Q3 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to Casey's General stores third quarter fiscal years 2020 earnings conference call.
At this time all participant lines are not listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session you would need to press Star then one on your telephone.
Please be advised of today's conference is being recorded if you acquire any further assistance. Please press Star then zero I would now like the hand the conference over to your Speaker today, Bill Walljasper Chief Financial Officer. Please go ahead.
Good morning.
Thank you for join Us to discuss Casey's result.
For the quarter ended January 31st.
Hi, Bill Walljasper, Chief Financial Officer, Denver, Dallas, Chief Executive Officer is also here.
Before we begin I'll remind you that certain statements made by us during this investor call may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements include any statements relating to our possible or assumed future results of operations business strategies growth opportunities.
Our performance improvements at our stores there are a number of known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward looking statements, including our ability to execute on the strategic plan or to realize benefits from that strategic plan.
As well as other risks uncertainties and factors, which are described in our most recent.
Annual report on form 10-K, and quarterly reports on form 10-Q, that's filed with the FCC and are available on our website.
Any forward looking statements made during this call reflect our current views as of today with respect to future events and Casey's disclaims any intention or obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
This morning, we will first take a few minutes to summarize the results of the third quarter and then open for questions about those results I'd now like to turn the call over to guarantee discuss those results.
Thanks, Bill and good morning, everyone as you've seen in the press release diluted earnings per share for the third quarter were 91 cents per share compared with the dollar 13 per share a year ago.
The results were impacted by lower fuel margin versus a third quarter last year and higher operating expenses as we cycled over significant operating expense reductions in the prior year.
We also experienced a timing shift in the approval of a performance target for equity compensation from the first quarter to the third quarter.
Year to date diluted earnings per share or $5.43 over 12% from same period a year ago.
We continue to execute on key elements of our long term plan this past quarter positioning us well for future growth.
I'd now like to go over our results and some of the details in each of the categories.
During the quarter in the fuel category, we experienced a challenging demand environment. While at the same time, we were comparing against our strongest margin period from a year ago.
We're pleased with our ability to leverage our current price optimization in procurement programs to navigate through this.
These factors enable us to achieve an average fuel margin of 21.7 cents per gallon.
Same store gallons sold were down 2% in the quarter.
The average retail price a fuel during this period was $2.40 a gallon compared to $2.22 per gallon a year ago.
Despite the decline in same store gallons total gallons sold for the quarter were up 3.3% to 573 million gallons due to the strong contribution from our new stores opened in the last 12 months.
As a result gross profit dollars increased 1.4% in the quarter in the fuel category.
Same store gallons sold year to date were down 2% with an average fuel margin of 23 cents per gallon.
Through the first nine months gross profit dollars in the fuel category are up over 14% compare to the same period a year ago.
Our effort and price optimization continues to have a positive effect on our overall profitability in the fuel category.
During the quarter, we completed the full integration of this tool with our point of sale system. In addition to this we also converted over 300 stores a digital price signage.
We will be fully converted to digital price science by the ended the fiscal year. This integration and signed conversion will provide us increased flexibility and adjusting retail prices to react more quickly to the rapidly changing fuel environment.
We're also pleased with the progress we made in fuel procurement in the third quarter.
Concur are currently our contracted fuel volume represents about 43% of our total fuel volume.
We are on pace to have approximately half of our fuel volume under contract by the end of the fiscal year.
Lastly in the fuel category, we continue to gain traction in our fleet card program.
Over the course of the third quarter, we continued to add new cardholders to date, we now have over 3100 accounts and approaching 20000 cardholders.
This combined with our additional efforts and other types of fleet cards have driven the Universal fleet card program, 9% in the third quarter, we remain optimistic about the potential of all these initiatives going forward.
Same store gallons for February trended above our current annual guidance range, excluding the benefit from the extra day in the month.
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Moving to inside the store total sales in grocery and other merchandise category were up 7.1% to $582.4 million in the third quarter same store sales were up 3.5% during the quarter toward the upper end of our annual guidance.
Excluding cigarettes same store sales were up 5.2%.
The average margin in the quarter was 32.9% up 100 basis points from a year ago in the same period due primarily due a favorable product mix shift to higher margin items.
Gross profit dollars for the quarter in the category were up 10.5% to $191.7 million.
For the first nine months same store sales were up 3.2% with an average margin of 32.5%.
As you may recall the year to date margin was adversely impacted by a 6.6 million dollar onetime adjustment that occurred in the first quarter.
Without that adjustment the margin was 32.8% in gross profit dollars for the first nine months were up nearly 9% to $633.9 million.
Same store sales for February trended within the range of our annual guidance, excluding the benefit from the extra day in the months.
