Good morning, and welcome to Sysco's 4th Quarter and Full Year Fiscal 2020 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would now like to turn the call over to Neil Russell, Vice President of Corporate Affairs. Please go ahead.
Thank you, Joelle, and good morning, everyone. Welcome to Sysco's 4th quarter and full year fiscal 2020 earnings call. On today's call, we have Kevin Hurricane, our President and Chief Executive Officer and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation would state the company's or management's intentions beliefs, expectations or predictions of the future are forward looking statements within the meaning of the Private Securities Litigation Reform Act and act results could differ in a material differ from those in the forward looking statements is contained in the company's SEC filings. This includes but is not limited to, risk factors contained in our annual report on Form 10 K for the year ended June 29, 2019, subsequent SEC filings and in the news release issued earlier this morning.
A copy of these materials can be found in the Investors section at cisco.com or via cisco's IR app. Non GAAP financial measures are included in our comments today and in our presentation slides. Are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we At this time, I'd like to
Thank you, Neil, and good morning, everyone. I thank you for joining the call with us this morning. I hope that you and your families are safe and As we continue to navigate through this unprecedented environment, our first priority will always be the health and well-being our associates. I want to thank all of our associates for their tremendous work during a period of high stress at both work and at home want to especially thank our warehouse associates and our drivers, who as frontline associates showed up every day during this crisis to take care of our customers, including those customers in the health care sector that needed our support more than ever. During this morning's call, will discuss the state of the current business environment.
Cisco's effective management of the COVID 19 crisis, and how we are strategically transforming the company our business. I'll then turn it over to Joel, who will discuss Cisco's fourth quarter fiscal 2020 financial results. Lastly, I'll make a few closing remarks before we turn the call over since the effects of COVID-nineteen's pandemic began to significantly impact our industry and Cisco's business directly. As we discussed during the third quarter call immediately after the onset of the crisis. Cisco took swift and decisive to SMI sale during a period of disruption.
I am tremendously proud of the work that we have done during this crisis to help our restaurant partners be as successful as possible during immensely difficult operating conditions. I will highlight a few of these wins in just a moment. Most importantly, we are not just managing a crisis. We are transforming our company during this crisis. While others are focused on survival we are transforming our company to improve how we serve our customers and differentiate from our competition.
I will highlight the progress we are making on our transformation during today's call. Before I cover our transformation, however, I would like to give you a quick update on how we have managed the crisis to date in the general state of our
business. First,
Joel and his team took swift action to further strengthen our overall liquidity, which affords us financial flexibility during this difficult operating environment. As Joel will describe further, we have approximately $8,000,000,000 of available liquidity enables us to manage through the crisis and positions Cisco for long term success. We are unique in our ability to invest in our business to transform the company during In the fourth quarter alone, we removed approximately $500,000,000 worth of operating expenses, which includes more than $300,000,000 of structural and permanent costs on an annual run rate basis. We are working to we created new sources of revenue, which included I'm very proud of the work our Salesforce has been doing to help our customers during this uncertain time. We have helped our restaurant customers pivot to new selling models, which includes helping them with pop up shops in the front of their dining room and provides additional revenue streams for these customers.
A powerful example of this is the fact that the restaurant operators that have engaged with Cisco on concept like a restaurant marketplace are performing over 20 have helped over 16,000 of our customers set up marketplaces. We've also helped our customers with alternative reopening plans, such as patio extensions and outdoor dining options. We have provided customers with the technological support to start a website if they did not already have one. Additionally, we have helped connect them to bird delivery partners and set up takeout menus and have provided them with the much needed to go containers needed to support a delivery model. We've helped our customers narrow their menus to a more focused assortment help them for cleaning, sanitation, and personal protection without disruption so that our customers may continue business operations.
We believe that these overall actions will space well beyond the pandemic. We can measure the impact of these actions through our net promoter score with restaurant operators. I am proud to say that those that know MPS, a 900 basis point improvement in 100 days is a dramatic improvement. Increasing MPS is proven to increase sales and customer retention over time. This improvement selling food products.
We are delivering products in valued services. Separately, we have shifted sales products to regional and national grocery retailers to help alleviate in nature, we have in fact created long term relationships with select regional grocers where we can add value items such as quality proteins or fresh produce where our buying advantage is helpful to them. On our last call, we announced a $500,000,000 on an annual basis new business win. Since that time we have secured an additional $500,000,000 worth of incremental new go have enabled us to win over 1,000,000,000 annualized of new business during this crisis. We have the capability and the Salesforce to win new customers at the local and at the national contract level simultaneously.
As it relates to the current business environment, I would like to highlight the pace we experienced steady and consistent week over week sales improvement. As countries and states began reopening, we experienced a swift business recovery. Unfortunately, as cases have begun increasing in certain locations, the business recovery has somewhat stagnated. With that said, it is clear that food away from home fatigue is real, excuse me, food at home fatigue is real, and that consumers are The speed and pace of that reengagement will be dictated by the restrictions that restaurant quality meals, consumers are ready to eat away from home. Until then, our best customers are succeeding through things like takeout, delivery and extensive patio dining.
