WESTLAKE, Texas — Core-Mark Holding Co. Inc. has laid off approximately 1,000 people in response to sales volume declines due to COVID-19, company executives said on the convenience-store distributor's first-quarter 2020 earnings call May 7.
In April, Core-Mark said it would take “aggressive” steps toward reducing operating costs to better align with current sales trends. It also withdrew its full-year 2020 financial guidance.
Although most of Core-Mark’s customers are convenience retailers that continue to operate as essential businesses amid the coronavirus pandemic, the outbreak has still hurt Core-Mark’s sales because fewer people are visiting c-stores, the company said.
The company experienced a year-over-year sales decline of about 8% in April, including a 3% decline in cigarette sales and a 20% decline in non-cigarette sales, according to its earnings report.
“The effects of the COVID-19 pandemic did not have a significant impact on our operating results during the three months [ending] March 31, 2020; however it has adversely impacted our business in April and our current expectation is that it will continue to adversely affect our business for the remainder of the second quarter and potentially subsequent quarters,” the company said.
Net sales increased 4.9% in the first quarter to $3.94 billion, compared to $3.75 billion for the same period in 2019. This increase was due primarily to growth in cigarette and non-cigarette sales.
The benefit of a strong growth in cigarette sales in early March lifted the overall cigarette sales for the quarter. The benefit of non-cigarette sales growth in early March was offset, however, by the late March decline, said Christopher Miller, senior vice president and CFO, on the call. Non-cigarette sales in the first quarter were affected by about $19 million in customer returns of merchandise as a result of the U.S. Food and Drug Administration (FDA) ban on flavored e-cigarettes, he said.
The company’s operating expenses increased 2.9% in the first quarter to $208.6 million.
Approximately 70% of Core-Mark’s 2019 operating expenses were driven by employee wages and benefits, many of which are variable and can fluctuate with volume levels, the company previously said.
In addition to reducing its headcount by 1,000 workers, Core-Mark has suspended its 401(k) matching program, minimized overtime costs and reduced work hours of nonexempt employees, among other initiatives. The company has also reduced travel, meetings, events and other discretionary expenditures. Core-Mark expects its capital expenditures to be $30 million for 2020 compared to the initial estimate of $45 million.
Core-Mark will also convert its Center of Excellence, a hub to show retailers and vendors insights on emerging trends and how to grow their business, to a virtual customer experience. It is also moving other business initiatives forward, including acquisition talks that started before COVID-19, President and CEO Scott McPherson said on the call.
“We have continued to maintain these dialogues and believe we have a robust pipeline in place once the business environment settles," he said. "We are working hard to move these and other business initiatives forward, positioning Core-Mark to assist our customers in optimizing their retail offering as volumes return and providing Core-Mark a springboard for growth.”
Overall, given Core-Mark's financial strength coming into the pandemic and ample availability of capital, the company said it expects to maintain adequate liquidity through the current environment, "subject to the duration of COVID-19 and sheltering-in-place orders."
Westlake, Texas-based Core-Mark is a marketer of food and merchandise and supply solutions to the convenience retail industry in North America. It offers a full range of products, marketing programs and technology solutions to about 42,000 customer locations in the United States and Canada through 32 distribution centers. The company services traditional c-stores, drugstores, big-box or supercenter stores, grocery stores, liquor stores and other specialty and small-format stores that carry convenience products.