During the third quarter, we continue to integrate our price optimization platform inside our stores.
We completed the rollout of the beer and alcohol categories. This platform and are currently working on the integration of promotion forecasting.
We still have limited data at this point, but we have seen early signs of margin expansion and several of these categories. We will continue to monitor our progress and update you as we move forward with this program.
Given the recent regulatory changes in the tobacco area, we've delayed rolling this category into the platform as we evaluate this potential impact.
In the prepared food and fountain category total sales were up 6.8% $273.6 million for the quarter.
Same store sales accelerated each month throughout the quarter with gains in January above our annual guidance.
This resulted in a same store sales increase of 2.8% for the quarter.
Excluding the impact from accounting for deferred revenue due to our recently launched rewards program same store sales were up 3%.
We were pleased with the acceleration in our comps throughout the quarter and the momentum we have gained heading into the fourth quarter. Although early the recently launched rewards program is exceeding our expectations.
At our Investor Day in January we indicated that we were approaching 1 million active members. Currently that number is nearly 1.8 million members and climbing as reenrolled new guests everyday.
Overall, our database of identifiable guess has grown to over $6.2 million.
We're excited about the traction we are gaining with our digital platform in our guests are responding to our rewards program.
Approximately 45% of all Pizza orders are conducted digitally and nearly 20% of all of our transactions have rewards participation.
We look forward for the opportunity to learn more about our guess preferences, which will allow us to engage in serve them even better.
We believe that the combination of the new suite of digital platforms will continue to drive additional traffic.
Year to date same store sales were up 2.1% with an average margin of 61.1%.
The average margin for the quarter was 60.2%.
Both of these were down from the same periods a year ago, primarily due to higher cheese costs as well as the adverse impact from a special promotion. We ran in November to launch our new coffee Port program.
The average cost of cheese for the third quarter was $2.17 per pound compared to $1.86 per pound in the same quarter last year.
With cheese costs trending down we're currently monitoring the market closely looking for buying opportunities.
For the quarter prepared foods gross profit dollars rose, 3.2% to $164.8 million.
Same store sales in the prepared food and fountain category for February trended ahead of our annual guidance, excluding the benefit from the extra day in the month.
We're excited about the acceleration we've experienced in prepared foods I remain optimistic about this category moving forward.
I'd now like to turn the call over to build to discuss operating expenses and the financial statements Bill. Thanks Derek.
We continue to stay focused on controlling operating expenses for the quarter total operating expenses increased 10.5% to 377.3 million. This was mainly driven by operating 70 more stores this quarter than a year ago as well as an increase in technology costs with the implementation of our digital systems.
In addition, operating expenses were impacted by a rising credit card fees from the high retail fuel prices and a timing shift in the approval of the performance target from the first quarter, two third quarter affecting compensation costs.
Same store operating expenses for the quarter, excluding credit card fees were up 5.4% on a two year stack basis, they were up 3.3%.
But this was in line with our expectations as we cycle over significant expense reduction initiatives initiatives from a year ago.
Last year in the third quarter, we had a reduction in store labor hours of nearly 6% as we made refinements to our labor scheduling process. We look to continue to refine this process with the completion of our time in motion study later this fiscal year.
Year to date operating expenses were up 8.2% inline with our annual guidance.
On the income statement total revenue in the quarter was up slightly to $2.2 billion, primarily due to higher retail fuel prices from a year ago operating more stores compared to the same period, a year ago and sales gains inside the store depreciation in the quarter was up 3.2%.
Year to date depreciation has a 2.5%. This is primarily due to the positive impact on depreciation from the onetime adjustment related to the useful lives of the underground storage tanks taken earlier this year and the deferral of some store replacement activity.
The effective tax rate for the quarter decreased to 21.1% down from a year ago, primarily due to an increase in favorable permanent differences, resulting from the further consolidate appropriations act of 2020, which extended numerous tax provisions, we expect our effective tax rate for fiscal 2020.
To be between 23 and 24%.
Our balance sheet continues to be strong.
At January 30, Onest cash and cash expenses were 44 million.
Long term debt net of current maturities was down to 715 million as our $569 million bullet bullet payment due this august moved to a current liability.
We're excited to announce that last week were successful in locking in interest rate for this refinancing at an all in rate of 2.9%.
With this refinancing the average cost of our total debt will decrease to approximately 3.3%.
We plan on finalizing the note purchase agreement over the course of the next few quarters.
For the nine months, we generated $399.7 million in cash from operations and capital expenditures were 376, and a half million compared to 332 million a year ago in the same period.
Adjusted EBITDA decreased 6.5% in the quarter compared to the same period, a year ago due to the lower contribution from fuel in higher operating expenses discussed previously.