I'm glad to say that the rate of Cisco customer closures is less than the industry average, illustrating the value that we can bring to our customers through value added services and advice. Joe will go into further details about the business environment by geography in just a little bit. Our business improvement throughout the quarter was significant, which we feel good about. We are pleased to communicate today that our results came in notably better than expected. We exited fiscal 2020 with a profitable adjusted operating income rate.
Which bodes well for fiscal year 2021. Additionally, Cisco was able to generate positive free cash flow during the last period of the line of approximately 30%. We anticipate sales in fiscal 2021 to be stronger than that exit rate fiscal 2020, even with a choppy recovery, and therefore, we have increased confidence in regards to fiscal 2021 profitability. I will now shift to highlight some of our progress against our transformation initiatives. We are undertaking a bold transformation.
That will improve how we serve our customers, differentiate Cisco from our competitors, and help transform the industry. First, we've accelerated our work to become a more digitally enabled company. We are investing to improve our digital order platform Cisco's shop. This tool makes it easier for customers to do business with Cisco, allows Cisco to increase sales with those customers and increases customer retention. Examples of these digital technological improvements include the following improving the search function capabilities so that relevant and compelling results We've also implemented a sales consultants by providing them with digital tools to engage their customers.
Examples include enabling them to show streaming videos, highlighting menu trends and pushing promotional opportunities to their customer base. Additionally, we are deploying a digital With the implementation of our new Our second transformation effort is in our sales model. We are making it easier for our customers to do business with Cisco and to increase the effectiveness of our sales teams. Aligning the incentives of the Salesforce more closely with our business objectives and increasing the partnership of our sales teams across our multiple lines of business. This includes a change Additionally, we are increasing customers.
These roles will help increase our share of wallet and increase sales in premium products, which we have struggled to penetrate in the past. Combined, these capabilities will enable our sales team to visit more customers, inspire our customers to purchase more from Cisco, and reduce friction in the purchasing environment. The last piece, friction removal will also be enabled by centralizing key customer support functions for large international accounts. These key accounts will have dedicated account reps that will own their experience end to last time we have Q3 earnings call, but we have recently begun our implementation. In July, we completed wave number 1 of our regionalization efforts.
Through regionalization, we will be a more efficient company. We will be more agile with our decision making, and we will execute against strategies in a more efficient manner. Our leaders bought bigger roles and will help ensure alignment and consistency across country. Regionalization is a new leadership structure for our US Broadline business. With this change, we will move from our current 6 markets comprised of 76 operating companies to 4 markets that consist of approximately 30 regions, each made up of 2 to 3 operating sites.
Each region will consist of 1 region president and 1 cross functional regional leadership team responsible the performance across an entirely new, more centralized, more aligned, more agile Cisco to go to market. We are unleashing the power of the consolidated enterprise by making this change, eliminating redundancies and shortening time to making decisions. This regionalization project will lay the necessary foundation for all future transformation initiatives closing any physical distribution locations with this change and we are retaining our local drivers, our local warehouse associates, and importantly, our local sales force that supports our customers. Our 4th transformation is our structural fixed cost removal from our business and becoming a more efficient company. As previously mentioned on our 3rd quarter earnings call, we had identified and for fiscal 2021.
Today, we are updating those figures to $350,000,000, derived from improvements for 2021, we have identified additional cost improvement opportunities that we are pursuing that will generate savings starting in fiscal 2022 and beyond. We are calling these combined efforts our corporate modernization, and we will update investors on the additional favor impact that can be expected as we move forward. Throughout this crisis, we have stayed focused on supporting as we have defined our strategies. The decisions that have impacted our associates were difficult to make. With that said, our decisions were informed by our strategy.
That strategy will improve the service that we provide our customers and differentiate Cisco from others in our space. The transformation ensures that we are a stronger, leaner, and more agile company. And through our transformation, we will be better aligned to execute on what matters most. By accelerating the pace of change at Cisco through our company wide focus on these strategic initiatives, we are positioning the company for future success ensuring that we will emerge fiscal 2020 results, along with additional financial details around our business environment. Final perspective before moving into Q and
I will start with 4th quarter results for Cisco and results by segments followed by an overview of full year fiscal 2020 performance. I will then give an update on cash and closing comments. Our total Cisco results for the 4th quarter include a sales decrease of 43% $8,900,000,000. Local case volume within U. S.
Broadline operations decreased 38.7 percent for the 4th quarter, while total case volume within U. S. Broadline operations decreased 41.5%. As a result of the COVID-nineteen pandemic, we saw a significant decline in both volume and sales across all the business segments. Gross profit decreased to 47 percent to $1,600,000,000 and gross margin decreased 100 and 59 basis points.
Our gross margin for the fourth quarter was impacted by pricing to help move inventory and avoid spoilage and by a temporary shift in customer mix as a result of the current operating environment. These results were in line 26 percent to $1,600,000,000. It is important to note that we had $115,000,000 of incentive pay accrual reversals that favorably impacted operating expenses and the run rate in Q1 of fiscal 2021 be normalized when compared to Q4 fiscal 2020. With that said, the adjusted operating income run rate was profitable in June even without the accrual reversal. Adjusted operating income decreased 104 percent to a loss of $34,000,000, adjusted earnings per share decreased 120 6 percent to a negative $0.29 for total Cisco.
