Q2 2021 Caseys General Stores Inc Earnings Call

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21, Casey's General stores earnings conference call at the.

The time all participant lines are in a listen only mode. After the speakers presentation. There will be a question and answer session talk the question during the session, we'll need to press star one on your telephone sales.

Advise the todays conference is being recorded if you're acquiring the for the assistance. Please press star Zero I would not like the on the conference over to your Speaker today, Brian Johnson Senior Vice President of the Investor Relations and business development. Thank you. Please go ahead Sir.

Thank you good morning, and thank you for joining us to discuss the results from our second quarter ended October 31st 2020 line, Brian Johnson Senior Vice President Investor Relations and business development development with me today, the Denver, Dallas, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer before we begin I'll remind you that certain statements made.

I asked during this investor call May constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of these forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial condition liquidity in the latest sources or need the companies the ERP.

Fly chain business and integration strategies plans and synergies growth opportunities performance at our stores and the potential effects of code at 19.

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 the integration of the current Canada energy acquisition, our ability to execute on our strategic plan or to realize the benefits from the strategic plan the answer.

Package duration of COVID-19 and related governmental actions as well as other risks uncertainties and factors, which are described at our most recent annual report on form 10-K, and quarterly reports on form 10-Q as filed with the SEC and available on our web site any forward looking statements made during this call reflect our current views as of today with respect to future events.

End, Casey's disclaims any intention or obligation to update or revise forward looking statements whether as the result of new information the future events or otherwise now I'd like to turn the call over to the Darren to discuss our first quarter results. There. Thanks, Brian and good morning, everyone. We're really excited to share of second quarter results with you.

First our team deserves all of the credit for a continued growth and positive performance.

Despite the pandemic and changing environment over 40000 team members per serving our guests and ensuring our stores have what they need to be there for our communities. Our team is winning together and I'm grateful for their dedication.

In addition to being at a top convenience retailer were part of the fabric of the communities that we operate in where we know each other by name and show up for each other when in need.

As our purpose states, we're here to make life better for our communities and guests every day.

This is charitable giving aims to have an impact by supporting fundamental needs through three pillars.

Indication hunger and community service today I'd like to share. Some areas were cases is having a meaningful impact.

During the month of September with the help of our team members in general Skus, we raise the money for over 15 million the yields for 58 local food banks in our communities, which have seen increased demand since the onset of the pandemic.

First we jump started our support with the donation to feeding America's Cope at 19 relief fund in May and then we integrate it into our annual plan.

Through an in store, giving campaign in partnership with Coca Cola and feeding America, we funded much needed meals that will feed children and families in our neighborhoods.

Then in October Pcs announces first ever grant program as part of our cash flow classrooms initiative.

Our work in education focuses on helping local K through 12 schools and the people they serve students teachers and families. The.

This grant program is currently in progress and we look forward to sharing news of the grantees in March.

Thank you to our vendor partners each caseys team member that asked for donations at our registers and especially to our guests who truly do good when they shop at Caseys.

Now, let's discuss the quarter's results.

As you've seen at our press release, we had a tremendous second quarter diluted earnings per share rose, 36% to $3 per share the ROI.

Results of this quarter were quite well balanced driven by both stronger fuel margin and higher inside sales volumes and profits in the year ago.

We also recently announced an agreement for the largest acquisition at our company's history of.

Ill discuss the Buchanan energy acquisition, a little later.

But suffice it to say the we believe it will be a tremendous strategic fit and we look forward to welcoming the bucky stores and they are employees of the Caseys family.

Our innovation around digital guest engagement is expanding as we continue to add members. The caseys rewards, we're beginning to use it to affect consumer behavior.

Finally, our board voted to raise the dividend at the December meeting as a sign of confidence and optimism for our future.

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

During the second quarter, we continued to experience of favorable fuel margin environment.

Fuel gross profit was of 45% compared to the prior year with the fuel margin of 35.3 cents per gallon same.

Same store gallons sold were down 8.6% compared to prior year due to continued traffic disruption from the pandemic. So we did see sequential improvement from the first quarter.

The average retail price of fuel during this period of $2.07, a gallon compared to $2 at 47 cents a year ago.

Total gallons sold for the quarter were down 6% to 578 million gallons.

Our fuel team continues to do a great job driving performance and we're pleased with our fuel results relative to the industry and publicly available information.