Our capital expenditure estimate for fiscal 2020 is $516 million I.
I would now like to turn the call back over to guarantee to update you on our unit growth.
Thanks, Bill or target coming into this fiscal year was to build 60 stores and acquire approximately 25 additional stores.
Through the third quarter, we've opened 50, new stores acquired 10 stores and have 11 additional stores under agreement to purchase.
Currently we have 88 sites in our pipeline, including 15 under construction, which positions us well for future growth.
We anticipate meeting our new store opening target by the end of the fiscal year, but will fall slightly short of our acquisition target due to timing considerations that are common in this area.
We believe we have a strong opportunity to accelerate our acquisition activity as we stand up our dedicated M&A team as part of our new long term strategic plan.
Before we open for questions I'd be remiss, if I did not take a few modes to speak about Corona virus.
Cases is committed to the health and wellbeing of our team members our guests in the communities in which we operate our stores.
Even though we may be more insulated from this exposure due to our rural geographic presence than others. We are taking recent developments very seriously and our monitoring the situation continuously.
With this a mine we created a cross functional response team to oversee this issue to ensure the safe and stable continuation of our business operations.
In closing, we will continue to make progress on the current initiatives, we have underway and have begun to execute on our new long term strategic plan.
We believe we have a tremendous opportunity to enhance current capabilities stand up new capabilities and accelerate our unit growth.
These transformational steps will enhance store performance and deliver long term profitable growth.
During which time, we will continue to review and add skill sets to successfully execute on driving shareholder value.
Now, we'll open it up for questions.
Thank you.
As a reminder to ask a question you would need to press Star then one on your telephone.
Following your question please press the pound cake.
Well, we composite culinary roster.
Our first question comes from the line of Christopher Mandeville with Jefferies. Your line is now open.
Hi, good morning, guys.
Hi, Chris and Chris.
Hey can you guys just given.
In the last 48 hours. If you will have significant crude pricing decline now today's kind of subsequent bounce back to some degree.
How are you thinking about the pace of converting down to short term contracts and.
For what has now been kind of contracted out how should we be thinking about your ability to remain competitive in terms of pricing capturing a healthy margin on account.
Yeah, Chris This is there and I think.
Obviously this is a very volatile environment, we're experiencing right now with respect to fuel.
And it does afford us some opportunity to capture margin at the same time, it affords us some opportunity to grow gallons. So.
Every day is a new day right now with the have with respect to how that's working.
With our contracts right now we like I mentioned, we have about 43% of our volume under contract and and because we don't have 100% of our volume under contract. It does give us the latitude to toggle between spot and contract volume to to maximize that opportunity. So thats kind of how.
Our or managing at right now.
Okay I appreciate the February comment about.
Gallon comps being above guidance currently but did you reference you February fuel margin I guess I'm still just trying to.
Figure I think I think about the recent volatility in the last few days and now that might actually allow for you.
And even more amplified margin relative to what February looked like.
Yes, Chris This is bill so yeah with respect to the ferry margins at the margin currently is within the annual guidance. However, as you just alluded to the recent developments certainly we are experiencing margins significantly above this range now we won't necessarily we don't necessarily a know how long this will continue but certainly the mark.
And environment is very robust right now and so we're in a position now to capture margin also perhaps maybe utilize some of that to drive even volume elsewhere.
So the point on the same store gallon comment as Darren mentioned, we are certainly are trending well above that I'll I'll make a point that we are trending in the high single digits in the month of February for gallons. When you include the extra day.
Okay, that's very helpful.
And then just last one for me as it relates to the food margin.
Bill is there any way of kind of breaking that down in terms of cheese cost impact versus.
Promotion to stand up your new coffee program, and the 20 basis points of loyalty.
Yes, absolutely. So she is going to be the predominant factor there. So just as I referenced but every 10 cents per pound swing in a cost achieves about 35 to 40 basis points that will be the primary driver of the margin decrease so you kind of roll that out to probably somewhere in the neighborhood Chris.
About 100, 110 basis points relative to the cheese cost impact and the the the impact from coffee was about 1.5 million something about a 50 to 60 basis point impact. So that'll wrap most of it out the remaining piece of that just promotional activity that we're doing as we progressed in the digital program.
Perfect I'll hop back in the queue. Thanks, guys. Thanks. Thanks.
Thank you.
Question comes from the line of Karen short with Barclays. Your line is now open.
Hi, Thanks for the question.
This questions related to guidance.
The implied range is very wide for Fourq you across all categories across all line items that you provide so.
Appreciate February has the benefit of the extra day, but can you maybe just give a little color because I mean for fuel were kind of like 1.87, 0.8% range on comps and.