Across the business, our results were impacted by various financial certain items, which I will review before proceeding into individual segment results. Our 4th quarter results are impacted by restructuring and transformational project costs associated with our various transformation initiatives. Examples of the restructuring charges include our regionalization efforts that Kevin previously mentioned and a technology change related to our ongoing integration in France. We have also experienced
an
$170,000,000 for the 4th quarter. However, we feel good about the progress we've made, tightly managing receivables, and we will continue to manage this tightly during an environment of higher bankruptcy risk. Additionally, we have taken goodwill impairment charges within our international segment due to better visibility of the volume declines stemming from the global pandemic and their impact to our France and Fresh Direct Businesses. Lastly, during the quarter, we made Reporting segment. We feel that this reclassification better reflects the true expenses of managing the U.
S. Business, and aligns our leadership squarely on For the U. S. Foodservice Operations segment, sales for the 4th quarter were $6,100,000,000, which was a decrease of 43% versus the prior year as the exit rate was markedly improved compared to the start of the quarter. Gross profit decreased 46 percent to $1,200,000,000 for the quarter, and gross margin declined 102 basis points to 19.1%.
Cisco brand sales for the 4th quarter decreased two basis points to 38.5 percent of total U. S. Cases and decreased 2.39 basis points to 45.2 percent of local U. S. Cases, which was driven Our adjusted operating expenses decreased 24 percent to $1,000,000,000, which was favorably impacted by changes in the business.
Including permanent reductions in force, more productive staffing, better warehouse operations, and efficiency improvements within our transportation initiatives. Adjusted operating income decreased 80% $165,000,000. Our international food service operations impacted by changes in foreign exchange rates. On a constant currency basis, sales decreased 52% Gross profit decreased to 56%. Gross margin decreased 199 basis points.
Adjusted operating expenses decreased 32% and adjusted operating income decreased 162 percent for an adjusted operating loss of $73,000,000. Throughout the fourth quarter, our UK business has remained stable as we continued our work with the Defra program providing boxes food to those in need. Our Ireland and Sweden businesses have both shown steady improvement during the quarter. As restaurants, hotels and pubs continue to reopen for customers. Although our results have been favorable, the current rise in COVID-nineteen cases warrants continued attention.
In Canada, country has been steadily reopening for the past 8 weeks, and we feel good about our business. The exit rate was much improved compared to the beginning of fourth quarter. Additionally, our regionalized cost structure was beneficial and allowed for greater flexibility during the crisis. We saw mixed results throughout our Latin American countries of operations. The impact from COVID-nineteen continues to be most prominence in Mexico and Panama as they have been heavily impacted by restrictions as a result of the pandemic.
However, we opened a new cash and carry store in Panama that is performing well and partially offsetting some of the decline in the current environment. In Costa Rica, our cash and carry stores are also helping to partially supplement the decrease in sales from restaurants. Moving on to the Sigma segment, sales decreased 17 percent to $1,300,000,000 compared to the prior year period as quick serve and drive thru restaurants continue to experience less than a downturn compared to other restaurant types. Gross profit decreased 11 percent to $114,000,000 for the quarter, but gross margins improved by 56 basis points. We are encouraged by the steady progress of profitability improvement as a result of disciplined approach to profitable growth.
Adjusted operating expenses decreased 11 percent to $103,000,000 due to lower transportation costs. And adjusted operating income decreased 12 percent to 11000000 dollars. Now, turning to our results for the full fiscal year 2020. Sales decreased 12% to $52,900,000,000 Our total case volume and our local case volume for the year in U. S.
Broadline decreased 9.6%. Gross profit decreased 13 percent to $9,900,000,000 and gross margin decreased 26 basis points. The cost reduction efforts put in place at the beginning of the pandemic led to an adjusted operating expense decrease of 6%. And as a result, adjusted operating income decreased 37 percent to 1 $700,000,000. Adjusted earnings per share decreased by $1.54 to $2.01 primarily driven by volume and sales softness as a result of the pandemic Our U.
S. Foodservice segment had been growing during the first half of the fiscal year, particularly with local customers, as the work we are doing free COVID to grow business is progressing well. We are confident that our work to accelerate growth will return to pre COVID levels as demand returns and that our transformation initiatives will drive future growth. Within the International segment Our business in Canada has performed that has taken place throughout the fourth quarter. For our European operations, the impact from COVID-nineteen occurred earlier in the crisis in and the declines were initially steeper, but our business has since improved.
The UK and Ireland are now open for business consumers French culture of dining out combined with the solid work deployed by our team during the crisis to improve our supply chain challenges. Currently, France is our top performing country in Europe on a top line basis. As for our businesses in Latin America, the companies were performing well pre COVID and are continuing to show signs of recovery as restaurants and food away from home places reopened. For the full year, Sigma's results, despite the impact of the pandemic, achieved their operating income plan, I will now move to cash flow working capital. For the fourth quarter, cash flow from operations was $540,000,000, We had a working capital benefit, which was driven by reduced volume levels in addition to improved accounts receivables and accounts payables, DSOs.
