Q1 2021 Caseys General Stores Inc Earnings Call

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Ladies and gentlemen, thinking we're standing by welcome to the first quarter fiscal year 2021, Casey's General stores earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as a reminder, threes.

Program is being recorded I would now like to introduce your host for todays program, Brian Johnson Senior Vice President Investor Relations and business development. Please go ahead Sir.

Thank you and good morning, Thank you for joining us today to discuss the results from our first quarter ended July 30, Onest 2020, I'm, Brian Johnson Senior Vice President Investor Relations and business development with me today is Dan Rebalance, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

Before we begin I'll remind you that certain statements made but 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 expectations for future periods possible or assumed future results of operations financial conditions liquidity.

Your needs the company supply chain business strategy is a growth opportunities performance at our stores and the potential effects of the covert 19 outbreak. 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 but not let.

Into two our ability to execute on the strategic plan the impact the duration of the cobot 19 outbreak and related governmental actions or to realize benefits from that strategic plan as well 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 as filed with the FCC and 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 the Gulf result of new information future events or otherwise.

Now I'd like to turn the call over the Darren to discuss our first quarter results there.

Thanks, Brian and good morning, everyone. We're really excited to share with your first quarter results.

First I'd like to recognize our performance is only possible because of the 38000 plus team members, we have we're running or stores supporting our stores working our distribution centers and creating new ways of cases can win each day with our guests Theres no truer reflection of our purpose to make like better for our communities and guess ever.

Today, Thank you to the entire team for your dedication.

I also want to share a few comments on something I didnt expect but in a year of the unexpected here's another one for the list.

On August 10, a severe storm known as a direct show tip. Many areas in the heart of the Midwest and cases core footprint with little to no warning.

Thankfully pieces team members were all safe however, many of them or our neighbors were set back by damage power outages or other challenges from the storm.

Across the company our team swiftly responded to get our stores running so they could stay open and serve our communities in the wake of the disaster.

In addition to keeping our doors open and shelf stock or teams prepared and delivered hundreds of pieces to energy crews pulling long days to restore power and we sent over 20000 bottles of water to the local chapters of the American Red Cross.

This is also donated $10000 to two local food banks to support eastern Iowa, and Central Illinois, the areas, where the de retro most impacted our neighbors and team members.

I'm extremely proud of the efforts by everyone on the cases team to support one another are impacted stores and our communities.

Now turning to this quarter's results.

As you've seen in the press release, we achieved a record first quarter with diluted earnings per share of $3.24, a 40% increase over the prior year.

The results were driven primarily by stronger fuel margin versus the first quarter last year, along with disciplined operating expense control.

We ended the quarter with a very strong balance sheet with over $570 million innovative available liquidity and refinanced our senior notes in early August at very attractive rates.

I would now like to go over our results and share some of the details in each of the categories.

During the first quarter in the fuel category, we continue to exceed two experienced a favorable fuel margin environment.

Results were also amplified by the utilization of our price optimization in procurement capabilities, which enable us to post an average fuel margin of 38.2 cents per gallon in drive gross profit dollars up 39% to $210 million.

Same store gallons sold were down 14.6% as volumes continued to be adversely affected by the pandemic.

Although still currently trending negative the business still did see consistent improvements throughout the quarter on fuel volumes.

Average retail price of fuel during this period was $1.98 per gallon compared to $2.63 a year ago.

Total gallons sold for the quarter were down 11.2% to 550 million gallons.

Our fuel pricing team did an excellent job remaining nimble in an ever changing environment throughout the quarter and that showed in our financial results.

Additionally, our fuel procurement strategy continues to evolve and we're currently at approximately 60% of our total fuel volume under contract.

Finally, we went over 8500 accounts in the first quarter on the fleet card program as we continued to grow our commercial fuel business.

Moving to inside the store total same store inside sales were virtually flat for the quarter ending down about 40 basis points with an average margin of 39.6%.

You probably noticed in the press release that we're calling out inside sales is one category.

We believe this allows investors to more accurately compare our business with our peers and also lines up with how we talk about the business internally.

We will continue to provide the same level of data on the two categories and makeup inside sales grocery and other merchandise and prepared food and found.

Like fuel, we experienced improving sales throughout the quarter as self service restrictions began to loosen.

Total sales for grocery and other merchandise were up 6.4% to $731.9 million in the first quarter.

Same store sales were up 3.6% and the average margin was 32.2% compared to 31.3% for the same period a year ago.

The earn alcohol continued to drive the category and we're very happy to see the packaged beverage.

Category recover relative to the start of the pandemic driven by strong execution of our summer sales campaign.

Total prepared food and fountain sales were down 8.5% to $270.8 million in the first quarter.

Same store sales were down 9.8%.

The average margin for the quarter was 59.7% versus 62.2% from a year ago.

This category has been under the most pressure since the crisis began.

Consistent with other quick serve restaurants, who have recently reported the breakfast Daypart continues to be the most adversely impacted by the pandemic.

We ended the quarter with approximately 200 stores with some sort of food restriction and close to 50 stores with beverage restrictions.

By comparison at the end of the fourth quarter, we had over 700 stores impacted by such restrictions.

Offsetting these pressures whole pizza pies continued to perform well up over 16% for the quarter.

We believe our digital capabilities of supported this category through the crisis.

Digital sales are up 162% and 50% of our pizza orders are now taken VR AR AP website or jordache marketplace.

I'd now like to turn the call over to Steve to go into some detail in the financial statements Steve.

Thank you Darrin and good morning.

After completing my first full quarter with Casey I want to remark, how uplifting extended to see the company pursuing a commission as a critical community member after the duration storm.

Also been very pleased to see how seriously the entire management team Kate preserving the financial flexibility the company during the pandemic, while also ensuring that we're still pursuing growth opportunities that will improve our returns on capital in the future.

Moving to the first quarter results revenue for the quarter was $2.1 billion, a decline of $522 million or 20% from the prior year. This was primarily due to the decline in retail sale fuel of approximately $542 million.

Driven by the lower number of gallons sold in the lower retail price with fuel.

Revenue from inside the store sales rose nearly 2% in the quarter to just over $1 billion.

Lower traffic was partially offset by larger average basket sizes.

Grocery and other merchandise sales increased by $44 million, while sales of prepared food fountain Bell approximately $25 million. Please note fall as reported figures are favorably impacted by approximately 2.5% more stores being operated on a year over year basis.

We define gross profit as revenue west cost of goods sold but excluding depreciation and amortization.

Casey said gross profit of 623, and a half million dollars in the first quarter, an increase of nearly $58 million from the prior year.

This is primarily attributable to higher fuel gross profit of $59 million with a flight offset from a decline in inside the store gross profit of $2 million.

Our grocery and other merchandise gross profit increased $20 million, well prepared food and fountain gross profit declined $22 million.

Inside gross profit margins were nearly 40% grocery and other merchandise margins were 32%.

Comparable to the prior year after adjusting for a nearly 7 million dollar unfavorable inventory adjustment in the prior year that did not recur.

Prepared food about margins were nearly 60% a decline of approximately 250 basis points from prior year.

Lower volumes ongoing self service restrictions and a 9% increase in chief costs year over year to $2 in 12 cents per pound versus $1.95 per pound last year contributed to this decline.

If costs remain the same today, we would expect our average cost to achieve to be approximately $2 per pound. The next few quarters given that 70% of our purchases are currently fixed through the end of calendar year.

The company did a tremendous job managing operating expenses throughout the quarter.

Total operating expenses were up 2% to $386.1 million, primarily due to operating 53 more stores than this time last year as well as $15 million encoded 19 related costs that was offset by reduced labor hours.

Same store operating expenses, excluding credit card fees were down nearly 6% and same store labor hours were down 15%. We're very pleased with how add our store operations team have been throughout the crisis as they continuously rightsize the store and labor hours.

To meet our guests means.

Depreciation in the quarter was up 10%, excluding the onetime $4.1 million adjustment made last fiscal year depreciation would have been up 3% driven by capex over the last year.

The effective tax rate for the quarter was 23.8%, which is comparable to the prior year.

Adjusted EBITDA for the quarter was $237.8 million compared to 186.4 million a year ago, and that's an increase of 28%.

Net income increased 41% to $120.5 million.

Our balance sheet is in great shape, and we retained tremendous financial flexibility that will service well in the future both in terms of managing through the pandemic and pursuing our strategic plan.

At July 30, Onest cash cash equivalents were $247 million and we have the full undrawn capacity of our 325 million lines of credit.

Giving us ample available liquidity of $572 million.

Our leverage ratio stands at 1.8 times.

Shortly after the quarter ended we completed the refinancing of our senior notes that were doing August.

The new senior notes are due in 2013, 2032 and with coupon below 3%, we will have significant interest expense savings.

Furthermore, we do not have any significant maturities until 2025.

For the quarter, the company generated $307 million in free cash flow, which at cash from operating activities less purchases of property and equipment.

This compares to $77 million prior year and was driven by higher earnings favorable working capital and lower Capex.

Capital expenditures were $45 million compared to 101 million a year ago as we consciously slowed spending in the first quarter and face longer than normal delays and permitting approvals from local authorities both of which were due to a pandemic.

The company has opened nine new stores, so far this year.

Our new store pipeline is 85th site in current including 20 of which are under construction right now.

As a reminder, we expect new stores to generate double digit returns on invested capital on average by their third year of operations.

Given the ongoing uncertainty around consumer behavior and traffic volumes from coated 19, we're not yet ready to provide earnings guidance for this fiscal year. However, we will provide a few modeling AIDS for the year as follows we continue to expect the effective tax rate for the year to remain 24, 25% range interesting.

Spence now that we've completed the refinancing of the notes should be slightly under $50 million for the year and we anticipate building approximately 40, new stores. This year based on the current pace of approvals that we see locally.

Before turning the call back there and I just want to reiterate.

Our strong we feel our position as financially to write off the index challenges and continue to grow and pursue our strategic plan initiatives there.

Thanks, Steve.

We previously mentioned that sales volumes improved sequentially throughout the quarter I think it'd be helpful to share what we've experienced so far in the second quarter.

Overall, we continue to experience slow, but steady improvement month by month across all areas of the business.