Margins.
Every category.
Yes, no and so to your to your point. So we made the decision not to narrow the categories. So maybe as a way of reference for the investment community. If we believe the annual guidance can keep in mind as an annual guys not quarterly we.
We believe the annual guidance, we still have are going to be within that range. We make the decision not to adjust the range and so that was kind of the monitor that we took here in the fourth quarter. So.
Only range that we did adjustments depreciation because we were going to fall outside of that range on the low side. So we felt we had to make that adjustment.
So with respect to the quarter, we don't give honestly a quarterly.
Comp guidance, but I can give you maybe a little bit more color in the month of February which would include the extra day.
And so every category the fuel cards I, just mentioned was high single digit growth and general merchandise will be a high single digit and prepared food and find would also be a high single digit comp in the month of February again that includes the extra day, which is approximately 4% in the month of February.
Okay. That's helpful. Thanks.
Well I guess wanted just.
I wanted to just get a little more color in terms of.
The time motion study and when you think you'll have that rolled out.
You have any ability to get potential savings related to it and then also just an update on menu simplification.
New product introductions, and maybe a little still tell a little too early but anything you could talk to and that would be helpful.
Yeah. Karen this is Derek with respect to the time motions study. We're we're still working through that process will wrap that study up by the end of this quarter looking too.
Implement in first quarter of next fiscal year.
We still have yet to determine what the with the overall impact of that is going to be but what the way I would think about it is this is focus more on putting the right amount of labor against the rights stores, not necessarily taking labor out of stores and what I, what I fully anticipate happening is.
At some stores, we will see a reduction in labor hours and other stores, we may see an increase in labor hours and in virtually all stores I think we'll get much sharper and putting hours during the right parts of the day to make sure. We're satisfying the guest needs. So this isn't necessarily a cost cutting exercise as much as.
It is labor deployment effectiveness exercise so we'll have to see how that all plays out.
Then your other question was on menu simplification.
Yeah, Yeah, well I think because that focuses on maybe so you know higher velocity skews as opposed to abundance excused.
<unk>.
Yeah, that's right and we're still assessing the you know where we want to make some changes there Oh, we're still in the process of or search for a a new leader of food service we had.
Several candidates in the pipeline. We're we're speaking to people as we speak so some of that work is ongoing from an analytical standpoint, they'll probably accelerate once we get a new person on board.
Okay and then just last question for me in terms of them and I know you talk about same store.
So.
If you gave the credit cards dollar amount.
If I'd I missed it but.
You know looking at gross profit dollar grows versus.
S G.N.A.
Getting credit card fees that got does seem to be widening and I don't look at it and same store basis I just look at it on the absolute basis. So.
Any color and when you think those two might be come a little my line.
Yeah, so that if the first part <unk>. The first parts about $36 million was the credit cards, the expense and the quarter.
And to answer your question about I think what you're referring to the it a maybe a disconnect between operating expense rose and gross profit growth.
And so several things to think about there not only from a Puerto perspective, but also from a year to date perspective, and so first of all on in the year. We did have from the highest cheese cost that I've seen it in a very long time, certainly don't anticipate that particular.
Pat to continue as she's prices are waning as we speak in specifically in the third quarter. We did have a very challenging comparable with respect to if you will margin last year, you might recall that we had a primarily a month of November of very favorable fuel margin with elevated the fuel margin two threes as part of the T. three differential another piece of that.
<unk> from a year to date perspective, you think about back in the first quarter. We just man we mention it here in the narrative. The we had a $6.6 million a inventory adjustment backing she want it would affect the the even our gross profit lines.
I also you might recall that we had U.S.T. underground storage tank a change in the in useful lice that was a net benefit to E.P.S. One piece go into depreciation the other going to an offset in the in the expense. So we had about a two and a half million dollar increase in an expense related to that even though it was a a net.
Benefit E.P.S. So all of these things are kind of going on and a quarter creates a little bit disconnect, but we pull anticipated ended up into year are here today will have that that right sized.
Got it back and Okay. Thank you you bet.
Thank you annex question, how something online Oh Trust.
A bank.
<unk>.
Hey, <unk> good morning.
<unk> Yeah <unk>.
So maybe just to to circle back on.
What's happening kind of near term.
Maybe just give a little bit more detail.
About the rewards program you know being such an early success you know maybe give some some examples of how you finding your customers engaging with the act and the behavior.
That is driving.
And then also just <unk> like you say you mentioned you might be a little bit more insulated than others, but just.
Is there any thing that you would attribute to Corona virus in terms of any impact to your business.
So far that you can see thank you.
