’ve done well from an inventory standpoint by anticipating price increases and anticipating deflation and making sure our inventory is, as low as possible during deflationary times and as high as possible during inflationary times within that category. But once again, cheese, is the way we run our business where the age that we put on the product is extremely important to us, and we have just been taking those losses, on the inventory as cheese has continued to go down in price, and we finally have seen that turn the other way.
And we’ve had a few weeks in a row where the block market has gone up. So, that’s going to be a positive for us, if that continues or even stabilizes. But I think that’s a part of this $59 billion to $60 billion. I think another part of it is that cigarette volume typically goes down at a rate of about 4%, and it’s been higher, which is fine. That’s, just big dollar sales that, that don’t come with a lot of profit, but something you have to have to be in the business we’re in. So that, contributes to it, and I think that’s probably about it.
Patrick Hatcher: I think so. Yes.
George Holm: Yes.
Lauren Silberman: Great. Super helpful. Clarifying just the second half guide, the fiscal third quarter, and I know we talked about January inflation. To what extent is are you guys embedding, like, more of a return to normalized seasonality and this is a function of cadence just given you reiterated the full year guide versus some of these more idiosyncratic impacts in the fiscal third quarter?
Patrick Hatcher: Yes. I think it’s a lot of that of us trying to just help give some cadence to the quarters, and give you that ability to understand the cadence that we’re seeing. So, it’s a lot, it’s much more what you described the former than the latter.
Lauren Silberman: Great. And then just last one, on the fiscal ‘25 guide fiscal ‘24 come in at the low-end of the fiscal ‘25 guide, can you just help frame a little bit how we should be thinking about fiscal ‘25?
Patrick Hatcher: Yes. I mean, as we’ve continue to reiterate that guidance, and I think we’ve said that we feel really comfortable about coming in, right in the midpoint of that guidance. So, I think that’s, we continue to see really positive things, and that’s why we continue to reiterate that particular guidance.
Lauren Silberman: Thank you.
Operator: And our next question comes from Andrew Wolf with CL King.
Andrew Wolf: Good morning. I wanted to ask on the, your commentary that the penetration with, independent customers is improving. Maybe could you elaborate a little bit on, like, what parts of the sales process, is being applied as a differentiation service. Are there pricing algorithms that, maybe they get more confident with? Just help us understand why that’s happening?
George Holm: Well, we don’t have pricing algorithms, so that wouldn’t have anything to do with it. We train our people, and we train them to be equipped with the best product knowledge possible. And, therefore, they have the knowledge to add SKUs to those accounts. And, Andy, it’s really no more complicated than that.
Andrew Wolf: So, would you call it basically persuasive selling and showing up, that kind of a combination?
George Holm: Yes.
Andrew Wolf: Okay. The other question I really wanted to get into was the better operating expense much better at the convenience store, distribution business. And just, by what you’re detailing, temporary help and overtime, I wasn’t sure if that’s better results relative to the other two segments, Foodservice and Vistar, or whether they’re actually lagging maybe because, there’s a lot of tougher to hire people, so they had to hang on to overtime and temps longer. I’m just trying to get a sense of, is it really a better performance, or is it more sort of, they’re just catching up in terms of kind of getting back to having, hiring up full time folks.
George Holm: Well, they would tell you, and it certainly shows in their numbers, from an operational standpoint. They’re the best right now that they’ve ever been to putting out, really good levels of service. And, they’re paying people well and getting good productivity for what they pay them. And I just think it’s a real good situation. They were very focused on it. Certainly hit the hardest. And as I said, they came back, the fastest, and they came back to, pre-COVID levels and continue to improve. It’s just a real good situation, and we need that. We’ve got business coming on. We got to be prepared for it, and I think we’re in great shape as that comes in.
Patrick Hatcher: The only thing I’ll add is just, specifically speaking to the warehouse and not to oversimplify things, but the type of worker that we have to hire, especially in Foodservice, George, refers to as industrial athlete. They have to be very physical. But, again, not trying to oversimplify, but on the Convenience side, a lot of times they’re picking eaches or small packs, so it can be a less demanding job and therefore might be a little easier hire for us. So, I think that’s helped them in their ability to really drive that OpEx lower.
Andrew Wolf: Good. Yes, I was going to ask that sort of structural kind of question. How about on service rates, expectations by the customers? Can Convenience get a little more aggressive not having excess labor because maybe their customer is a little more tolerant of lower service level or is it more what just patches that?
Patrick Hatcher: No. I would think it’s almost the opposite. The convenience customer, yes, they don’t have any, like, real back stock. So, if we’re not making deliveries and providing great service levels, they’re going to have empty shelves. And so, now they have to be really good at that service level.
Andrew Wolf: Got it. Thank you.
George Holm: And we are seeing some improvement on the inbound. And, for whatever reason, the Convenience and the Vistar suppliers just have not been able to get their service levels back to pre-COVID. And in Foodservice, we’ve seen people get back to pre-COVID service levels fill rates.