For fuel we've experienced negative same store gallons in the mid to high single digits, while fuel margins are above 30 cents per gallon.

Total inside sales continue to trend favorably sequentially in the mid single digits and we continue to see ongoing improvement in our grocery and other merchandise category, which is trending up in the high single digits.

Prepared foods continue to slowly improves sequentially. We're currently trending down mid single digits.

We expect operating expenses to increase commensurate with our store hours returned to pre coated levels.

We continue to execute on the strategic plan, we disclose back in January and given the shifting consumer trends brought on by KOVA 19, we've accelerated the implementation of several initiatives.

If you recall the pillars of our strategic plan to deliver top quintile EBITDA growth, our reinventing the guest experience creating capacity through efficiencies.

Being where the guest is via disciplined unit growth.

All of this is going to be driven by an investment in talent to strengthen the team and add capabilities of the business.

With respect to the guest experience, we've made considerable progress to modernize the digital experience for our guests.

We recently partner would door dash and currently have their delivery service operating and 584 stores.

This move is expanded delivery to more guests increased the number of days in hours that deliveries available and has reached new guest that make their dining decisions based on what is available on the door dash marketplace.

We also recently completed test of curbside pickup option for our guests.

The test went well and effective August 18th we launched this option companywide.

Our guests can use the casey's app to order from the store, we've created a convenient I'm here button on their phone to notify the store to bring that order out to their car.

The guest feedback from the test was impressive.

Yes that used to service felt the experienced met or exceeded expectations enjoyed no or very short wait times and stated they were likely to use the curbside pickup option again in recommended to a friend or family member.

We also believe this capability will enable us to grab market share from other pizza chains in restaurants, whose guests prefer a curbside pickup option.

Our cases reward program continues to thrive and through the end of August. We're currently at 2.7 million members.

We experienced higher transaction frequency with our reward members and effective way to deepen our relationship and understanding of our guests.

This program has already enabling us to engage cases guests and influenced guest behavior.

We continue to add new capabilities for enterprise wide efficiency gains.

Our centralized procurement strategy is gaining momentum and we recently hired vice president of procurement to stand up the processes and leverage our scale more effectively.

We expect to realize savings throughout our organization from indirect spend and capitalized costs to lower cost of goods.

The construction of our third distribution center, and Joplin, Missouri is progressing well and will further optimize our supply chain.

This facility will initially supply approximately 500 stores reduced miles driven by nearly 1.6 million miles per year and will be immediately accretive.

We expect to be open and operating during the first quarter of next fiscal year.

We refer to the unit growth pillar as being one of the guest is our dedicated M&A team has ramped up their outreach efforts. So far this fiscal year, they've made an outreach to a large number of small and midsize targets and we continue to believe that long term industry dynamics will lead to future buying opportunities.

Steve already touched on the short term delays were experiencing with our organic growth from a pandemic, but I'm still very confident we will deliver on a 345 unit growth over the next three years outlined in our Investor day back in January.

We've also added talent to the leadership team to execute the strategic plan.

I already mentioned, our new VP of procurement, but we have also filled key positions for asset protection human resources and guest insights.

These highly talented and diverse individuals are key to building out the capabilities, we outlined back in January and I can assure you they have hit the ground running.

In closing I continue to be extremely impressed with the progress made on our long term strategic plan.

Over 19 has brought about some short term uncertainty and challenges, but the capabilities. We have rapidly stood up has enabled the company to meet those challenges successfully we will also generate significant long term value.

We will now have opened it up to questions.

Once again, ladies and gentlemen, it could have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered any you'd like to move yourself from the Q. Please press the pound key our first question comes on line of Karen short from Barclays. Your question. Please.

Hi, good morning keep Howard.

Thanks for taking your questions.

So first I wanted to talk about so our gross margins a bit more could you help us understand the puts and takes Q pretax margins and grocery margins going forward.

And in context of crushing margins were better than expected given the pressures team last quarter from Nick and his any customer behavior is having changed that much and then what drove the incremental sequential pressure on prepare Kate.

Yes, so with respect to the margins we did we still have the.

Unfavorable mix shift so we were able to.

Accelerate.

Sales across the entire slight anja grocery and general merchandise, so margins did improve a little bit over what we saw in.

In the first or in the fourth quarter of prior year.

With respect to the prepared food and fountain margins.

As we are going through the quarter, we did become a little more aggressive in our promotional activity to drive volume, particularly with our whole pies and so we saw a little bit of compression there along with.

And I think we're using vendor support in that area, a little bit differently than we have in the past and that's help offset some of the otherwise negative mixed from larger package sizes, especially in the alcohol category on on the prepared food side. In addition to what they are in mentioned on the promotional side you know we continue.

And we're dealing with negative year over year volumes waste in the stores a lot around a lot of the single sort of items can change to be a challenge for us in getting the right amount of product out for for people to choose from you and those particular categories. I think that's the other piece I would have.

Okay, great. Thank you that's really helpful. And then I also just wanted to Alkine E. L. T programs 2.7 million number School program. Currently can you talk about how the coven environment has impacted that progress and with all this comprehensive data about you're able to capture how will that shape, how you do promotions and the.

Okay.

Okay. This is Darren.

Sure that we could really draw a good comparison.

To what impact Cove. It has had because for the most part we've operated.

Rewards program in a coven environment exclusively. So that's this is kind of been normal course for us what I would say is that it's been really.

Really positive.

Digital team has been able to continue to grow the rewards membership base, even throughout the pandemic and so you saw that increase pretty rapidly too.

Over a million members early on and then we got up to 2 million now.

Over to 7 million members and it really.

Helps us in a couple of ways, especially with a lower traffic. It gives us the opportunity to reach out connect with some of our most loyal gas and and Taylor offers directly to them they get them to come back into the store and we really see that <unk>.

Manifest itself in our whole tie business, which is really.

Grown positively in.

Mid teens <unk>.

Versus prior year. So we continued to learn and test our way through different offers and different activities, but we're we're seeing good progress there.

Great. Thanks, so much.

Thank you. Our next question comes from the line up empty Avenue from Stephen. Thank you. Your question. Please.

Hi, Thanks for the morning, everybody.

Hey, Ben.

I want to start on operating expenses really nice progress there.

You showed significant improvement.

Hoping to take some of the staying out of the challenge prepared food and fountains. Sarah sales can you help us think about how you're managing opex.

You said that you'd be looking to add some opex back as you've seen from sales recovery, but just generally help us get in your head on how you think about that balance and what the appropriate relationship is between the opex in the in store in order to fuel contribution.

Yes. This is Darren.

Start off let Steve.

Chairman as well I think.

Really early on in the pandemic when things were shut down we recognize that we didn't need to keep a lot of our stores open 24 hours.

Simply because people couldn't get around so we started to restrict or 24 hour operations and of course, there's a commensurate reduction in operating Spence along with that.

Also with reduced traffic our operations team was really nimble in terms of adjusting the in store hours.

While we were open to better aligned with with the traffic patterns now is.

Restrictions have eased.

We're we're starting to re expand those operating hours and we're starting to see improved traffic, we're starting to add back those hours.

Commensurate with that volume increase so really trying to strike that right balance of being appropriately staff to meet the needs of the guests in the stores.

The second thing from an Opex standpoint, and the first quarter was we just had a significantly lower retail price for fuel versus prior year and so of course there was.

There's a commensurate reduction and credit card fees as a result of that Steve I don't know if there's anything I think I would just maybe been just add on as it relates to store expense, which is obviously.

The dominant piece of our operating expense line at that point I would make prospectively as we had been paying a recognition premium on an hourly.

Basis to the vast majority of of our workforce.

Finished doing that and midway through the first quarter. So from a total dollar standpoint, the wage rate that we pay will actually be coming down sequentially and the second quarter, which gives us a little more flexibility around total hour utilization into the other point is operated expensive not exclusively store related.

Cost Ryan R. G&A distribution logistics compose a portion of that and there are some discretionary attributes of those spending and so we're trying to make sure we remain prudent around the discretionary spending on some of your above the store.

Categories that we have.

Perfect. Thanks for that.

Shifting gears, a little bit to prepare students mountain.

You as clearly added a lot of new capabilities yard just standing still waiting for a coke to go away, but I know you're eager like all of us for it to go away.

I'm wondering though how.

It might change your view on what your new stores would look like in the future given that today self service.

Pretty central component of how the customer interacts with your prepared food business.

Have you considered adding drive thru, obviously, the customer adoption of digital and delivery I'm sure. We'll continue to ramp up but just is it too early to start to think about how this might change the way in the actual offer that you presents the customer looks like.

Yeah, <unk> Darren I don't I don't think it's too early to start having those conversations thing what we've seen.

Is that our guest prefer to self service model and when we were under self serve restrictions.

We were still selling prepared foods, but in a full service environment and it just didn't resonate with our guests as much as when we were able to lift those restrictions and get back to self service. So.

I wouldn't say that I envision self service going away I think with the digital capabilities, we've added with enhancing delivery with our door dash relationship with curbside pick up I think we've addressed some other capabilities that the guests as clearly asking for.

Whether we get all the way to drive throughs or not will will have to have more discussions about that sort of thing in the future but.

We got 2200 stores without them right now and so our priority is to make sure that those are are able to meet the guests needs as much as we can and then we will continue to innovate for the future.

Okay, great, Thanks, and best of luck.

Thank you. Thank you.

Thank you. Our next question comes from the line of Chris Mandeville from Jeffrey So your question. Please.

Good morning, guys.

Yeah, I can just start off with the the quarter to take results that you provided.

Can you just give us some clarity around what time frame that runs through and.

I suppose I'm kind of curious here how clean they are.

Thinking about the self service noise that was realized throughout Q1 relative to Q for them anywhere that stands today you did reference also that the derecho had some impact in early August but didn't necessarily quantify that and then.

Also Murphy USA put out a deck this morning, suggesting that the labor day shift add some influence on friends as well. So maybe you could provides them. So I'm just some greater color surrounding the quarter date trend if you could.

Yeah, Chris.

The results that I was referring to or through the labor day weekend, and we did that deliberately because there was.