Our net CapEx for the 4th quarter was $101,000,000, as a result of our substantially reduced capital expenditures that were directed only to targeted initiative spend and urgent projects. As previously indicated, our 4th quarter fiscal 2020 spend was $200,000,000 less on our fourth quarter fiscal 2019 spend. And as a result, free cash flow was $439,000,000. For fiscal 2020, cash $93,000,000 lower than dollars or about 1.3% of sales. Free cash flow for fiscal 2020 $927,000,000, which was $813,000,000 lower than the same period last year.
The decline in free cash flow was principally the result of the softer top line due to the COVID-nineteen pandemic, but was partially offset by positive working capital throughout 2020 with a positive adjusted operating income rate, and we had 10 consecutive weeks of positive free cash flow during flow, which is typically lower I'm also As of August 11, 2020, we have more than $8,000,000,000 of cash and available liquidity, which ensures survivability for an extended period and through an impact much worse than we are currently experiencing or expecting. While we do not currently expect to deploy the majority of the capital proceeds, we view it as prudent to ensure we have access to available liquidity given the near term uncertainties. I also 19 pandemic, our capital allocation priorities remain the same. Let me give you a comment around each area. From an investment perspective.
As previously mentioned, we have chosen to substantially reduce capital expenditures to only urgent projects and those targeted investments to accelerate certain capabilities to make it easier for customers to do business with Cisco and continue our focus We remain committed to returning substantial value to our shareholders through our dividend payments. We are unable to grow our dividend due to an amendment restriction as previously communicated however, we are committed to the long term growth of the dividend. For M and A, we continue to reevaluate potential future opportunities, but do not have a high priority on large complex deals in this environment. Let me also note of fiscal 2021. This divestiture will allow us to better focus and accelerate growth in our core business.
Our cake business is a technology program we sell to customers, largely driven by point of sale systems. We would like to thank the cake associates and leaders for their hard work and dedication to our business. Technology is a good solution for our customers and we'll continue to support it through the transition. The cake divestiture, it should be noted, will not impact our labs employees who are supporting our digital transformation efforts. As it relates to our share buyback program, we have temporarily paused our share repurchases.
Currently, we expect to maintain this position throughout fiscal 2021. And lastly, as it relates to debt, we paid down $930,000,000 on our revolving credit facility during the fourth quarter, and we have $700,000,000 still remaining on the facility. In addition, we have 7.50 As a reminder, we do not have any secured debt. We have the flexibility to make decisions that are in the best interest of our company. Now before closing, I'd like to provide you some commentary on the outlook for fiscal 2021.
Cisco is well positioned for current and future success with an ability to shift focus across all segments throughout the food service industry. Whether local or national. As a result, we can easily pivot our concentration to areas such as QSR And Healthcare, which are currently outperforming or shift into other food away from home segments such as education and travel and leisure as economic demand recovers. During the fourth quarter, gross margins were initially pressured due to product discounting to help mitigate inventory boilage but improved throughout the quarter. We expect gross margins to reflect top line mix changes, but otherwise remain stable throughout fiscal 2021.
As Kevin said, we now also have a run rate of approximately $350,000,000 in structural annualized costs removed from the business. Interest expense has risen during the crisis as we strengthened our balance those increases have now stabilized in the current run rate. Lastly, from a tax perspective, We expect our overall effective tax rate to be approximately 24% in fiscal 2021. With that said, and considering the uncertainty of the current environment, forward looking financial and operational results cannot be reasonably estimated at this time. Before we go to Q
Thank you, Joel. I'd like to close with a few final thoughts before we move into Q And A. Cisco went into this crisis in a position of strength. Afforded us the ability to act quickly, reduce costs, ensure liquidity, and pivot our business and support customers. Although it has been a tough operating environment, we have managed well through the crisis and the exit velocity of the business was positive as Joel just communicated.
Through our new business wins, totaling more than $1,000,000,000 since the onset of the pandemic, our continued cost out efforts now totaling more than $350,000,000 for fiscal 2021. Cisco is well positioned for current success and future growth. Including digital transformation, sales model, regionalization, and expense structure modernization are paving the path for the company's long term success. As I've said, we are managing the COVID crisis and transforming our company. We will exit this crisis a stronger Cisco, better able to serve our customers and differentiated from others in our space.
I want to close our call today once again by thanking our associates, especially our frontline heroes who are out there working hard to serve our customers every
Our first question comes from Chris Mandeville with Jefferies. Your line is now open.
Kevin, can you just shed some additional light on what you're seeing with your total and local case growth quarter to date in the specific to the local, what's kind of the delta and performance for those of them opened up early versus late? Maybe you could talk about any notable geographic or suburban versus rural versus urban differences that you're seeing? And then can you also just help us better understand that negative mix shift in private label penetration for local. I mean, is that a reflection of some of your really true or subscale operators seeing greater challenges within that
of them in there. So I'll go through them in order. As I indicated in my prepared remarks, the sequential improvement through Q4 was steady. So each week, getting better than the week before, pretty much across the globe, pretty much in all sectors, both, suburban and rural and urban. Unfortunately, in the month of July, there was some stagnation.