Operator: And we do have our next question from Peter Saleh with BTIG.
Peter Saleh: Great. Thanks. So, I want to come back to the comment around some of the operators adding hours and days of operating days as labor returns to more normal, is this a more recent trend that you’re seeing in the fiscal second quarter or has this been kind of going on for several quarters now? And maybe can you just help us and comment on day part mixes? What are you seeing maybe by lunch and dinner, are there specific cuisines that are kind of outperforming, given this dynamic?
George Holm: Well, what I’ve seen as far as people expanding hours again and adding more days, I think that’s the function of how they’ve gotten labor back, and that’s different market-by-market. But I’m just seeing it as a trend that’s, I think helping us. As far as cuisines and how they’re doing, certainly no expert on that, but I can tell you what I see. First of all is, third-party delivery has made, delivery much more than pizza and Asian food. And I think it’s been good for a lot of restaurants. Now, when we look at, the SKUs that we have that lean towards takeout and delivery, it certainly isn’t as high as it was during COVID, but it’s higher than it was pre-COVID. So, that in itself tells me that people did change their behavior somewhat, and that, product that is conducive to takeout and delivery is probably benefited and restaurants that can do takeout and delivery have benefited.
I’m not so sure I see a big change in general for what cuisines people eat. I think there was some fatigue around pizza, and that seems to kind of cycling back out. And then, I would also say that some of the areas where they overshot on pricing that has, resulted in some softness, and I’ll throw pizza in that too. Now breakfast has come back strong. And I think that’s a function of people working in the office, and it’s a very, breakfast is very habitual, and they’re back going to at least the ones that we supply that have a breakfast. It’s really made a nice comeback.
Peter Saleh: Thank you. That was very helpful. Just on the Monday and Friday, I think you also mentioned Monday and Friday morning traffic was still, I believe, soft. Is that something now with your comments on breakfast, are you expecting that to improve in calendar ‘24 as more return to office is happening?
George Holm: Yes, definitely.
Peter Saleh: Thank you very much.
Operator: [Operator Instructions] And our next question comes from John Heinbockel with Guggenheim Securities.
John Heinbockel: So, guys, I wanted to start with Vistar. And I know you referenced in the release, particularly on SG&A, the impact of an acquisition, which I think was GreenRabbit. And maybe for Patrick, impact on the P&L, is that a near-term weight? And then maybe for George, strategically GreenRabbit’s impact on Vistar and particularly the fulfillment business, what does that do and cannot move the needle in that business?
Patrick Hatcher: Yes. Thanks, John. There’s a couple of things going on at this time in the quarter just to highlight them. I mean, obviously, we’ve added the acquisition in, and that is showing up in OpEx. And then the thing that’s not really obvious or maybe you figured out, but it’s just the gross profit looks muted because of those inventory gains in the prior year versus this year. So, if you were able to strip out those gross the inventory gains from last year and the acquisition, the gross profit to OpEx, it’s still growing about double at Vistar. So, we’re really comfortable with how Vistar is performing? You’re just getting a lot of noise as that acquisition is getting added into the P&L and you have that year-over-year comp from inventory gains. So, I’ll turn it over to, George.
George Holm: Yes. From a strategic standpoint, I mean, the whole e-commerce area is something we’ve been at for quite a while. We were doing it out of several of our Vistar facilities, for a few years. And, Pat Hagerty, ran the Vistar business, and his idea was to go to something that’s semi-automated. We had enough volume where we didn’t need the benefit necessarily of the Vistar business to bring the product in truckloads. So we did one, and then we did two more of the semi-automated facilities, and they’re like, $30 million pops. So, they’re very expensive to do. So, we talked to the GreenRabbit people for a long time. They have three distribution centers as well like we do. Two of them are smaller than ours. One, is actually, quite large, but the larger one also does refrigerated and frozen, which we don’t do in an e-commerce standpoint.
Now, we have the right temperatures to do chocolate, but not for refrigerated and frozen product. So, for us, it takes us to six. It gives us the ability to those other two product areas, and the expertise that we’re getting with the people that run that business is exceptional. And, the products they all hit the suppliers in which we buy from. So, from a strategic standpoint, it’s a big one for us, and it’s really important. And, we had gotten those three centers to where they were actually from EBITDA margin standpoint, more profitable than a regular Vistar distribution center. Now part of that, as I’ve mentioned before too, is that we don’t take, physical possession of all of the products. So, and some of it, the margin and the sale are the same.
We don’t have the cost of goods, so that obviously helps. But this is a big part of our future within Vistar.
John Heinbockel: Great. And then let me follow-up just quick on Foodservice. Do you think, is this business still because I think you’d argue that if you’re growing independent case growth 6% to 7% with a little inflation and a little Chain business growth, this is a high-single-digit EBITDA growth business. Would you still agree with that? And we haven’t been there because of the sales force investment. Do we get back there in early part of fiscal ‘25 or no, you think?