The team is using real time data to drive pricing decisions and has been incredibly successful at maximizing gross profit dollars at our stores.

With respect the fuel procurement, we currently have 64% of our gallons and the contract near optimal levels.

Finally, our fleet card program has over 8600 accounts with over 21000 active cards in the market our commercial business now represents approximately 11% of our total gallons.

Same store inside sales were up three and a half percentage for the quarter with an average margin of 41%.

The company experienced sequential sales improvement of 400 basis points versus the first quarter.

Like the first quarter, we continued to see larger basket size more than offset the lower inside guest traffic.

The grocery and other merchandise category continues to shine with same store sales of 6.6% for the quarter at an average margin of 33.3%.

The current alcohol continued to perform well we've also experienced growth in both packaged beverages end tobacco due to larger pack size demand higher Marlboro loyalty redemptions and improved in store execution.

Total prepared food and fountain sales were down 3% to $289 million in the second quarter same store sales were down 3.6%.

The average margin for the quarter was 60.1% versus 60.9% from a year ago. We.

We had sequential sales improvement of 620 basis points versus the first quarter and our margins improved sequentially as well.

That being said this area of our business business continues to be the one most impacted by lower guest counts from the pandemic, especially in the morning Daypart from many of our guests continue to work from home or deal with virtual schooling arrangements.

Bakery, and dispense beverages, especially coffee from the categories. Most at adversely impacted the both showed volume improvements versus first quarter.

Conversely whole ties are continuing to perform exceptionally well with units up 17% compared to the same quarter a year ago aided in part by our digital efforts.

Digital sales were up 127% and make of over 50% of total whole pie orders.

I'd now like to turn the call over to Steve The go into some details on the financial statements. Steve. Thank you Don and good morning revenue for the quarter was $2.2 billion, a decline of $272 million or 11% from the prior year. This was due to the decline in retail sales of fuel of approximately $321 million.

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

Total inside sales were up 5.1% to over $1 billion.

Grocery and other merchandise sales increased by $58 million, while sales of prepared food at fountain fell approximately $9 million. Please note that all reported figures are favorably impacted by approximately 2% more stores being operated on a year over year basis.

Just a reminder, that we do not record lottery ticket sales as inside sales rather we record our net commission earned in other.

Lottery ticket sales have performed well throughout the pandemic and if we had record at them as part of our inside same store sales our year over year performance in the second quarter would have increased by approximately 100 basis points.

He's had gross profit, which we define as revenue less cost of goods sold but excluding depreciation and amortization of $632 million in the second quarter, an increase of nearly $75 million from the prior year. This.

This is primarily attributable to higher fuel and inside gross profit of $63 million and $11 million respectively.

Our grocery and other merchandise gross profit increased $19 million, while the prepared food and fountain gross profit declined $8 million.

Generally our inside the store performance both in terms of volumes and margins improved sequentially on the year over year basis versus the first quarter as guest counts in the stores improved and our operating and merchandising teams executed well.

Inside gross profit margins were 41% GAAP.

Grocery and other merchandise margins were 33%, which is in line with the prior year prepared food and fountain margins were a touch above 60% a decline of approximately 80 basis points from the prior year.

While the margin decline of smaller versus the prior year than what we experienced in the first quarter. We continued to be pressured due to adverse mix in extra waste in this segment more than other areas of the business.

The company had 70% of cheese usage locked at $1.98 per pound the wholesale cheese costs rose considerably throughout the second quarter, causing the final total average cheese cost for the quarter to be $2 at 18 cents per pound, which is even with the prior year's second quarter.

As a reminder, our cheese block end at the end of December that we will be opportunistic buying forwards at favorable market conditions allow.

Total operating expenses were up 10% to $410 million. There are several factors driving this increase.

First the increase from operating 38 per 2% more stores than a year ago is $9 million.

We also incurred $9 million and incremental incentive compensation due to the company's strong performance. This increase is driven both by short term incentive plans at both the store and corporate level along with the accounting for previously granted long term performance based equity compensation.

We also incurred $1 million in expenses related to the Buchanan at energy acquisition as well as $5 million income good related expenses, such as cleaning and sick pay.

We are committed to taking care of our team members and guests. During these extraordinary times and calendar year to date, we have made $32 million and investments related to coated and necessary safety measures.