Alright, well <unk> I think with respect to the rewards program, we're really happy with how that's been progressing so far in a couple of fronts, one being just the absolute enrollment and seeing that that number move up pretty significantly nearly 1.8 million members.
As we sit here today and that was that exceeded our goal for the year already and so we're we're resetting targets and thing we're seeing.
That engagement where.
Yeah. The other thing I mentioned in the in the narrative was that.
Just virtually 20% of all of our transactions now have some rewards participation in them and that that also is ahead of where we thought we would be so the people that have enrolled.
And that's growing consistently they are being very active inside of that so we're we like how it's moving so far and it's giving us a a new opportunity do engage with gas in a way that we haven't been able to before.
With respect to Corona virus I.
You know it it's still really difficult to say what that impact is going to be I guess I would have to say in the in the near term prior to this real fall off with with crude oil due to the to the OPEC issue.
I would say that gasoline was starting to come down and cost already based on some demand concerns in the marketplace. We haven't seen any erosion in demand, but <unk>. We have seen is the reduction in cost. So that's enable us to continue to grow gallons at the same time be able.
To harvest some margin so that that's probably the the most significant impact we've seen so far but were.
We're on top of this [laughter] virtually all day everyday right now I'm looking for anything else to happen, but at this point, we haven't had a other impacts yeah, Hey, Paul. This is bill just to swing back on the rewards <unk> one of the things that I see maybe a little bit more longer term or mid term benefit as we mentioned certainly the.
The the results with the activity is succeeding or expectation. So what that means for from a long term perspective is the end game here is to is to make sure that we capture customer data. So we can engage in serve them better and so the quicker that are the more data that we have done a quicker basis, we have the ability to target marketing higher than.
Expected so are quicker than expected I should say so that will be another benefit that might get accelerated the next fiscal year for us to be able to do that target marketing.
Great I appreciate the color best of luck.
<unk>.
Thank you My next question I'm from the line of in the end of the new with Stephen thing Yeah minus now.
Mm.
Good morning.
Manner then.
Ask about price optimization, you talked about the beer category I'd be curious to hear.
Kind of where we are on the runway for.
The rest of the grocery another merchandise category and then the prepared food and found category.
Contribute of.
And that initiative be to improve results as we move forward and kind of what are some of the elements, we should be considering with respect to that.
Yeah. Then this is bill so just go from it you know stepping back a little bit from a timeline perspective, we started rolling out categories to the platform and the second quarter and so by the end of Oh, probably the calendar year, we had most what I'll call the central store on the platform and so working towards adding package beverages during the third quarter.
As we mentioned beer and alcohol will also add in the third quarter. So from from you know put into a baseball perspective, we're probably the mid endings here as far as the roll out as we mentioned, we we chose to defer the cigarettes in light of all the activity going on so when you look at the results, so far and albeit albeit bandit very preliminary because where you're probably less than two.
Cores that information at this point on and less on some categories, but nevertheless, it's we you know accelerates same store sales in the <unk> nice category at the same time, we're we're approving margin certainly some of the efforts are reflected in there too hard to peace out at this point, because there's a little noise, but more specifically.
We did see a some immediate traction on the beer and alcohol categories. Once we roll those on the third quarter, we definitely saw some margin uptick there and so we feel that we have some opportunities as we roll out the rest of the categories prepared foods has not been completely rolled out probably one area I think will be very significant as his promotion forecasting.
Aspect as well and so this will give us the ability to do a a much more granular perspective on the promotions that we run throughout our our network. So probably more to come at this point still just a little bit early but we feel were had in the right direction.
Okay right.
I want to ask.
I can question.
<unk>, which we haven't had basketball thankfully for for Awhile now, but we have seen rent prices go back up I know from for a lot of the market now that's largely reflected in the cracks and higher cost of goods. You then turn around and.
Benefit of when you sell their friends.
Is is that still awash, even when there's a a move higher suddenly and run prices like we've seen.
Did that provide anything incremental to the margin or is that still kind of a neutral factor in your mind.
Yeah. So you know as we've always do we feel that runs are somewhat better than the costs, whether we we bind separately and do our splash blending or whether we buy pre blinded now I would say this as we become more and more under contract we were by more and more pre blended fuel, which we believe are in bed into that so you see the Reds aspect to that we have we sold about eight point Rotten will say 9 million.
<unk> and a quarter the value was you know relatively low probably 20 cents or so part of the reason that that that unit. There's two reasons why the number of units were down one I just mention is doing more contracted few but the other is we did make a conscious decision to defer some of the rent activity for the reason you just mentioned from February into.
March and so we do have that so in in any small sense. We had did have I would say lighter fuel margin.
Central in the third quarter relative to that decision.
