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Despite a 41.2% increase in sales during the second quarter ended Jan. 1, Sysco Corp. said it does not expect its restaurant customers’ struggles to end overnight.
The retail giant told investors on Tuesday that it expects the effects of the omicron push to linger for part of its third quarter, though it declined to predict how long.
Executives also noted that the cost of the food it delivers has continued to rise at a double digit rate. “It’s been in double digits for longer than any of us in the industry would like,” CEO Kevin Hourican told financial analysts, according to a transcript from financial service Sentieo. “It’s hard to predict how long this may last.”
Executives noted that escalating costs left Sysco’s national chain business with an operating loss for the second quarter. In addition to escalating raw material costs, margins were impacted by soaring labor expenses.
Hourican said the company benefited from its decision early in the pandemic to keep all of its employees on the payroll even after a slump in restaurant sales left them with little or no work. By benching workers instead of firing them, Sysco has had an easier time returning to pre-pandemic productivity levels, the CEO said.
Still, Hourican continued, the distributor needed to increase its workforce by “thousands” as foodservice sales increased. These new hires weren’t as efficient or competent as a veteran, and Sysco had to adapt by scheduling more regular hours and overtime. “A higher population of less experienced associates has a direct negative impact on our supply chain productivity,” the CEO said.
Labor costs were also driven up by widespread absences. “Nearly 10% of our U.S. workforce tested positive for COVID during the month of January and were absent for at least several days,” Hourican said. “To cover these absences, we invested in overtime and additional third-party resources to ensure we were properly supporting our customers.”
Little was said about the inability to fill restaurant customer orders, with Hourican calling the problem a blockage higher up the supply chain, at the manufacturer level.
He predicted the situation would ease as omicron’s surge waned and demand continued to soar, and said his company was already seeing “green shoots” in February.
The industry’s largest retailer generated second-quarter revenue of $16.3 billion. Its profits were $167.4 million, an increase of about 149% year over year.
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