There's a mismatch on those days, so we thought it'd probably be a little more informative to all of you to have that reconciled. So what you see as as of Tuesday essentially.

Yesterday, so that should take out that noise with respect to the direct show.

We've kind of view that is really not much of an event from our sales perspective on the one hand, we add some stores or temporarily closed because of power outages on the other hand other stores.

An increase in volume because the previous towards I mentioned, we're closed so when you wash. It all out we think we pretty much ended up about where we would've been anyway.

So.

Make a long story short like I said, we continue to see slow steady improvement month by month as we continue to get further.

Through the pandemic.

Okay, and then just on the self serve influence at this point in time, and where are we relative to the 200 that you wanted the quarter on.

Yeah, we're still in that same place. So okay I kind of think of it is about 10% of the chain.

Is under some sort of.

Self serve restriction in the way to think about that is if you compare those stores comps two.

Other stores that don't have those restrictions.

They take a hit.

Kind of mid to high single digits.

What.

Stores about the strict restrictions half.

Okay. That's great and then I realized you guys always they're focusing on gross profit dollar themselves all things considered the flat here on your growth and Q1 for installing with impressive.

But can you returned to some level of in store margin expansion going forward I guess, you've called out how you are thinking about cheese pricing and that maybe even a little bit sequentially in the next quarter or two.

But how do we think about the tough grocery margin comparisons ahead, and and your desire to promote overall in store.

Yeah, I think we do have some margin expansion opportunities inside the store.

For a couple couple reasons one.

We mentioned are procurement efforts that we have ongoing we're just getting started on that but we we started with.

With our goods for resale and so we would expect to start to see some margin benefit as we worked through those.

Those planning a negotiating efforts with our supplier partners.

We also talked about and our Investor day that we would be ramping up our private brands capability and so that work is underway.

We expect those products to have enhanced margin versus the national brand manufacturers.

And then as we continue to develop the rewards program will be more targeted in our promotional activity and so we won't necessarily have to.

Offer promotions to to everybody walks through the door will be able to target those more towards our most loyal and most frequent.

So I think all of those things.

Well.

Towards higher margins moving forward Christmas.

Just on the mortgage and opportunity in the store on the procurement point.

The company.

Historically really.

Did focus on trying to use the the scale of the entire company to influence rates for purchasing price decisions, both in direct and indirect span.

We have premium.

Focused on that there's a lot of opportunity for us.

Too bye scale across the footprint as opposed to buy for me purchasing decisions at the store level all by itself and then I would also add.

Earlier conversation around vendors and asking partners to help support us in different ways I think there's opportunity for us to more consistent with you that.

Entire footprint as well.

Okay, Great and then maybe just one last one for me.

Just in late in the fact that Kobe delayed some of the new unit growth I was curious if you had any type of update with respect to the the non fuel format and it's launched sometime in the next fiscal year.

Yes, we have.

We have a few sites identify in the pipeline, we're still working through the process. We have one that that is moving along.

A little more quickly than the other but I think we'll probably get that one opening this fiscal year, but we're still working through that process. So not much more to update on.

Other than that.

Okay, great. Thanks, guys and best of luck for the rest of the year.

Hi, Thanks, Chris.

Thank you. Our next question comes from the law, Bobby Griffin from Raymond James Your question. Please.

Morning, everybody. Thanks for taking the question.

I guess the first let's I want to talk on was the M&A pipeline and we've talked before in the past how cold it could create some interesting opportunities from an M&A standpoint, just curious have those opportunities starting to show up in the pipeline yet or do you believe that's more of a kind of like 2021, once we get past Cove in at some point just any any additional color.

There.

Yeah, Bobby this is Darren.

Having a lot of conversations with a lot of people right now I think what what has happened maybe a little bit in the short term is that.

Other.

Other potential acquisition opportunities are experiencing some elevated.

Fuel margins and so they're making money right now at the moment and so they're feeling a little more comfortable.

That being said, it's a very difficult operating environment. After work in so depending on who the conversations with and what day you catch him on some people are more interested in selling.

Versus last but what we're doing is we're building up that pipeline, we're having those discussions in billing those relationships so that.

When people are ready, we are as well and.

We still believe that.

Intermediate to long term there is the industry dynamics are going to be what they are and once we get back to more normal.

Margins will will be a little bit tighter.

Prepared foods will become a much bigger strategic capability that a lot of these people don't have scale is going to to matter a lot more and and there'll be a lot of opportunities and so we will continue to pursue what might be available today, we've got a great balance sheet and wearing great position to act on those opera.

<unk> when they come up so.

We're real bullish about it just maybe.

A bit of a timing issue resolved.

That makes sense when we look at the potential the have cheese costs from maybe around two bucks and the second quarter and the third quarter, how does that compared to last year and maybe put that in contacts versus the headwind that we experienced and once you would that headwind be less on a year over year basis or anything there to help.

Think about that.

Yes. This is fever, we should have a tailwind at current prices in the market and I would expect a tailwind and the second quarter and the third quarter. If you do the averaging right now, we're probably about 7% Bachelor.

And Q2, Q3 insurance achieved cost and we were last year, if we laying around that $2 number and we had it was about 9%.

Headwind in the first quarter on it price.

Just looking at price. So we should have relatively favorable flip here in Q2 two three.

Okay. That's helpful. And then I guess lastly for me just kind of I understand it's hard to kind of bucket. These but first your fuel margin outperformance first handed the regional opus data really accelerated this quarter. Just curious if you think that's a lot of the initiatives you've been working on that we've talked about or is there any other dynamic happening in the market between the large and small please.

<unk> It just seems that from the public results <unk> been witnessing over the last couple of weeks. The large players that really disconnected from the opus data in a favorable way.

Yes. This is Darren.

I would attributed more to sophistication of procurement in pricing activity, it's been a.

It's been a fairly volatile environment and.

An unusual time to say, the least and so I think.

With larger and larger players that have more centralized processes at better access to data and a little more sophistication and how they approach the market I would imagine you'd start to see that separation and I can't really speak for everybody else, but I can tell you. That's certainly the case with our team are are fuel team has come.

A long way and and the last year is done a really nice job and I think this.

This pandemic is really put them to the test and I think.

Pass it with flying colors as you've seen from the results. So.

I think the environment set itself up for favorable fuel margins and our team was able to take full advantage of that.

I appreciate the details congrats again on operating in a very challenging quarter and best of luck going forward.

Thanks Bye.

Thank you. Our next question comes from the line of Anthony <unk> from Sidoti and company. Your question. Please.

Good morning, everyone. Then thank you for taking the question so I'm wondering if.

Good morning, So within your 16 state operating area have you seen any notable regional differences in terms of your same store sales or maybe if you could.

About the rule versus more of a suburban just wanted to get a better a census, the same store trends, whether there wasn't any meaningful difference.

Yes, Anthony this Darren.

We have seen is really some separation between the rural and more urban.

Stores and.

Really across all parts of the business fuel prepared food and grocery another merchandise or fuel is probably in the rural areas is probably perform the best versus the more urban areas and.

And then prepared foods is performed pretty well and then.

To a lesser extent the grocery another merchandise, but again all of them are performed better.

With respect to different geography's that really kind of follow the cadence of where restrictions were and how shutdowns went so.

Any given time during that quarter, we might have had better or worse performance based on.

Those restrictions.

Got it okay. Thanks for that.

So in terms of the centralized fuel pricing. So obviously, a big changed from historical philosophy of being price followers. So is it safe to say that now with this centralized fuel pricing.

Most part of your price later.

Or not I mean, I should I think about that.

No I wouldn't say where price leader in every market I would say every market is approach differently and that's one of the.

That's one of the differences between having this centralized pricing team is that they have good visibility to data in a broader perspective. So we know how we want to show up in different markets and we play that position I think the other thing that that really helps us at the team is really beginning to understand the.

The knock on effects of pricing, one store and what that implies for another store and how that.

Hello, a competitor might respond and how we need to respond back so I think.

Being able to have that broader picture and in the context of what's going on in the commodity markets really.

Helps them make better decisions and so.

That's really what we're seeing.

Got it Okay and then.

Also had a question in regards to decentralized procurement in private label.

Products. So when should we expect to see the benefits from those initiatives and is there any way you can quantify perhaps what could be the potential.

Benefit from these initial.

Yeah, it's cute too soon for us to quantify something within a period of time, but for some perspective anywhere we're having conversations with manufacturing partners right now on some of the larger categories, where literally hiring members for the team. So I think we will start seeing results litter.

Lee in the next several quarters, depending on what the category as it relates to private label, we have a very low percentage of our store mixed very low single digits.

Private label branded today much lower than you would expect from an industry perspective, and so as we.

Increase the pretension percentage sure on the shelf.

A private.

Before anything else on the procurement.

Clearly will be margin accretive for us or aggressively looking to grow that percentage here over the next couple a couple of quarters in the store by a couple hundred basis points in terms of sure a private label in the store. So I think over the next four to six quarters, we will very consistent we'd be attacking individual categories.

Segments that will help our cost a good.

Got it alright, well, thank you and best of luck.

Thanks Anthony.

Thank you. Our next question comes from the line Paul Trussell from Deutsche Bank. Your question. Please.

Good morning.

And the corridor.

I wanted to make your circle back to the rewards program along with your.

Door dash experience and curbside.

Task, let me just give us a little bit more color.

From what you have learned.

Since the roll out of these programs.

And what's your scene in terms of.

New customer.

Engagement and kind of repeat.

Shopping on on these apps.

Yes. This is Darren Hall.

Yeah, we've learned.

Quite a bit of just give me a couple of staff.

Might help.

When we look at our.

Our digital business.

About 20% of our prepared food and found is.

Is done via digital so we think we have a pretty long runway to go in terms of growing that that business.

About 80% of the the digital orders that we have or carry out right now so although.

Our delivery business is growing is still only about 20% of.

Of our entire digital.

For digital business.

One of the one of the things that we've done more recently is expand that assortment that's available online to some of our top selling grocery items and we're we're finding is that we're getting.

Really good adoption there a lot of the prepared food.

Orders are adding on.

Ah grocery item along with that.

So we're starting to see some some bigger adoption there.

And then.