I think that's been pretty well documented by both of the restaurant customers we serve and others in our space. Good news is it's not going backward. So as cases are surging in many parts of the globe and states within the United States, we are not seeing a backwards slide. And recently, we are beginning to see again that incremental sequential week over week improvement. So we're not going to court stats for the month of us.
But we were improving every week through Q4. We saw stagnation in July, and we're now seeing, once again, a steady improvement the month of August on a week on week basis. As Joel said, from a geographic perspective, I think that's some of the uniqueness of Cisco, our European operations in Q4, hit the hardest, they were hit the earliest and they were the slowest to recover. However, that headwind in Q4 is actually more of a tailwind in Q1, because Europe has done a pretty nice job actually of managing the crisis from a health perspective. And we're seeing very strong improvement.
And as Joel communicated from a top line perspective, France being the top performing country in our entire portfolio right now, essentially restaurants are open for business, in its entirety. So we're monitoring it very closely. Doing everything within our capability and power to help our restaurant operating customers be successful, providing them extensions on their patios, providing them with takeout to go, etcetera. Your question about rural versus urban, I think your insights there are probably on target, the more rural, the better performance to prior year has been than urban, but we are seeing improvement in all sectors, including urban sectors. And I'll toss to Joel for the question on the on the, I believe, you're asking about Cisco private brand penetration and, toss over to Joel to answer that question.
Thanks, Kevin. Yes, Chris, I would suggest that I think the as in our business, good operators win all the time and others that struggle, at times struggle. And so I think the what you're really seeing there is just the impact of the mix change in the business that is in the indicative of both the mix between, again, some of the better operators and others that have not managed to survive. And then also between the overall business that's obviously growing faster in those areas of QSR of national accounts of healthcare. So I think really that's the primary impact as you're seeing there from a brand perspective.
Okay. And then just my follow-up is, Joe, as we look to fiscal 'twenty one, Can you quantify that the customer mix impact to Q4 gross margins as you stated that's what is what will only likely persist going forward And then can you offer any more concrete color on CapEx spend in D And A since the latter actually increased quite notably in the quarter?
Sure. Yeah, from a margin perspective, Chris, I'm not going to quantify that specifically. What I would say as we talked about, the margins improved consistently over the course of the fourth quarter and heading into the first quarter. So some of the impact that we had in the beginning of the quarter was really related to inventory movement to avoid spoilage, something that actually continued to go away really out throughout the course the quarter and the margins were more reflective of the mix impact that we're referring to. We anticipate those to continue as we move into the 1st quarter.
But I'm not going to give any other specific commentary and or guidance on that. The second part, as it relates to, I'm sorry, I lost you. What's the second question? Yes, it was
up, increased in Q4 versus question.
Yes, I'm I'm not able to hear you.
Okay, can you repeat the question, Chris?
Yes, no, the latter part was just with regards to how to think about CapEx spend in of 'twenty one as well as D and A since it's a pretty notable uptick in Q4?
Yes. So I think the capital spend piece, we certainly, as we indicated, we're going to be much lower than we were the prior year in Q4. And I would anticipate we would continue those trends as we head into the next fiscal year. I think the at one point, we've talked about the fact that we anticipated our total capital spend to be somewhere in the range of 25 percent, of what we'd call our normalized run rate. And, I would anticipate that being more likely than not.
We will, of course, continue to evaluate that as the year goes by and conditions change. But again, certainly focused on those urgent projects and those key transformational initiatives that we've talked about.
Okay. And anything on the DNA front?
There's nothing really major to call out there, Chris, on the DNA side. I mean, I think there Yeah, I don't there's nothing really significant there to call out.
Okay. Best luck in the back half of the calendar year, guys. Thank you.
Thanks. Thank you, Chris.
Thank you. Our next question comes from Edward Kelly with Wells Fargo. Your line is now open.
Yes, hi guys. Good morning. I just wanted to follow-up on the case growth trend just to, just to avoid some confusion here. You at the bottom, you were down about 60% or so. And I think it was around mid May or so you had given us an update, post that.
We had heard from you that things continued to get better. Just kind of curious as to why you won't talk about the exit rate on case growth. It kind of seems like logic would follow that you're down in the U. S. Somewhere in like the low to mid-twenty percent range at the end of the quarter.
Is that ballpark? Just any way you can help us there because it's important as to how we're going to start modeling the current quarter?
Yes. Ed, we exited the month of June in the more like the minus 30 range. That's a global number across all lines of business that we've had. And we've seen improvement in August from that starting point, if you will, for Q1 of fiscal 2021. In fact, the most recent week was our strongest week since the beginning of the pandemic.
So as I said, there was steady improvement. We exited q4 at -30 versus stagnated in July. And then we begin to see a weekly improvement since that point in time with the most recent week being our best week. That's, where we are at this point, we're just we're not going to get into kind of the business of providing weekly guidance for obvious reasons, but We're seeing positive trends and improvement. And another key point that we said in our prepared remarks, we're profitable at a minus 30% and we are confident that our sales results for fiscal 2021 will be better than that rate.