Okay, Great. That's helpful color, Thanks, and good luck with the rest of this fiscal year.
Yeah. Thanks Man.
Mm.
Our next question.
Bobby girlfriend, what's Raymond change your line of South.
The morning, everybody appreciated take my questions.
My first question was just a circle backbone your comments about the grocery business is the favorable product mix. It. Your scene is that the results of the pricing optimization or is that just ebbs and flows and what the consumers purchasing just trying to get an understanding of of of what exactly pricing is driving into driving a hunter basis points of Marge improvement or is that just the mix that were.
Seeing from consumers by in a different product offering right now.
Yeah I.
<unk> I would say that that the mix shift is then more around the product assortment in the store and less around uprising activity now obviously with some of the pricing activity. We've we've been able gain some margin benefit but.
Some of that product mix shift one just the mix of cigarettes declining a bit relative to the overall product assortment.
There's a korean to the margin raid then the second thing we saw was pretty significant growth in the energy drink category, which obviously carries higher margins with it as well and so that was a direct result of doing some resets within the stores expanding some assortment of some of the.
Higher velocity items in the door and we're seeing a really good contribution from that.
Okay, and you'd think that that type of mix is that makes benefit is sustainable in some degree going forward I guess.
Well. It is it is for the moment right and then as consumer preferences I've been flow will adjust the product assortment accordingly, and that's that's something that we're.
Really building out the capability of as being more nimble with the product assortment. So as as guess preferences change were able to adapt that assortment to meet those needs and it just so happens in this case that those needs come in the form of higher margin items, and so as we shift that mix around to those higher margin items that blends up the margin right yeah.
This is bill one or the other thing to think about that's a little bit of unknown right now because we don't have a lot of information is age 21, and how that will play out with that cigarette categories. So to the extent that cigarettes, if they do become a little bit under pressure from the demand perspective, obviously that is part of that product mix shift that there is talking about and so that that could.
Combined with the other activity continue to have some margin expansion just trying to think about.
Okay. Yeah, that's very helpful. I appreciate and then I guess Lassie for me understand the commodity impacted and hit prepared food, but if you just look at the increased promotional activities do you think there's an opportunity for to kind of adjust the message where that drags not as much or are you comfortable with that drag that you're seeing now for promotional and that's something we should expect for next few quarters until you lap it.
Yeah I. This is there and I I'd say that that promotional activity that was more of a one time a van when we launched our new coffee platform. So we we were aggressive and we did any size coffee for one dollar knowing that that would be an investment in the margin to drive velocity and trial. So that's not something that we're going to do.
Do on a routine basis, but is something we may do from time to time before launching the new product and we're pausing in new items, So I wouldn't bake that into any expectation on a routine basis.
Okay I appreciate all the detail. Thank you for answering my questions invest a lot going for it.
<unk>.
Thank you I makes question online Kelly.
<unk>.
Oh.
Hi, Good morning thinks this is kelly being yeah.
<unk>.
The first they'll you know congrats on your retirement.
<unk> appreciate all the help over the years.
Thank you. Thanks, thanks for the kind words.
And a couple of questions.
Just can you clarify just one to make sure I'm understanding the message on some of the comments on February are you seeing an underlying acceleration in some of the the the same store sales and and gallons or is that just the extra day impact maybe we could just go back to that and help us understand that.
Then can you tie in what you're seeing and just customer traffic trends inside the store.
Yeah. So absolutely we are seeing an underlying acceleration in the cops across all categories. This has been going on probably for the last several months. Yeah. We did we want to try to make sure we're very clear that.
Even without acceleration on the underlying calms, we do have a roughly about a four per cent in pack from the extra day in a month February and so when you roll those two together you know we're in the high single digits across all those three categories. So yeah definitely seen acceleration and that that holds true with traffic as well. So we we have seen some traffic keeps celebration as well.
And so so we're seeing basket ring elevation and starting to see some movement in traffic and you know we believe there's a number of things around that obviously, there's the rewards program that's helping the matter, but also we did have some febrile whether comparisons towards the end of the quarter as well you might remember we did compare against the polar vortex a year ago and so just to be fair there is little.
Out of that as well.
Okay. That's that's very helpful.
Can you talk a little bit about the 400 stores I I believe you're already testing the twice a week deliveries can you elaborate on.
What you're seeing their.
In terms of the impact on the business.
Yeah. So it's a little bit early for us to give you any information. We just started just a few months ago in that regard and so we'll be playing this out through the into the fiscal year with more and more to come on now so not really any information to this point, but we we feel this is the direction for the company here as we as we look at trying to control a number of things ranging from out of stock.
But probably more significantly is the ability to bring more fresh product into the store in a timely basis, and that's really the kind of the thrust of that.