Last thing I'd say is that.

What what's really been powerful is not just the rewards program or the online ordering but it's really the entire offer so what we find is our most profitable lucrative customers or guests are the ones that engage in all aspects of the business. So they either they go into the store they shop online.

And and they buy a fuel so all three of those they're using our stores.

Very heavily and they're using it from all different avenues those tend to be the the most profitable for us.

That's helpful. And then just in terms of a follow up.

Spoken.

Two.

I'll be going down.

Rising as you.

Open up store hours a day Moore.

But you just want to better understand as we kind of.

Or.

What extent.

Have you.

More permanent savings into legs.

Should we think about the ability this business too.

Leverage.

Operations on a lower comp.

And just curious on anything more medium to longer term as we think about the coffee.

Yeah.

Steve I'll answer that you cut out a little bit on us I think the question was related to longer term our approach round managing operating expense generally in learning that are applicable going forward listen there's no doubt focus is the first thing right focus goes a very long way in terms of just paying attention to the hours but.

We are definitely taking a more comprehensive in centralized point of view around what is the appropriate level of staffing for the type of store for the community to the store is sitting in first and foremost through some technology systems that we put in place that we think will help us manage that.

More effectively going forward.

Been a significant amount of work done.

Our support infrastructure above the store level. So if you think of kind of regional in district management structure in spans of control there <unk>.

Recently under.

Williams leadership reorganized our store support management structure in the field to we think move us towards anymore market.

Market like structure in terms of giving people that are more responsibility more opportunities and that also resulted internet reduction and resources into field and we feel that will help make it a little bit faster and more streamlined for us to make decisions or get information down to the stores as well.

Thank you and best of luck.

Thanks, Paul.

Thank you. Our next question comes from the line of Irina tell from RBC capital markets. You question. Please.

Good morning, Ken on that.

Can one eight.

I'd like to drill down a little bit more on the loyalty side of things.

As you think it's been personalized officers.

To what degree are you currently April able to offer that'll is and what types of offers or you're providing to really helped drive that sugar.

If you're willing to start the three the three legs. So that's two older prepared the loyalty.

The grocery and the the fuel.

Yeah I mean this is Darren.

We're still evolving into.

Targeting.

Offers to individual guess, so we haven't quite got there yet, but we're building that database and learning as we go but we are we are definitely.

Targeting are rewards members more specifically than than we would have in the past, where we would just advertising offer to everybody and and really the <unk>.

Central to that is R. As are prepared food, obviously in our whole pizza business and that's where we've seen the most growth and then.

Building on that capability with the expanded assortment of grocery were able to bundle pizza offers with.

With other grocery and other merchandise.

Products and.

Most recently as an example, we were.

Over the Labor day weekend, we're offering a whole tie deal with.

Multipack severe so those are pretty complimentary items, we sell in Bolton or stores in that physicians is uniquely versus a lot of the other pizza players, we really don't sell alcohol. So it gives us a capability that differentiates us from our competitors and we can activate that digitally to our rewards program.

Okay, that's great that's fascinating and touching obvious promotion actually.

And just kind of sticking on on the whole.

The loyalty when you drill down initially okay into the data that you do have.

You mentioned something about your highest valued customers.

If I see thank you much frequently shopped are you able to or is it too premature at this point should we be able to create kind of different categories of customers and tight tightened lifestyle whenever as you think about really.

Use loyalty to drive behavior Gulfport with basis.

Yeah. That's that's a work that's underway as we speak and.

We recently hired.

Okay by the name of carries Dojack, who's or vice president of consumer insides and she's got a.

A wealth of knowledge in this space and has worked in multiple different industries and so she in our consumer insights team will be primarily responsible for building out that view of the guest in those cohorts and helping our digital team to better target based on those guest inside so that is.

Definitely part of the plan and his work in progress.

Okay, and when would you be targeting having that certain being able to take those types of entrainment action.

Yeah can make an action.

Just a an idea of how we shouldn't be thinking about it out.

Yeah, well carry has been on board for about a week now so.

<unk>.

A minute or two.

But I would say.

Over the next few quarters as we continue to onboard her in and build out that database, we will will start to see the fruits of that labor.

That's great and just one final question if I like.

Can I get extra hole issue.

Sure.

And procurement as you start that's just you can move down this path.

You said, you're starting obviously with some of the key categories that have there been any areas that has been identified as well <unk> really been leaving.

A lot of money on the table in this category heard that category.

Alright, well I'll I'll start with that.

Watched her commonplace people tend to started on the piano right in terms of course yep costs.

But we spend quite a bit of money on Capitol right and you think of your amount of construction activity that the company does and I think.

Statement I made earlier around not necessarily using our scale.

In that category is just as relevant and so we spend as much on Capitol as we do on many of the cost of sale categories and I think the opportunities for us on the capital spending side around.

How we build new stores and how we replace equipment.

Listing stores is quite significant and eventually right that worked its way to to P&L, but from a cash standpoint, I think that's probably just as big of an opportunity as any cost a sale category that we have.

Fascinating.

Thank you.

Thank you. Our next question comes from the line of Kelly Banya from BMO capital. Your question. Please.

Hi, good morning, Thanks for taking our questions.

Alright.

Good morning.

Wondering if you could talk a little bit more about that prepared food and category in just a performance of the day parts.

Mentioned breakfast, a little bit and some of the challenges I think are impacting industry there but.

How do we think about breakfast as a percent of your mix first is what's happening lunch and dinner and just let me think about how to model that and the drivers going forward.

Yes, Kelly this is Darren.

Certainly are.

I guess, there's two areas, where we are experiencing.

Bigger declines versus others <unk>.

Certainly in our overnight business.

Where we were not operating 24 hours are we had reduced hours that was that was probably the most significant.

Decline that we saw but then certainly the morning day part with reduced commuting traffic was are are the biggest parts I would say maybe for.

Following purposes, the morning day part was down.

Double versus what.

The lunch day part in the early evening day part was and then overnight was.

Was significantly more than that but I would say in.

In both cases, we're starting to see some gradual recovery and that.

Because we expand the hours back to more normal hours, but.

Really until.

Until we see regular commuting traffic get back to normal I would expect the morning day part will be under some sort of pressure.

Okay. That's that's helpful.

I guess, just going to the curbside pick up.

Just curious as you push that into the stores are you able to leverage existing labor.

For that do you have to add any labor just thoughts on executing that from the labor perspective.

Yeah at this point, we have not had to add incremental labor leave because we're already.

Doing this carry out business.

We just got a few more transactions.

A day and we're already preparing those those orders, it's just a matter of somebody walking out to the occurred so.

We don't anticipate any sort of material impact of labor.

It would be great problem to have if we grow that business enough that we have to add a little bit but at this point.

And particularly during our testing we didn't see the need to do that.

Okay, Perfect and then one last one if I can fit in.

Just wanted to check and see if there's any different any thoughts on.

Tai week delivery.

Supply chain standpoint, especially in light just some of that.

Changes going on in the environment.

Yeah.

Did suspend that we were up to 400 stores doing twice a week delivery then we suspended that.

When we were in the height of Cove, and we are starting to have those discussions about restarting that.

And I would anticipate somewhere.

Either late second quarter early third quarter that we would get back to those 400 stores and start that process again.

Thank you.

Thank you our final question for today comes from the line John J P. Morgan Your question. Please.

Hey, you're good morning, guys. Thanks for taking my question.

So capex was the lowest quarterly level I think you've had in about a decade displayed really strong cash flows and I know you mentioned the permitting delays, but what can we expect going forward on the capex sides.

Have you gone through this delay issue and so can we expect the rest of the year to be something closer to normal.

Yeah, I'll take that John.

We clearly expect capex to accelerate here in the last three quarters of the year.

We will be able to finish the 40 40 stores that we mentioned that will bill will be able to finish those I think because there is approvals are largely done and so I do expected capex squirrel.

Very much faster both going forward not necessarily sure we're going to get to where we've been in the prior years, because the same issue around new sites.

Certain geography's will still apply.

So if we had been building.

50, or 60 stores in the past at a certain level of capital we won't get to that same level realistically, but I do think the other thing to keep in mind right. We're building, our third distributions and that way.

Missouri and most of that spans of the entire project a little over $63 million most of that spend.

Should happen this fiscal year based on the current timeline. So all in all of it probably won't be a significant difference from a total capital spending standpoint on a year over year basis, but if if we miss will probably miss a little bit.

The lighter side and heavier just because of the starting point.

Great. Thank you and then.

If if this is too detailed I'm happy to take it offline, but there was a pretty sizable working capital draw this quarter. It looks like it was mostly driven by payables can you talk about the drivers there and is there any risk of that reversing later in the fiscal year.

Yeah, I'll answer all answer that now I mean, if a noticeable benefit for us in the first quarter I think we will give some of it back a little bit later in the year. The two biggest pieces on the payables side really relate to.

Fuel payable in grocery payable so you think of the way that math works.

<unk>, where we ended the first quarter to the end of the fiscal year and so on the fuel side right. The price of fuel was significantly higher at the end of the first quarter than it was at the end of the fiscal year that's good.

A bigger payable number which will show with the source of cash on the grocery side.

Moaning, our inventory much faster at the end of the first quarter. Then we did at the end of the fiscal year and so most of the most of the inventory at the end of the fiscal year and already been paid for and so to payable number was was lower as a result with some of that will come back to us and then on the other piece that was a source for us is on the cruise.

Side until you've got a couple of things there there was a benefit for the deferrals social security.

<unk> with some of the coven relief in government, that's helping us on that front there some timing of some of the payables. So working capital should be a source for us over the course of the year, but not not for the magnitude that it was.

First quarter.

Got it thanks very much.

Thank you. This desk conclude the question and answer session. If today's program I'd like to hand, the program back to rebel for any further remarks.

Alright, Thank you for taking the time today to join US on the call I think our business is shown significant Brazilians during the pandemic, but we remain excited and optimistic about our company's future.

I want to thank all of our team members that continued to serve our guest during is remarkable times. So thank you everybody and enjoy the rest of your week.

Thank you, ladies and gentlemen for your participation in today's conference. This does include the program you may know disconnect. Good day.