And we're prepared if, in fact, a worst case scenario were to occur. And we were forced to have restaurant operators shut down again we're prepared to handle inventory reductions, expense reductions, in a rapid manner if that were to occur.
Thanks. That's helpful, Kevin. And I also just as a follow-up, on the regionalization, can you just talk about the the benefits that you expect to get from it, What are the risks, if any, if any, I'm just kind of curious as to what's really changing here for you, and the upside associated with it?
Thank you for the question. Appreciate it. The OpCo model, as we called, that served Cisco well for decades. And, There's an entrepreneurial spirit and culture tied to Cisco that grew up from the foundation of this company, which was my family's coming together to form purchasing consortium. So that's how we grew up.
It's who we were. We had regional, excuse me, operating company leaders who, yes, ran the Cisco playbook, but there was a fair amount of independence in entrepreneurial thinking and behavior in regards to how structure work. There are strengths tied to that. The disadvantages tied to that though would be it takes longer for Cisco to implement a change and we wouldn't be as consistent as we wanted to be across the country if we rolled out a new program, a new initiative. With regionalization, we've essentially removed the operating company mentality and moved on to a regional president who will now supervise multiple physical locations and a single combined sales force across all locations.
The benefits that will come from a regionalization approach is a better alignment for the corporate strategy, ability to move faster on implementing change and to be a more consistent version of Cisco. On the risk side, we have some leaders that have departed the organization as a part of that change. And these were hardworking people who cared about the success of Cisco. On the opposite side of that risk would be we've placed obviously our top talent into these bigger jobs. And we call it fewer bigger roles, led by our top talent.
So what I'm personally confident, because I've done this before multiple times in my career, when you put top talent into bigger roles, they can have a very positive impact on an even broader geography and an even broader set of responsibilities. I do just want to explain with more detail. One specific upside, which would be to now have our sales force led across physical geographies, we can do a better job of sharing resources across boundaries, being easier to do business with our larger customers. In net net, we believe it will accelerate our pace of change. Thank you, Ed.
Our next question comes from Nicole Miller with Piper Sandler. Your line is now open.
Thank you so much and good morning. Just two quick questions for me. The first is going back to the early prepared commentary around, your ability to invest and find leverage while others focus on survival. Could you just top really big picture about the national distribution situation. It seems to me you don't really need anybody to lose for you to win.
And what I'm wondering about is it seems to be making consumers confident to eat at restaurants and taking a share back from grocery. I think that there's plenty of super regionals that are actually seeing a recovery as well. So could you talk about maybe you as a global brand maybe there's a difference between a super regional versus a regional versus an independent. Thank you.
Nicole, thank you for the question. I just want to come back to one of your key points, which is we as Cisco can and will win during this environment and doesn't necessarily need to comment the loss of a specific competitor, so to speak. Some of the key stats that we use to convey these points, we have roughly 30% share of wallet from our independent street customers that we serve today. That is something that we know we can improve. And with just the customers we serve today, we can we know we can drive increased sales at Cisco.
We've also recently changed our sales consultant compensation system to motivate them to go win more local street customer business. We believe clearing the amount of net new business at the local level that we are winning because there's a lot of churn in tumultuous within the independent street customer business that I can come back to later. So we're not quoting those stats on today's call. The $1,000,000,000 of net new business that I articulated in my prepared remarks actually did come from the national sales level. Some of that business in the Sigma sector, and the why we're winning business at the national level at an accelerating rate is because the trust that those customers have in Cisco.
Have confidence that we will have access to product, including fresh product. They have confidence that we're going to ship on time and in full, and their moving business are way mothers over to us because they have confidence that we are here to succeed with them both during this pandemic and more importantly afterwards. That they can grow with us. So why I'm confident is we know we can win at the national level for the reasons that I just described and we have a $1,000,000,000 of net new wins since Q3. And we know we can win at the local independent street level by increasing share of wallet and winning net new doors at the independent sector level.
I'll pause there Nicole and come back to you if you have a follow-up.
Is around, the pieces of the business. So I believe it's like 2 thirds. So a big chunk is in restaurants. And I wanted to understand the percentage in what might be called a limited service or QSR versus full service or casual dining. And I'm asking because of that common the recovery kind of stalling up in July.
We know from that track that casual dining was down 25 in limited service across the board flat. If I just do the math, it's about 80% of your restaurant portfolio is in the QSR versus about 20% and casual dining. Is that right? Is it flawed? And then there was also a comment about, Hey, we can easily shift to QSR.
Can tell us a little bit more about how you do that? Thank you.
Sure. I'll start with that. And a couple of points. Number 1 is that the general mix of our business, if you think about it, is about fifty-fifty when it comes to local and contract. So when you think about these 62 of our business as restaurants.
I think that roughly applies. And then again, there's a smaller percentage of that that is the QSR versus the fast casual. So We haven't specifically given those points out, but that's really how to think about it. And I think the math that you did is is fairly representative of, you know, I would think about that. Ultimately.