Okay, Great look forward to to that and then also just wanted to talk about the nicotine category you talked a little bit about I think combustible cigarettes, but just the.
The noise on electronic or you cigarettes, you know what what are you seeing their how of those trends changed and are impacting the grocery in general merchandise com.
Margins.
Yeah, Kelly this is <unk> well we have seen.
The overall category, obviously cigarettes, and I've been a little softer, but not not as much as you might have thought given the age restriction on the.
On the vaping side that has softened a little bit, but it's still growing so just growing at a slower rate than it was previously.
So from a margin standpoint, it's blending out about the same but but it's definitely softened and then there has been a bit of a shift to the to the smokeless items as well.
Okay. Thank you.
[noise]. Thank you.
Question comes from the line shots.
<unk>.
Oh, sorry search your line of snow.
<unk>.
Chuck is still there.
Sarah maybe we want to the next question.
Thank you are next question from from the line is absolutely love.
And see what's the Dodian company.
A lot of south.
Yes, good morning, I. Thank you for taking the question of and the Bill certainly congratulations on your pending retirement.
It's been certainly pleasure working with you for a long time.
Well isn't it.
Yeah. Thank you.
So just just wanted to a follow up as far as the the question on Bruins actually so just curious if you hold back on on the <unk> on selling the rooms, and a quarter or any idea what the margin for gas more than could've been in a quarter.
Yeah. It would have been very small you know, we're only talking about a couple million rented that we differ that you know roughly about a 20 cents. So so it'd be a very small, but you know you'd be be 678 basis points roughly in that neighborhood. So not a huge movement, but nevertheless, you know what impact.
God God, Okay. Thank you for that and.
<unk> just a follow up on Corona virus, just just wondering if.
Perhaps of the issues with the surrounding that are you, perhaps maybe seeing more deliberately or would you expect more deliveries of you're prepared foods to customers that may not be comfortable going up to the stores and picking up a a they're prepared foods.
Well Anthony I mean that that is a potential possibility. We haven't seen that occurred at this point and everything seems to be running as as it normally does but that that could be a potential impact. We'll just have to see how this all plays out but at this point, we haven't seen anything.
Got it okay. Thanks for that and then.
So you had previously talked about the nonfuel stores as being an opportunity do you have any update as thoughts as to what that could be.
Oh, you know our our team is in the process of looking for some nonfuel sites. We expect to have one to open by the end of this calendar year, but we have several in the pipeline there were just working through the process, but nothing.
Locked down and purchased at this point.
Got it alright, well, thank you and best of luck.
I think and thinks anything.
Thank you as a reminder, if you would like to ask a question. Please press sorry, I didn't want on your touch tone telephone.
Next question comes on the line of Irene.
With RBC capital markets.
<unk>.
Hi, It's Alex Cat had filling in for I mean.
Coming back Hey.
Coming back to the feel procurement strategy, what would be the long term goal with regards to the proportion of the volume on contracts or do you expect it to fluctuated over time.
And usually what would the term look like on these contracts.
Yeah. What's this is during the.
You know, we've we don't have a real hard goal I think directional a we would think about maybe 70% to 75% of our total volume under contract at some point the the length of terms all very based on based on the the type of deal we negotiate with each of the suppliers.
Initially we've we've opted for little shorter term contracts. So we can maintain some flexibility as we work our way into this process, but.
That's about that's about how we look at right now.
Give give or take 70, 75% of our volume and.
Bearing more on a shorter term side of the contracts.
Great and just staying with with feel I can you provide an update on your expectations for the fleet card program, let's say in the next year or two.
Is there anything you can share.
Share in terms of a internal targets like with with our new accounts or pick up from existing customers.
Yeah. So we don't necessarily give that type of granularity out on that a a at this point, but I would expect moving forward here. We go into the next to operating plan to next call. Yeah, We'll get a detailed guidance for next fiscal year. So incorporated into that that fuel category will be our expectations will provide more color about the fleet car program in X. fig.
Asians around that at that time.
Perfect. That's it for me thank you.
Yeah.
Thank you next question comes on the line of John.
With J.P. Morgan.
Hey, good morning, I think for taking my question.
So I'm on your current emanating new build activity should we expect to focus over them your turn to be around.
Filling in the new ways around drop when they go on a bigger question. There. It's it's around how quickly you can still around the new D.C. when it opens next year.
Yeah. John This is there and we're focused in a couple different areas within our existing geography. So it's not just exclusively within the Joplin distribution radius, although we do have.
A lot of activity going on in that area I guess wide remind you of is that part of the reason we were building that job. When D.C. is a really relieve the pressure off of our other to existing D.C. So when we open up that distribution center, we're going to immediately service somewhere in the neighborhood of 500 stores.