[music].

[music].

Ladies and gentlemen, thinking we're standing by welcome to the first quarter fiscal year 2021, Casey's General stores earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session. That's good question. During this session you'll need to press star one on your telephone.

As a reminder, todays program is being recorded I would now like to introduce your host for todays program, Brian Johnson Senior Vice President Investor Relations and business development. Please go ahead Sir.

Thank you and good morning, Thank you for joining us today to discuss the results from our first quarter ended July 30, Onest 2020 I.

Hi, Brian Johnson, Senior Vice President Investor Relations and business development with me today, It's Dan Rebalance, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

Before we begin I'll remind you that certain statements made by my house. 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 expectations for future periods possible or assumed future results of operations financial conditions liquid.

I didn't hear needs the company supply chain business strategy is a growth opportunities performance at our stores and the potential effects of the cold and 19 outbreak.

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 but not limited to our ability to execute on the strategic plan the impact the duration of the cobot 19 outbreak and related governmental actions or to realize benefits from that strategic plan.

As well other risks uncertainties and factors, which are described in our most recent annual report on form 10-K, a quarterly reports on form 10-Q as filed with the FCC and 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.

Now I'd like to turn the call over to Dara to discuss our first quarter results Darren.

Thanks, Brian and good morning, everyone. We're really excited to share with you our first quarter results.

First I'd like to recognize our performance is only possible because of the 38000 plus team members. We have we're running our stores supporting our stores working our distribution centers and creating new ways of cases can win each day with our guests. There's no truer reflection of our purpose to make life better for our communities and gets every.

Today, Thank you to the entire team for your dedication.

I also want to share a few comments on something I didnt expect but in a year. He unexpected here's another one for the list.

On August 10, severe storm known as a direct show hit many areas in the heart of the Midwest and cases core footprint with little to no warning.

Thankfully cases team members were all safe however, many of them or our neighbors were set back by damage power outages or other challenges from the storm.

Across the company our teams swiftly responded to get our stores running so they could stay open and serve our communities in the wake up the disaster.

In addition, the keeping our doors open in shelf stock our teams prepared and delivered hundreds of pieces to energy crews pulling long days to restore power and we sent over 20000 bottles of water to the local chapter the American Red Cross.

This is also donated $10000 to two local food banks that support eastern Iowa, and central Illinois, the areas, whether the retro most impacted our neighbors and team members.

I'm extremely proud of the efforts by everyone on the cases team to support one another are impacted stores and our communities.

Now turning to this quarter's results.

As you've seen in the press release, we achieved a record first quarter with diluted earnings per share a $3 in 24 cents, a 40% increase over the prior year.

The results were driven primarily by stronger fuel margin versus the first quarter last year, along with disciplined operating expense control.

We ended the quarter with a very strong balance sheet with over $570 million innovative available liquidity and refinanced our senior notes in early August at very attractive rates.

I would now like to go over our results and share some of the details in each of the categories.

During the first quarter in the fuel category, we continue to exceed two experienced a favorable fuel margin environment.

Results were also amplified by the utilization of our price optimization in procurement capabilities, which enable us to posted an average fuel margin of 38.2 cents per gallon and drive gross profit dollars up 39% to $210 million.

Same store gallons sold were down 14.6% as volumes continued to be adversely affected by the pandemic.

Although still currently trending negative the business still did see consistent improvements throughout the quarter on fuel volumes.

The average retail price of fuel during this period was $1.98 per gallon compared to $2.63 a year ago.

Total gallons sold for the quarter were down 11.2% to 550 million gallons.

Our fuel pricing team did an excellent job remaining nimble and an ever changing environment throughout the quarter and that showed in our financial results.

Additionally, our fuel procurement strategy continues to evolve and we're currently at approximately 60% of our total fuel volume under contract.

Finally, we went over 8500 accounts in the first quarter on the fleet card program as we continue to grow our commercial fuel business.

Moving to inside the store total same store inside sales were virtually flat for the quarter ending down about 40 basis points with an average margin of 39.6%.

You probably noticed in the press release that we're calling out inside sales is one category.

We believe this allows investors to more accurately compare our business with our peers and also lines up with how we talk about the business internally.

We will continue to provide the same level of data on the two categories and make up inside sales grocery and other merchandise and prepared food and fountain.

Like fuel, we experienced improving sales throughout the quarter as self service restrictions began to loosen.

Total sales for grocery and other merchandise were up 6.4% to $731.9 million in the first quarter.

Same store sales were up 3.6% than the average margin was 32.2% compared to 31.3% for the same period a year ago.

The earn alcohol continued to drive the category and we're very happy to see the packaged beverage category recover relative to the start of the pandemic driven by strong execution of our summer sales campaign.

Total prepared food and fountain sales were down 8.5% to $270.8 million in the first quarter.

Same store sales were down 9.8%.

Average margin for the quarter was 59.7% versus 62.2% from a year ago.

This category has been under the most pressure since the crisis began.

Consistent with other quick serve restaurants have recently reported the breakfast Daypart continues to be the most adversely impacted by the pandemic.

We ended the quarter with approximately 200 stores with some sort of food restriction and close to 50 stores with beverage restrictions.

By comparison at the end of the fourth quarter, we had over 700 stores impacted by such restrictions.

Offsetting these pressures whole pizza pies continued to perform well up over 16% for the quarter.

We believe our digital capabilities of supported this category through the crisis.

Digital sales are up 162% and 50% of our pizza orders are now taken VR AR AP website or jordache marketplace.

I'd now like to turn the call over to Steve to go into some detail on the financial statements Steve.

Thank you Dan and good morning.

After completing my first full quarter with Casey I want to remark how uplifting it's been to see the company pursuing a commission as a critical community member after the duration storm.

Also been very pleased to see how seriously the entire management team K preserving the financial flexibility the company during the pandemic, while also ensuring that we're still pursuing growth opportunities that will improve our returns on capital in the future.

Moving to the first quarter results revenue for the quarter was $2.1 billion, a decline of $522 million or 20% from the prior year. This was primarily due to the decline in retail sale fuel of approximately $542 million.

Driven by the lower number of gallons sold in the lower retail price with fuel.

Revenue from inside the store sales rose nearly 2% in the quarter to just over $1 billion.

Lower traffic was partially offset by larger average basket sizes.

Grocery and other merchandise sales increased by $44 million, while sales of prepare students mountain fell approximately $25 million. Please note all as reported figures are favorably impacted by approximately 2.5% more stores being operated on a year over year basis.

We define gross profit as revenue well cost of goods sold but excluding depreciation and amortization.

Casey said gross profit of 623, and a half million dollars in the first quarter, an increase of nearly $58 million from the prior year.

This is primarily attributable to higher fuel gross profit of $59 million with a slight offset from a decline inside the store gross profit of $2 million, our grocery and other merchandise gross profit increased $20 million well prepared food and fountain gross profit declined 22.

Million dollars.

Inside gross profit margins were nearly 40% grocery and other merchandise margins were 32% comparable to the prior year. After adjusting for a nearly 7 million dollar unfavorable inventory adjustment in the prior year to did not recur.

Prepared food about margins were nearly 60% a decline of approximately 250 basis points from prior year.

Lower volumes ongoing self service restrictions and a 9% increase in cheap cost year over year to $2 in 12 cents per pound versus $1.95 per pound last year contributed to this decline.

If costs remain the same today, we would expect or average cost to achieve to be approximately $2 per pound. The next few quarters given that 70% of our purchases are currently fixed through the end of calendar year.

The company did a tremendous job managing operating expenses throughout the quarter.

Total operating expenses were up 2% to $386.1 million, primarily due to operating 53 more stores than this time last year as well as $15 million encoded 19 related costs that was offset by reduced labor hours.

Same store operating expenses, excluding credit card fees were down nearly 6% in same store labor hours were down 15%. We're very pleased with how as our store operations team have been throughout the crisis as they continuously rightsize the store and labor hours.

To meet our guests mean.

Depreciation in the quarter was up 10%, excluding the onetime 4.1 million dollar adjustment made last fiscal year depreciation would have been up 3% driven by capex over the last year.

The effective tax rate for the quarter with 23.8%, which is comparable to the prior year.

Adjusted EBITDA for the quarter was $237.8 million compared to 186.4 million a year ago, and that's an increase of 28%.

Net income increased 41% to $120.5 million.

Our balance sheet is in great shape, and we retained tremendous financial flexibility that will service well in the future both in terms of managing through the pandemic and pursuing our strategic plan.

At July 30, Onest cash cash equivalents were $247 million and we have the FFO undrawn capacity of our 325 million wider credit.

Giving us ample available liquidity of $572 million.

Our leverage ratio stands at 1.8 times.

Shortly after the quarter ended we completed the refinancing of our senior notes that were due in August.

The new senior notes are due in 2013, 2032 and with coupon below 3%, we will have significant interest expense savings.

Furthermore, we do not have any significant maturities until 2025.

For the quarter, the company generated $307 million and free cash flow, which at cash from operating activities less purchases of property and equipment.

This compares to $77 million prior year and was driven by higher earnings favorable working capital and lower Capex.

Capital expenditures were $45 million compared to 101 million a year ago as we consciously slowed spending in the first quarter and face longer than normal delays and permitting approvals from local authorities both of which were due to the pandemic.

The company has opened nine new stores, so far this year.

Our new store pipeline is 86 site in current including 20 of which are under construction right now.

As a reminder, we expect new stores to generate double digit returns on invested capital on average by their third year of operations.

Given the ongoing uncertainty around consumer behavior and traffic volumes from coded 19, we're not yet ready to provide earnings guidance for this fiscal year. However, we will provide a few modeling a for the year as follows we continue to expect the effective tax rate for the year to remain 24, 25% range interesting.

Spence now that we've completed the refinancing of the notes should be slightly under $50 million for the year.

And we anticipate building approximately 40, new stores. This year based on current pace of approvals that we see locally.

Before turning the call back there and I just want to reiterate.

How strong we feel our position as financially to write off the pandemics challenges and continue to grow and pursue our strategic plan initiatives there.

Thanks, Steve.

We previously mentioned that sales volumes improved sequentially throughout the quarter I think it'd be helpful to share what we've experienced so far in the second quarter.