I think the question on whether the talk about the shift is really related to the idea of fishing where the fish are. Let me be very clear. We are not, this is not some overall strategic focus that says we're no longer focused on independence. We clearly, that's our bread and butter. That's the things that we do best at the business that we support in the most effective way.
And so that clearly remains the focus of ours. But I but during this time of them, certainly where those recoveries may be somewhat slower in that part of the industry. This is really about what I'll get and I'll fall fishing where the fish are and focusing on those areas where we have a right to win in that space in the QSR space in, in some of the, other chain businesses, in health care. The another opportunity where I would say somewhere we'd over index. So that's the perspective ideas as it relates to that.
Kevin, I don't know if there's anything else you'd like to add there.
Yes, just it's a good question. We understand the question. And just to be clear, as Joel said, we are actively pursuing growth in both sectors. I just want to make one important point, prior to COVID, we, Cisco, were posting our highest case growth in the independent sector in more than 10 years. We were winning share at an accelerating rate We anticipate that will continue post pandemic and customers want to eat at independent restaurant customers, farm to table, pressure trends, etcetera, and we are going to win in that space.
And it's the most profitable sector. So we're going to shy about the fact that we want to win in that space and that will be our long term growth strategy. In the meantime, Joel's expression of fish with in that space and we will do so.
Thank you.
Next question comes from Jeffrey Bernstein with Barclays. Your line is now open.
Just two broader industry questions, excuse me, Kevin, you mentioned in your prepared remarks, that perhaps Cisco is seeing less of independent closures among their customers versus the industry average. I was wondering if you can provide any color on whether it's your closures or what you're hearing in terms of the broader industry. The food service distributors seem to be our best gauge of how the independents are doing during such a difficult crisis? And then I had one follow-up.
Yes, Joe. Thanks for the question. And so what we recorded is customers from a closure perspective are performing better than the industry average. I prefer not to get into quoting those percentages, but it is a factually accurate statement. What we see in the independent space, because this is a really important question.
I think there's been some external reports that are embellished as it relates to permanent bankruptcy closures. There's 2 types of closures that we're seeing right now. We're seeing the temporary closure for the restaurant operator who is struggling with how to succeed and just a takeout in delivery business. We're in active conversations with those customers. And as restrictions ease, they're getting back into the game.
And then obviously there's permanent closures. Some of the industry reports tied to permanent closures are very elevated, but we anticipate that there'll be an increase in churn. There'll be a timing gap caused by that churn by those that exit and then those that will actually get back into this business after they've cleared their bankruptcy, but there's an opportunity for us to take share during that environment as well as we increase share of wallet and as we do more prospecting this summer and into their fall into the fall than we've ever done before. And that 30% share of wallet that I talked about, it is also important this heels act that's being negotiated, we are optimistic and hopeful that it will get approved because our small business customers would benefit and need help from that act. And we like the initial drafts of what's being proposed, and we're optimistic and hopeful that the heels act can get approved and assist those small customers.
So, that's our best way of answering it. We anticipate an elevated amount of churn. We do not see a substantial and significant reduction in the number of doors in the industry for the long term. And I'll toss it back to
you, Jeffrey, your follow-up. Actually, Kevin, if I could just add one other important point there. I think, Jeffrey, the other point that's really key is the help that we are actually providing to our restaurant customers. I think one of the things that we certainly feel good about are the things that we've done in terms of Kevin mentioned in his prepared remarks that gross around the marketplaces, the product baskets around, around the PP and E and sanitizing products. The things we're doing to help assist with the outdoor dining, with the to go containers, etcetera.
There's a whole series of things including web development that we've done to actually help our customers. And actually, we feel good about that. And I think that's part of the reason that we do feel we've, had some lower than what we'd call in the industry. So just wanted to add that one point.
No, I appreciate that color. And then just my follow-up kind of broader industry question. Again, Kevin, in your prepared remarks, you said you think the obviously the recovery with STAG the month of July, it's improving a little bit now in August, but you mentioned that you thought the food at home fatigue is real. And you thought that the consumers would reengage when things are safe, which is obviously a very bullish comment. Just wonder how what gives you the confidence that the restaurant industry can get back to seeding what was 100% capacity or at least serving whether in restaurant or at home, when it just seems so hard to read it right now when most of these restaurants are only reopening at 50% capacity.
So I'm just wondering how the confidence level in terms of 100% when right now it does seem good, but in reality, they're just not servicing or they're not necessarily looking at the full industry? Thank you.
Yes, it's a really good question and appreciate it. And the way we are bullish about our ability to say that is because we can see the data at a finite level across the globe by sector by geography, rural versus urban, etcetera. And here's what I can say with confidence. As the restrictions are removed, on the restaurant operator, there's almost an immediate improvement in the results in that sector. And so we can see very clearly in those places where the easing of restrictions is greater, the data performing substantially better.
And when they move from a phase 1 to a 2 or 3 to, etcetera, there's an almost immediate pop. The reason that we've stagnated or did stagnate in July is, as you know, we paused in most locals, the extension of, the easing of restrictions. So that's why the recovery is stagnated. But no, what we're seeing is in August, even with that stagnated level of restrictions, the business is now starting to get better again, because consumers want to go out And so that's my best way of answering the question. You know, rural versus urban where the restrictions are different, we can very clearly see the difference in the results.