Right out of the gate and so that'll make the entire distribution network more efficient and still allow us to develop more stores in that geography, but we also have some other geography is within our footprint. There are pretty attractive does right now we're developing in those as well.
Yeah.
Right back to the rest of my <unk>.
Yeah, Thanks, John or thanks.
Thank you.
Have a follow up question from the line of Karen short with.
Oh.
Hey, Thanks, and you know obviously.
And not congratulating you on your retirement, it's been great working with you for.
15 years at this point so.
Thank you <unk>.
And you're on.
You'll be on a couple more calls I would think right yeah definitely is one more.
Mmm, Okay. So actually I just wanted to go back and revisit two things one was the contract.
Per cents I know again, you said, 43% and then 50 by your end, but I want to explore whether or not that's something to consider from my perspective in light of extreme volatility on Martin's because obviously you know on a day like today are weak like this week, you would be benefiting materially from the margin perspective, and does I guess.
Person is does the contract at higher percent on contract is that <unk>, the swings high and low I guess, it's a question and then I had one another.
Yeah.
Yeah carrying this is this is <unk>.
I don't think that that the contracts really.
Inhibit our ability to to gain to gain margin in this kind of environment, they're they're typically index too.
Two one of the other a benchmark, so either argus or plants, and so or August or opus, rather and and so as those numbers are coming down in an environment. Like this we usually have a differential that is lower than that so it allows us to actually gain incremental margin in an environment like.
And then at the same token if for some reason we do have a displacement, which does happen from time to time, even with a contract like this we still have you know half of our volume.
Little bit more than half of our volume not contractor. So it does give us the ability to flex on that if we woke longer term to that 70 or 75%.
For volume under contract. That's the reason, we would keep that 25%.
Off contract to give us that flexibility, but <unk>.
A situation like this is is very abnormal and so.
We wouldn't want to build our entire of fuel for Sherman strategy around.
You know one every once in awhile anomaly.
Okay. That's helpful. And then I was wondering if you could give a little bit <unk> a color on the reception from customers on the new copy program.
Like any color you could give us in terms of how it might have impacted or benefited topic or anything along those lines.
Yeah, it'd be hard to tide.
Tie the reception or the coffee program to to actual traffic increases, but univ velocity is up so we we believe that it's resonating with the gas. We've we've gotten really good anecdotal feedback that people like the coffee and they they liked the experience. So so far so good you know coffee is one of those things it takes a long time to bill.
So we're a few months into it and.
The indicators are all positive, but it'll continue to grow for for the foreseeable future.
Okay, great. Thanks.
Thank you.
Question, how something online chat there in Cascade.
No it's supposed to research.
Oh man.
Morning, everyone.
In in looking at the.
Most recent quarter in the negative 2% gallons and where the margin was what would the lessons do you take away from that as you continue to move forward here and and and I just price on an ongoing basis.
Chuck this there and I.
I guess, there's a all kinds of lessons that can be learned but yeah. We're really in that yeah process still of balancing in striking that right balance between volume and margin.
If if you recall I mean, we really role this price optimization process for fuel out in the first quarter of this year. So we're we're still in relatively early stages of it but I I would tell you that.
I believe our team is is really building that muscle memory around that they're getting to know these markets much more intimately them, maybe they did before understanding our competitors respond to to our price actions and so I think we're every day, we're getting a little bit sharper on how we're able that executed.
<unk> different situations and I think that's starting to reflect in the more recent trend now you know with call. It three quarters under our belt and we're starting to see some gallon growth I think we're starting to find a that right footing, where we know how to balance the the volume and the margin across multiple geography is because.
Geography is all behave a little bit differently and so as we build that institutional knowledge I think we're just getting better at it.
And you've added more pumps in the last 12 months then that.
Provide more fuel choices for the customers to what degree is he 85 and clear gas and diesel helping the margin in the volume.
Yeah, I think it'd it'd be pretty small Chuck I don't I don't know that.
That that mixes really impact on our overall margin very materially.
Alright. Thank you best of luck for the rest of the year.
Thank you thank struck.
Thank you.
Today's question and answer session, Oh, and I'd like to kind of call back.
[noise] [noise], okay, well. Thank you very much for joining us this morning, and or close to call by reiterating our strategic plan is designed to maintain our strong growth in <unk> at the same time to drive return on investment capital.
We think this is a well balanced plan that we believe will continue our long term track record of driving shareholder value.
Looking forward updating you with our results as we progress through the next three years. Thank you.
Ladies and gentlemen.
Days conference call. Thank you for participating.
<unk>.
[music].