Overall, we continue to experience slow, but steady improvement month by month across all areas of the business.

For fuel we've experienced negative same store gallons in the mid to high single digits, while fuel margins are above 30 cents per gallon.

Total inside sales continued to trend favorably sequentially in the mid single digits and we continue to see ongoing improvement in our grocery and other merchandise category, which is trending up in the high single digits.

Prepared foods continue to slowly improves sequentially. We're currently trending down mid single digits.

We expect operating expenses to increase commensurate with our store hours returned to pre covered levels.

We continue to execute on the strategic plan, we disclose back in January and given the shift in consumer trends brought on by Coven 19, we've accelerated the implementation of several initiatives.

If you recall the pillars of our strategic plan to deliver top quintile EBITDA growth, our reinventing the guest experience creating capacity through efficiencies.

Being where the guest is disciplined unit growth.

All of this is going to be driven by an investment and talent to strengthen the team and add capabilities to the business.

With respect to the guest experience, we've made considerable progress to modernize the digital experience for our guests.

We recently partner Windoor Dash and currently have their delivery service operating and 584 stores.

This move is expanded delivery to more guess increased the number of days in hours that delivery is available in is reached new guest that makes their dining decisions based on what is available on the door dash marketplace.

We also recently completed a test of curbside pickup option for our guests.

The test went well and effective August 18th we launched this option companywide.

Our guests can use the cases after order from the store we've created a convenient I'm here button on their phone to notify the store to bring that order out to their car.

The guest feedback from the test was impressive.

Yes that used to service felt the experienced met or exceeded expectations enjoyed no or very short wait times and stated they were likely to use the curbside pickup option again in recommended to a friend or family member.

We also believe this capability will enable us to grab market share from other pizza chains in restaurants as guests prefer a curbside pickup option.

Our cases reward program continues to thrive and through the end of August. We're currently at 2.7 million members.

We experienced higher transaction frequency with our reward members and effective way to deepen our relationship and understanding of our guests.

This program has already enabling us to engage cases guests and influence guest behavior.

We continue to add new capabilities for enterprise wide efficiency gains.

Our centralized procurement strategy is gaining momentum and we recently hired vice president of procurement to stand up the processes and leverage our scale more effectively.

We expect to realize savings throughout our organization from indirect spend and capitalized costs to lower cost of goods.

The construction of our third distribution center, and Joplin, Missouri is progressing well and will further optimize our supply chain.

This facility will initially supply approximately 500 stores reduce miles driven by nearly 1.6 million miles per year and will be immediately accretive.

We expect to be open and operating during the first quarter of next fiscal year.

We refer to the unit growth pillar as being where the guest is our dedicated M&A team has ramped up their outreach efforts. So far this fiscal year, they've made an outreach to a large number a small and midsize targets. We continue to believe that long term industry dynamics will lead to future buying opportunities.

Steve already touched on the short term delays were experiencing with our organic growth from a pandemic, but still very confident we will deliver on the 345 unit growth over the next three years outlined in our Investor day back in January.

We've also added talent to the leadership team to execute the strategic plan.

I already mentioned, our new VP of procurement, but we have also filled key positions for asset protection human resources and guest insights.

These highly talented and diverse individuals are key to building out the capabilities, we outlined back in January and I can assure you they have hit the ground running.

In closing I continue to be extremely impressed with the progress made on our long term strategic plan.

Kobin 19 is brought about some short term uncertainty and challenges, but the capabilities. We have rapidly stood up and enabled the company to meet those challenges successfully will also generate significant long term value.

We'll now open it up to questions.

Once again, ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to move yourself from the Q. Please press the pound key our first question comes on line of Karen short from Barclays. Your question. Please.

Hi, good morning Howard.

Thanks for taking my questions.

So first I wanted to talk about so our gross margins a bit more could you help us understand the puts and takes to keep margins and grocery margins going forward.

And in the context of crushing margins were a bit better than expected given the pressures team last quarter from Nick and his any customer behavior is having changed that much and then what drove the incremental sequential pressure on okay.

Yes, so with respect to the margins we did we still have the.

Unfavorable mix shift so we were able to.

Accelerate.

Sales across the entire slight on Gen grocery and general merchandise, so margins did improve a little bit over what we saw in.

In the first or in the fourth quarter of prior year.

With respect to the prepared food and fountain margins.

As we are going through the quarter, we did become a little more aggressive in our promotional activity to drive volume, particularly with our whole pies and so we saw a little bit of compression there along with.

I was 17 cents increase in cheese costs as.

Put a little more pressure on that margin.

Yes.

I would add on the grocery side Weve.

I think our merchandising team to continue.

Continue to be pretty pretty savvy, and asking some of our vendors to help us from a promotional standpoint over the course of this summer and I think we're using vendor support in that area a little bit differently than we have in the past and that helped offset some of the otherwise negative mix from larger package sizes.

Especially in the alcohol category on on the prepared food side. In addition to what the Aaron mentioned on promotional side, we continue.

As we are dealing with negative year over year volumes the waste in the stores around a lot of the single sort of items continues to be a challenge for us and getting the right amount of product out for people to choose from in those particular categories I think thats. The other piece I would add.

Okay, great. Thank you that's really helpful.

So just wanted to.

The loyalty program, So 2.7 million members in the program currently.

Can you talk about how the covidien badly impacted that progress and with all the companies.

Sure how will that shape, how you do promotions.

Yes, Okay. This is Derek.

Im not sure that we could really draw a good comparison.

To what impact covet has had because for the most part we've operated.

Rewards program in a covet environment exclusively. So that's this is kind of been normal course for us what I would say is that it's been really.

Really positive that our digital team has been able to continue to grow the rewards membership base, even throughout the pandemic and so you saw that increased pretty rapidly too.

Over a million members early on and then we got up to 2 million now we're over 2.7 million members and it really.

Helps us in a couple of ways specialty with a lower traffic it gives us the opportunity to reach out connect with some of our most loyal guests and Ann Taylor offers directly to them to get them to come back into the store and we really see that.

Manifest itself in our whole Thai business, which has really.

Grown positively and.

Mid teens.

Versus prior year. So we continue to learn and test our way through different offers and different activities, but we're we're seeing good progress there.

Great. Thanks much.

Thank you. Our next question comes from the line up NPS revenue from Stephens, Inc. Your question. Please.

Thanks, Good morning, and running barn, Hey, Ben.

I want to start on operating expenses really nice progress there.

Yes, you showed significant improvement.

And it takes some staying out of the challenge prepared food and fountain, Sarah sales can you help us think about how you're managing opex.

You said that you'd be looking to add some opex back up as you've seen some sales recovery, but just generally help us given your head on how you think about that balance and what the appropriate relationship is between the opex on the in store and or the fuel contribution.

Yes, Ben this is darrin I'll start off I'll, let Steve.

Chime in as well I think.

Really early on in the pandemic when things were shut down we recognize that we didnt need to keep a lot of our stores opened 24 hours.

Simply because people couldn't get around so we started to restrict our 24 hour operations and of course, there's a commensurate reduction in operating expense along with that.

Also with reduced traffic our operations team was really nimble in terms of adjusting the in store hours.

While we were open to better align with with the traffic patterns now as.

Those restrictions at East and we're we're starting to really expand those operating hours and we're starting to see improved traffic, we're starting to add back those hours.

Commensurate with that volume increase so really trying to strike that right balance of being appropriately staffed to meet the needs of the guest in the stores. The second thing from an Opex standpoint in the first quarter was we just had a significantly lower retail price for fuel.

Versus prior year, and so of course errors.

There's a commensurate reduction and credit card fees as a result of that Steven offers.

Just maybe then just add on as it relates to store expense, which which is obviously the predominant piece of over operating expense line at the point I would make prospectively is we had been paying a recognition premium on an hourly basis to the vast majority of our workforce.

We finished to doing that midway through the first quarter. So from a total dollar standpoint, the wage rate that we pay will actually be coming down sequentially in the second quarter, which gives us a little more flexibility around total our utilization and the other point is operating expenses not exclusively store related.

Costs, right, our DNA and distribution and logistics compose a portion of that Anderson discretionary attributes of those bedding and so we're trying to make sure we remain prudent around the discretionary spending on some of the about store.

Categories that we have.

Perfect. Thanks for that.

Shifting gears, a little bit to prepare students fountain.

You clearly added a lot of new capabilities are just standing still waiting for kind of it to go away.

Eager like all of us forward to go away.

Im wondering how.

It might change your view on what your new stores would look like in the future given that today self service.

Pretty central component of how the customer interacts with your prepared food business.

Have you considered adding drive through obviously the customer adoption of a digital and delivery I'm sure. We'll continue to ramp up but just is it too early to start to think about how this might change the way the actual offer that you present, the customer looks like.

Yes, Ben this Darren I don't think it's too early or start having those conversations I think what we've seen.

Is that our guest prefer to self service model and when we were under self serve restrictions.

We were still selling prepared foods, but in a full service environment ended just didnt resonate with our guests as much as when we were able to lift those restrictions.

Back to self service so.

I Wouldnt say that I envision self service going away I think with the digital capabilities, we've added with enhancing delivery with our door dash relationship with curbside pickup I think we've addressed some other capabilities that the guest is clearly are asking for.

Whether we get all the way to drive throughs or not we'll we'll have to have more discussions about that that sort of thing in the future but.

We've got 2200 stores without them right now and so our priority is to make sure that those are are able to meet the guest needs is as much as we can and then we'll continue to innovate for the future.

Okay, great, Thanks, and best of luck.

Thank you. Thank you. Thank you. Our next question comes from the line of Chris Mandeville from Jefferies. Your question. Please.

Hi, good morning, guys.

Dan Margaret I can just start off with the quarter to date results that you provided.

Can you give us some clarity around what timeframe that runs through and.

I suppose I'm kind of curious here how clean they are as we're thinking about the self service noise that was realized throughout Q1 relative to Q4, maybe where that stands today. You did reference also that the duraseal had some impact in early August, but didnt necessarily quantify that and then.