And we do know that at some point in time in the future, those restrictions are going to begin to ease. People wear masks and wash their hands and do all the things we're supposed to do. You can safely go out to eat through takeout, do delivery. And our restaurant operators are also getting better at it. Last thing I'd say, our restaurant operators are getting better at doing takeout in delivery and customers are getting used to using an app to order food and be picked up at a restaurant and then bring it to their home.
So it's for those reasons that we have confidence.
Great. Thank you very much.
Thank you. Our next question comes from Kelly Vania with BMO Capital. Your line is now open.
Hi, good morning. Thanks for taking our questions. Kevin and Joel, I was wondering if you could just talk a little bit more about the changes to the compensation structure that you mentioned and how that being received across your sales force? And anything we should consider in relation to this change as we think about just trying to model margins going forward or how much of that, compensation structure is part of the $350,000,000 in longer term structural cost savings?
Yes, I'll do the first part, Kelly, and then I'll toss to Joel for margin, but let me make one thing very clear. The comp change was not in any way shape or form intended to decrease our operating expenses. The comp change was to better align the focus of our sales consultants on the strategy of our company, which is to profitably grow. So the biggest change, and I'd actually prefer not to get into the granular details of our comp structure because it's proprietary confidential and we believe a differentiating item at Cisco versus other places where people can work But what we've clearly been able to do is, create a comp structure that provides our associates with a level of base pay that they need to be able to pay their bills and have a comfortable living and appropriate incentives that drive their behavior to prospect net new profitable business a rate that will be greater than the past. However, with that said, the compensation system was informed by and advised by our sales consultant.
We ask for them what they wanted. We ask them what they felt would be a fair and appropriate method of compensation to address their concerns, address their needs. So to answer your and directly. The feedback and the input from our sales consultants has been extremely positive about has changed, but it's changed. And when you introduce change to a large number of people, obviously, communication is important.
Change management is important. And we've leaned very, very heavy into the communication and change management efforts tied to this. But we know this is going to help drive improved business performance and it was not done to reduce operating expenses. I'll toss it over Joel, to talk about the margin comment or question.
Sure, Kelly. The way I would think about that is This program, as Kevin talked about, is designed to incent profitable growth. What that means to me is continue to drive line item penetration. Continue to drive new customers. When you combine that with some of the other things that we've talked about that will obviously providing more detail later, such as our pricing tool.
Some of these things ultimately we do believe are things that will not only improve our gross profit dollars, which is really the most important measure, but certainly the growth from a margin percentage on ultimately generating more gross profit dollars. Again, I like percentages. I like dollars more. And I think what the way I would think about that is ultimately what this is designed to drive and how I would think about that
Thank you. And our next question comes from John Ivankoe with JP Morgan. Your line is now open.
Hi, thank you. I remember maybe it was a couple of years ago, and I'm going to just do all this by memory, not my notes. So excuse me, for that, the regionalization of Canada. And the question, I think was asked back then whether there would be some opportunities of kind of applying that regionalization done in Canada to the U. S.
And I think for a number of different reasons, I think just how the geography of Canada is different than the U. S. The answer was no. But am I right in kind of remembering that correctly? What did you see in Canada in terms of overall productivity and option from both the employees and the customers.
And if there were any learnings from Canada, whether positive or negative, that we can apply to the U. S. Is basically a good benchmark, if you will, in comparison to those two markets? Thanks.
Yes, John, it's a really good question, and I'll just a couple of important things tied to this. In a host of ways, Canada is a great business for us to test things, try things. And there's a host of examples, regionalization being 1. We're doing some work on direct to consumer up in Canada to learn a lot about space right now. We can test marketing concepts in Canada.
So it's actually really helpful. It's a business that is reasonably consistent and similar to our U. S. Business. And it's a business that we can use as a test laboratory.
Our Canadian team wanted to do what I just described, the regionalization, and it's worked very well for Canada. As indicated, they can move more swiftly on rolling out changed. They can get to better, quicker alignment on key transformation initiatives. And as Joel said in his prepared remarks, when needed, they can execute on things like expense reductions faster. So a leaner, more efficient, more aligned model, and we believe the U.
S. Business will benefit for all of those reasons John, my point too is there's no better time than the middle of a pandemic to make a change like this. And I mean that sincerely, right? So we have a proud 50 plus year culture that served this company well. We're a very profitable company.
We've consistently grown sales and profit and change like this introduces risk There's no better time than now to be able to do that. And why I say that is our team understands the impetus and the need for change. Our leaders are completely aligned with what we're doing and they're running towards the life as to a better operating model and, change management 101 But this, this COVID crisis, if there's a silver lining in the cloud, the impetus for change and the willingness and the appetite for our leaders get on board and go in the direction where we're headed has never been higher. And I believe that will pave, a road of success for us as we head to the future.
Great. Thank you.
Thank you, John.
Thank you. That concludes our question and answer session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.