While we finished the quarter down 2% in same store labor hours, our same store operating expenses dollar increase was closer to 4%.

As we communicated previously we plan to add labor to the stores as traffic recovered.

However, we have experienced incremental staffing challenges with respect to kobin related quarantines and that is driving additional overtime.

Furthermore, the July minimum wage increase in Illinois fully impacted our wage structure in the quarter.

We will continue to be diligent in monitoring our labor hours at the stores and Rightsizing store hours vis-a-vis traffic patterns, but we do expect to incur additional co the related costs in the third quarter that will likely land between Q1, and Q twos levels of spending.

Interest expense was down 16% to $10.6 million due primarily to the refinancing of the senior notes that was completed in August.

The effective tax rate for the quarter was approximately 24% comparable to the prior year.

We believe we will finish the year within the TR between 24, and 26% and this is inclusive of the impact that we expect from closing the Buchanan energy acquisition.

Net income increased nearly 37% to $112 million adjusted EBITDA for the quarter was $223 million compared to $184 million, a year ago and increase of 21%.

Our balance sheet continues to be strong and has further benefit in the quarter benefited in the quarter from the refinancing.

We have ample financial flexibility available to us both to absorb the Buchanan energy transaction and to pursue our longer term strategic objectives.

At October 30, Onest cash and cash equivalents were $405 million and we have the full undrawn capacity of our $325 million in lines of credit.

Our leverage ratio stands at approximately 1.9 times and we have no maturities of significance due until 2025.

At the December quarterly meeting the board of directors voted to increase the dividend, 6% to 34 cents per share.

The company generated $86 million in free cash flow in the second quarter, which we define as cash flow from operating activities of $200 million less purchases of property and equipment of $114 million.

This compares to negative $8 million in the prior year end was driven by higher earnings favorable working capital performance and lower capital spending.

Capital expenditures were down $27 million from the second quarter, a year ago, primarily due to co bid related delays in construction projects.

The company has opened 15 stores so far this year.

Our new store pipeline includes 77 sites of which 23 are under construction. We also have four acquisition stores under agreement. In addition to the became the energy transaction and we continue to believe we will finish the year with approximately 40 newly constructed stores.

While we are not providing earnings guidance for the fiscal year, given the ongoing uncertainty around consumer behavior and traffic volumes from code at 19. There are a few modeling guidelines that we can provide for the impact of the Buchanan energy transaction, which we continue to expect to close by the end of the calendar year.

We expect to incur approximately $10 million in closing related costs in our third quarter, and that's primarily advisory and legal fees. We also continue to anticipate a one time non cash tax expense of $6 million to $7 million, that's associated with the revaluation of our deferred tax.

Abilities on closing due to a change in state income tax apportionment.

Over the next several quarters, we expect to incur an additional $7 million to $10 million and integration related costs. We expect the transaction will be EBITDA accretive to us in the fourth quarter of this fiscal year and EPS accretive in our fiscal 2022.

We continue to expect to realize $23 million in synergies by the third year on top of the $47 million in acquired LTM EBITDA.

As for the financing of the transaction, we anticipate using approximately $250 million to $300 million in cash on hand, raising at approximate $250 million five year term loan and taking the temporary draw on our revolver for the remainder of the purchase price.

As a result, we expect interest expense for the remainder of our fiscal year to be between $25 million to $27 million debt to EBITDA is expected to be 2.3 times at closing still leaving us with ample liquidity.

Finally, I would like to remind you the seasonally the third quarter is free cash flow negative for the company and this year should be no different given the timing of our capital expenditures I'll now turn the call back over to the Aaron Thanks, Steve Im very happy with the performance of the company throughout the second quarter although.

Although we remain very confident in our long term plan, we're cautious in our outlook over the winter months.

While the developing news around vaccine progress should give all of us cause for optimism. The reality today is co the cases of surged throughout the Midwest.

The should also be no surprise at the CDC recommendations on limiting holiday travel at large gatherings the movement of schools the virtual instruction.

And tighter restrictions on many social activities have started to again take a toll on guest traffic.

Our quarter to date year over year same store fuel gallons sold are trending down mid teens, the weakening from our second quarter averages fuel.

Fuel margins remain higher than historical averages in our approximately 30 cents per gallon currently.