The also Murphy USA put out DAC. This morning, suggesting that the labor day shift add some influence on trend as well. So maybe you can provide some just some greater color surrounding the quarter day trend that's good.

Yes, Chris.

The results that I was referring to or through the labor day weekend, and we did that deliberately because there is.

There is a mismatch on those days so we thought it would probably be a little more informative to all of you to have that reconciled. So what you see is.

As of Tuesday, essentially.

Yesterday, so that should take out that noise with respect to the direct show.

You know we've kind of view that is really not much of an event from a sales perspective on the one and we had some stores or temporarily closed because of power outages on the other hand other stores got an increase in volume because the previous tour as I mentioned were closed so.

So when you're wash it all out we think we pretty much ended up about where we would have been anyway.

So.

The Mega long story short like I said, we continue to see slow steady improvement month by month as we continue to get further through the pandemic.

Okay, and then just on the self serve influence at this point in timing where are we relative to that 200 that you ended the quarter on.

Yes, we're still in that same place. So okay I kind of think of it is about 10% of the chain.

Is under some so sort of self serve restriction and the way to think about that is if you compare those stores comps to.

Other stores that don't have those restrictions they take a head of kind of mid to high single digits versus what.

Stories about the strict restrictions have.

Okay Thats, great and then I realize you guys always focusing on gross profit dollars and sell them all things considered the flat year on year growth in Q1 for installing impressive.

But can you return to some level of in store margin expansion going forward I guess, you've called out how you're thinking about cheese pricing and that maybe easing a little bit sequentially in the next quarter or Q.

But how do we think about the tough grocery margin comparisons ahead and in your desire to promote overall in store.

Yes, I think we do have some margin expansion opportunities inside the store.

For a couple couple of reasons, one we mentioned our procurement efforts that we have ongoing we're just getting started on that but we've we've started with.

With our goods for resale and so we would expect to start to see some margin benefit as we work through those.

Those planning and negotiating efforts with our supplier partners.

We also talked about in our Investor day that we would be ramping up our private brands capability and so that work is underway and we we expect those products to have enhanced margin versus the national brand manufacturers.

And then as we continue to develop the rewards program will be more targeted in our promotional activity and so we won't necessarily have to.

Offer promotions to to everybody has their walks through the door, we'll be able to target those more towards our most loyal and most frequent guests. So I think all of those things.

While low point towards higher margins moving forward, yes, Chris I might add just on the margin opportunity into story on the procurement point.

The company.

Historically really we did focused on trying to use the scale of use higher company to influence rates for purchasing price decisions, both and direct and indirect spend and as I think we bring in a team focused on that theres a lot of opportunities for us.

To buy at scale across the footprint as opposed to buy from a purchasing decisions at the store level all by itself and then I would also add.

The earlier conversation around vendors and asking partners to help support us in different ways I think there's opportunity for us to more consistently view that across the entire footprint as well.

Okay, Great and then maybe just one last one from me.

That then light and the fact that cobi delayed some of the new unit growth that I was curious if you had any type of update with respect to the non fuel format and launch sometime in the next fiscal year.

Yes, we have.

We have a few sites identified in the pipeline, we're still working through the process. We have one that that is moving along.

A little more quickly than the other but I think we'll probably get that one opened in this fiscal year, but we're still working through that process and how much more to update on.

Other than that.

Okay, great, Thanks, guys and Thats a lot for half the year.

Thanks, Chris.

Thank you. Our next question comes in line, Bobby Griffin from Raymond James Your question. Please.

Morning, everybody. Thanks for taking my question.

I guess the first I want to talk on was the M&A pipeline and we've talked before in the past how cold it could create some interesting opportunities from an M&A standpoint, just curious have those opportunities starting to show up in the pipeline yet or do you believe thats more of kind of like 2021, once we get pass code that at some point just any any additional color.

On that.

Yeah, Bob this is Darren.

Having a lot of conversations with a lot of people right now I think what what has happened maybe a little bit in the short term is that.

Other.

Other potential acquisition opportunities are experiencing some elevated.

Fuel margins and so they're making money right now at the moment and so they're feeling a little more comfortable.

That being said, it's a very difficult operating environment after work and so depending on who the conversations with one day you catch them on some people are are more interested in selling.

Versus last but what we're doing is we're building out that pipeline, we're having those discussions in building those relationships. So that when people are ready we are as well and.

We still believe that in the.

Intermediate to long term, there's the industry dynamics are going to be what they are and out once we get back to more normal.

Margins will be a little bit tighter.

Prepared foods will become a much bigger strategic capability that a lot of these people don't have scale is going to matter a lot more and and there'll be a lot of opportunities and so we'll continue to pursue what might be available today, we've got a great balance sheet and we're in great position to act on those API.

Attunitys when they come up so we're real bullish about it it just maybe.

A bit of a timing issues all.

Okay that makes sense on when we look at the potential have cheese costs from maybe around two bucks and the second quarter and that third quarter, how does that compare to last year and and maybe put.

Bedding contacts versus the headwind that we experienced and once you would that headwind be less on a year over year basis or anything there to help us think about that.

Yes. This is Steve on it we should have a tailwind at current prices in the market and I would expect a tailwind in the second quarter and the third quarter.

The averaging right now, we're probably about 7% Baxter.

Q2 in Q3 in terms of cheese costs than we were last year. If you add around $2 number and we had it was about a 9%.

Headwind in the first quarter on price.

Looking at price. So we should have a relatively favorable flip here in Q2 Q3.

Okay. That's helpful. And then I guess lastly from me just kind of I understand it's hard to kind of bucket these but versus your fuel margin outperformance versus kind of the regional OPIS data really accelerated this quarter. Just curious if you think thats a lot of the initiatives you've been working on that we've talked about or is there any other dynamics happening the market between large and small player.

Yes, it just seems that from the public results we've been witnessing over the last couple of weeks large players have really disconnected from the OPIS data in a favorable way.

Yeah, Bob This is Derek.

I would contributed more to sophistication of procurement and pricing activity at its been a.

It's been a fairly volatile environment and.

And unusual time to say the least in so I think.

Larger larger players that have more centralized processes at better access to data and a little more sophistication and how they approach the market.

Imagine you'd start to see that separation and I can't really speak for everybody else, but I can tell you that certainly the case with our team our fuel team has come a long way and in the last year and has done a really nice job and I think this.

This pandemic has really put them to the test and I think they passed with flying colors as you've seen from the result so.

I think the environment set itself up for favorable fuel margins and our team was able to take full advantage of that.

I appreciate the details of congrats again on operating on a very challenging quarter and best of luck going forward.

Thanks Bye.

Thank you. Our next question comes from the line of Anthony Lebiedzinski from Sidoti and company. Your question. Please.

Yes, good morning, everyone and thank you for taking my question. So just wondering.

Hey, good morning, so within your 16 state operating area have you seen any notable regional differences in terms of your same store sales or maybe you could.

Talk about the rule versus more of the suburban just wanted to get a better sense as to the same store trends there was any meaningful difference.

Yes. Thank you this there and what we have seen is really some separation between the rural and more urban.

Stores and.

Really across all parts of the business fueled prepared food and grocer. Another merchandise our fuel is probably in the rural areas is probably performed the best versus the more urban areas and then prepared foods is performed pretty well and then.

To a lesser extent the grocery another merchandise, but again all of them it performed better.

With respect to different geographies that really kind of follow the cadence of where restrictions were and how shutdowns went so at any given time during that quarter, we might have had better or worse performance based on on.

Those restrictions.

Got it okay. Thanks for that.

So in terms of the centralized fuel pricing. So obviously big change from historical philosophy of being priced followers. So is it safe to say that now with a centralized fuel pricing that you for the most probably your price leader.

Okay or not I mean, how should I think about that.

No I Wouldnt say were price leader in every market I'd I would say every market is approach differently and that's one of the.

It's one of the differences between having this centralized pricing team is that they have good visibility to data in a broader perspective. So we know how we want to show up in different markets and we play that position I think the other thing that really helps is that the team has really beginning to understand the.

The knock on effects of pricing, one store and what that implies for another store and how that.

Our competitor my respond and now we need to respond back so I think being able to have that broader picture and in the context of what's going on in the commodity markets really.

Helps them make better decisions and so.

That's really what we're seeing.

Got it Okay and then.

Also had a question.

It's the centralized procurement and private label.

Product so when should we expect to see the benefits of on those initiatives and so anyway, you can quantify perhaps what could be the potential.

Benefits from these initial.

Yes, good too too soon for us.

So five something within a period of time, but for some perspective any we're we're having conversations with manufacturing partners right now on some of the larger categories were literally hiring members for the team. So I think we will start seeing results literally in the next several quarters, depending on what the cat.

Glorious as it relates to private label, we have a very low percentage of our store mix very low single digits.

Private label branded today much lower than you would expect from an industry perspective, and so as we increased the percentages percentage share on shelves.

Private.

Before anything else on the procurement side that clearly will be margin accretive for us and we're aggressively looking to grow that percentage here over the next couple of couple of quarters in the store by a couple of hundred basis points in terms of share private label in the store. So I think over the next four to six quarters, we will very consistently.

The attack in individual categories or segments that will help our cost of goods.

Got it alright, well, thank you and the best of luck.

Thanks Anthony.

Thank you. Our next question comes from the line of Paul Trussell from Deutsche Bank. Your question. Please.

Good morning, and out the colder.

I wanted to circle back to the rewards program along with your.

Door dash experience and the curb side.

Pickup Tas, let me just give us a little bit more color.

From what you have learned.

You know since the rollout of these programs.

And what you're seeing in terms of.

New customer.

Engagement and kind of repeat.

You know shopping on on these apps.

Yes. This is there and Paul.

Yes, we've we've learned.

Quite a bit Isle does give you a couple of stats that might might help.

When we look at our.

Our digital business.

Yes about 20% of our prepared food and found is.

Is done via digital so we think we have a.

The long runway to go in terms of growing that that business.

By 80% of the the digital orders and we have our carry out right now so although.

Our delivery business is growing is still only about 20% of of our entire digital.

Our digital business the.

One of the one of the things that we've done more recently as expand that assortment that's available online to some of our top selling grocery items and we're finding is that we're getting.

Really good adoption there a lot of the prepared food.

Orders are adding on.

A grocery items, along with that and so we're starting to see some some bigger adoption there and then.

The last thing I'd say is that.

What what's really been powerful is not just the rewards program or the online ordering but it's really the entire offer so what we find is our most profitable lucrative customers for guests are the ones that engage in all aspects of the business. So they either they go into the store they shop us online.

And and they buy fuel so all three of those they're using our stores.

Very heavily and they're using it from all different avenues and those tend to be the the most profitable for us.

That's helpful. And then just in terms of a follow up.

Spoken.

A bit too.

<unk>.

Thanks.

Rising as you.

Opened up store hours a day more.

But just want to better understand as we kind of.

I look forward.

What extent you know have you own.

More permanent savings.

And to what extent should we think about the ability this business too.

Leverage.

Operations on on a lower comp, although and just curious on anything more medium to longer term as we think about the cost structure.

Yes, Paul This is Steve I'll answer that you cut out a little bit on us I think the question was related to longer term.

Approach around managing operating expenses generally and learning that are applicable going forward listen Theres. No doubt focuses the first thing right focused goes a very long way injured in terms of just paying attention to the hours, but we are definitely taking a more comprehensive and centralized point of view around what is being.

Procreate level of staffing for the type of store the community that as store is sitting in first and foremost through some technology and systems that we've put in place that we will help us manage that more effectively going forward. There has been a significant amount of work done in our support infrastructure.

Sure about the store level. So if you think of kind of regional and district management structure in spans of control there Weve recently under either Williams leadership, we reorganized our store support management structure in the field. So we think.

Move us towards a more market.

Market like structure in terms of giving people a little more responsibility more opportunities and that also resulted in a net reduction in resources into field, we feel that will make it a little bit faster and more streamlined for us to make decisions and get information down to the stores as well.

Thank you and best of luck.

Thanks, Paul.

Q. Our next question comes from the line of Irene tell from RBC capital markets. Your question. Please.

Thanks, Good morning, count on that.

Good morning.

We can one eight question.

Joel down a little bit more on the loyalty side of things.

As you think.

Personal lines officers.

Too much like we are you currently April April to offer though this.

And what types of offers.

Are you providing to really help drive that service.

If you will you start the three to three legs, and it's still not prepared to the loyalty.

As the grocery and.

The fuel.

Yes, I mean this as Darren.

We are still evolving into.

Targeting.

Offers to individual guess, so we haven't quite got there yet, but we are building that that database and learning as we go but we are we're definitely.

Targeting our rewards members more specifically then than we would have in the past, where we would just advertising offer to everybody and in really the.

Central to that is our job is our prepared food, obviously in our whole pizza business and that's where we've seen the most growth and then.

Building on that capability with the expanded assortment of grocery we're able to bundle pizza offers with with other grocery and other merchandise.

Products and more more most recently as an example, we were.

Over the Labor day weekend, we are offering a whole tied deal with.

Multipack severe so those are pretty complimentary items, we sell in both in our stores and that positions us uniquely versus a lot of the other pizza players, who really don't sell alcohol. So it gives us a capability that differentiates us from our competitors and we can activate that digitally through our rewards program.

That's great.

Staying in touch obvious promotion actually.

And just kind of sticking on on the whole.

Check out.

The loyalty weight when you drill down initially okay into the data that you have you mentioned something about your highest value customers.

Yes, I think that you're most frequently shops are you able Q2 premature at this point she will be able to create kind of different categories of customers and tight yes, hi, this lifestyle whatever as you think about really.

Usually loyaltyone trite behavior on the go forward basis.

Yes, that's that's a work is underway as we speak and up we recently hired.

The laid by the name of carries Dojack Who's our vice president of consumer insights and she's got a.

A wealth of knowledge in this space and has worked in multiple different industries and so she and ARD consumer insights team will be primarily responsible for building out that view of the guest in those cohorts and helping our digital team to better target based on those guests inside so that is.

Definitely part of the plan and his work in progress.

Okay, and when would you be targeting having that certain.

Okay take those in types in trend the actual Paul.

Yes, sure making actionable.

Thank you, how we should be thinking about.

Yeah, we'll carry has been on onboard for about a week now so.

Thank you for a minute or too.

But I would say.

Yes, well over the next few quarters as we continue to onboard her and and build out that database, we will will start to see the fruits of that labor.

That's great and just one final question, if I like our actual issue of procurement and improve procurement and as you start as you sort of move down this path.

You said youre, starting obviously some of the key categories, but has there been any areas that have been identified as well we've really been leaving.

A lot of money on the table in this category heard that category.

Well I'll start I agree with that.

Watched or common place people tend to started on the piano.

Right and in terms of cost cap costs.

But we spend quite a bit of money on capital right anything could the amount of construction activity that the company does and I think the statement I made earlier around not necessarily using our scale.

In that category is just as relevant and so we spent as much on capital as we view on many of the cost of sale categories and I think the opportunities for us on the capital spending side around.

How we build new stores and how we replace equipment in existing stores is quite significant and eventually right that works its way to PNM, but from a cash standpoint, I think thats, probably just as big of an opportunity is any cost of sale category that we have.

Fascinating.

Thank you.

Thank you. Our next question comes from the line of Kelly Bania from BMO capital. Your question. Please.

Hi, good morning, Thanks for taking my question.

Hi.

Good morning.

Wondering if you could talk a little bit more about prepared food category and just the performance of the day part.

You had mentioned breakfast, a little bit and some of the challenges I think are impacting industry there but.

How do we think about breakfast as a percent of your mix versus what's happening lunch and dinner and just so we can you think about how to model that and the drivers going forward.

Yes, Kelly this is Darren.

Certainly our.

I guess, there's two areas, where we are experiencing.

[music].

Bigger declines versus others up certainly in our overnight business.

Where we were not operating 24 hours or we have reduced hours that was up that was probably the most significant.

Decline that we saw but then.

Certainly the morning, Daypart with reduced commuting traffic was are those are the biggest parts I would say maybe for.

Modeling purposes, the morning, Daypart was down.

Double versus what.

The lunch day part in the early evening Daypart Wise and then overnight was.

Was significantly more than that but I would say in.

In both cases, we're starting to see some gradual recovery in that.

As we as we expand the hours back to more normal hours, but.

Really Intel.

Until we see regular commuting traffic get back to normal I would expect the good morning day part will be under some sort of pressure.

Okay. That's that's helpful.

I guess just going to the curbside pickup.

Just curious as you pushed out into the stores are you able to leverage existing labor.

For that you have to add any labor just thoughts on executing that from the labor perspective.

Yes at this point, we have not had to add incremental labor leave because we're already.

Doing this carry out business.

We just get a few more transactions per day, and we're already preparing those those orders. It's just a matter of some may walking out of occurred so.

We don't anticipate any sort of material impact to labor at it would be a great problem to have if we grow that business enough that we have to add a little bit but at this point.

And particularly during our testing, we didnt see the need to do that.

Okay, Perfect and then one last one if I can fit in.

Just wanted to check and see if there's any different any thoughts on the mall tie week delivery.

Supply chain standpoint, especially in light of some of that.

And just going on and the environment.

Yes, we did spend that we were up into 400 stores doing twice daily delivery than we suspended that.

When we were in the height of co. Then we are starting to have those discussions about restarting that and I would anticipate somewhere.

They are late second quarter early third quarter that we would get back to those 400 stores and start that process again.

Thank you.

Thank you our final question for today comes from the line that John Wayne from JP Morgan Your question. Please.

Hey, good morning, guys. Thanks, taking my question.

So capex was.

The lowest quarterly level I think you've had and about a decade. Despite really strong cash flows and I know you mentioned the permitting delays, but what can we expect going forward on the capex side.

Have you gone through the is the way issue and so can we expect the rest of the year to be something closer to normal.

Yes, I'll take that John with an eye, we clearly expect capex to accelerate here in the last three quarters of the year.

We will be able to finish the 40 to 40 stores that we mentioned that we will build we'll be able to finish so the thing because as approvals are largely done and so I do expect that capex will.

Moving pretty much faster clip going forward not necessarily sure we're going to get.

We've been in prior years, because the same issue around new sites in certain geographies will still apply.

And so we've been building.

50, or 60 stores in the past at a certain level of capital we won't get to that same level realistically, but I do think the other thing to keep in mind I. We're building our third distribution management currently.

In Missouri, and most of that spans the entire projects a little over $63 million most of that span.

Should happen this fiscal year based on current timeline. So all in all of it probably won't be a significant difference from a total capital spending standpoint on a year over year basis, but if if we miss will probably missed a little bit.

On the lighter side and heavier just because of the starting point.

Great. Thank you and then.

If if this is too detailed I'm happy to take it offline, but there was a pretty sizeable working capital draw this quarter.

Looks like it was mostly driven by payables can you talk about the drivers there and is there any risk of that reversing later in the fiscal year.

Yes, I'll answer I'll answer that now I mean, it's a noticeable benefit for us in the first quarter I think we will give some of that back a little bit later in the year. The two biggest pieces on the payable side really relate to.

Fuel payable in grocery payable. So you think of the way that math works its comparing where we ended the first quarter to the end of the fiscal year and so on the fuel side right. The price of fuel was significantly higher at the end of the first quarter than it was at the end of the fiscal year, that's going to give us a bigger able number.

We will show as a source of cash on the grocery side, we're turning our inventory much faster at the end of the first quarter than we did at the end of the fiscal year. So most of the most of the inventory of units fiscal year in already been paid for and so the payable number was was lower as a results with some of that will come back to us and then.

The other piece that was a source for us is on the accrues side and so you've got a couple things there there was a benefit for the deferrals social security.

It was under the coded relief and government is helping us on that front are there some timing and some of the payables.

Working capital should be a source for us over the course of the year, but not enough for the magnitude that it was in the first quarter.

Got it thanks very much.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dan rebellious for any further remarks.

Alright, Thank you for taking time today to join us on the call. Thank our business has shown significant resilience during the pandemic, we remain excited and optimistic about our company's future I also want to thank all of our team members that continue to serve our gas. During these remarkable times. So thank you everybody and enjoy the rest here with.

Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.