Inside sales quarter to date are positive in the low single digits somewhere between our first quarter and second quarter experience.

Prepared food remains pressured and is trending down mid single digits. So far this quarter.

Grocery and other merchandise is trending positive mid single digits bullied by strong tobacco and alcohol sales and continue momentum behind our various merchandising initiatives.

We finished the quarter with food restrictions in place at 120 stores and given the recent surge in cases it is possible restrictions may increase.

Even though the business is seeing the softening in the pace of the recovery we saw in the summer months I'm still pleased with the progress on our long term strategic plan.

We refer to one of the strategic pillars of the plan is being where the guest is the primary objective of this pillar is to accelerate our store growth specifically, adding 345 stores over the next three years. This goal received the significant boost after we disclose our plan to acquire Buchanan energy the 94 store chain load of hated here in the mid.

West.

The stores known as bikinis are perfect strategic fit for Caseys, they're located primarily in Nebraska, and Illinois and are situated end markets that we find very attractive the.

The buckets team has done an outstanding job locating the stores and busy corners, and they do many things well operationally.

The stores are high volume sites, averaging more than double our fuel volume while the inside sales are in line with an average caseys we.

We believe our pizza will thrive at their stores per.

Prepared food is currently only 7% of their inside sales compared to our mix of 31%. So theres tremendous opportunity here to grow that portion of their business.

We believe our scale and distribution capabilities can also bring significant margin synergies to the business.

In addition to the 94 retail stores. The company currently support the dealer network of 79 stores. These stores are run by independent operators in our supplied fuel by Buchanan energy via long term fuel supply agreements I'm personally very excited to have this new capability here at Caseys as it gives us greater flexibility with future.

Acquisitions.

I've seen this work successfully first hand in the plays well with our strategic objective to accelerate M&A.

The purchase price net of tax benefits is $500 million, which represents of 10.6 times EBITDA multiple we.

We expect to realize approximately 23 million in synergies from the transaction by the third year as well as $3 million from newly opened stores that are not included in their current financial performance.

All of this will result in the 6.8 times multiple of EBITDA with fully realized run rate synergies of price of will allow us to quickly create value for caseys shareholders.

Our balance sheet will remain strong post close which will enable us to continue to execute on our strategic plan to accelerate further unit growth.

With respect to the guest experience, we continue to see momentum with our digital engagement. Our Caseys rewards program recently surpassed 3 million enrolled members of 17% increased throughout the quarter. The program is effectively supported our private label launch of two liter and 20 on soft drinks the special offers and promotions.

The program also recently tested guest segmented campaigns using specific packaged beverage data as well as promotions to encourage revisits to the store.

We will continue to increase personalization as we grow our guest database.

Our Jordache partnership continues the four performed.

Perform well and we believe we are reaching a new guest base, 59% of the orders for the quarter were submitted outside of our own standard delivery hours of four to nine pm.

We're also in the early stages of piloting a partnership with the overnights.

Our curbside pickup option has also been well received and is currently in place at all locations.

We believe both capabilities will help us navigate through any potential challenges posed by resurgence in cove at this winter.

Our private label program is picking up momentum weve.

We launched 29, new items through the end of the second quarter. We have plans at 50 items through the third quarter in a variety of categories from packaged beverages to package bakery in snacks.

We have nearly achieved our fiscal 21 goal of 2% penetration already and think we have over 150 skus by the end of the fiscal year.

In closing I, just want to pass on my appreciation to the entire Caseys team for continuing to execute our long term strategic plan and delivering fantastic second quarter results. We will now take your questions.

Thank you as a reminder, we ask the little please ask one question and the one follow up question if needed.

Line to ask the question will need the press star one on your telephone so will the tell your question from the Bountiful. Please standby will cover the plenty of roster.

Our first question comes from the line of Karen short from Barclays. Your line of now from Hi.

Hi, Thanks very much.

I just.

The little bit about operating expense growth.

Gross profit dollar growth so when you back at the.

The.

Good luck.

The next like.

At the GAAP at kind of like.

4% between the two so I just wondering if that's the right way to think about the GAAP kind of given the current environment and then wondering if you could just talk a little bit of at how you're thinking about.

Going forward or how we should think about at this 9 million the true up.

Given the results of the first half.

The color there and then I had.

Okay.

Hey, good morning care in the Steve I'll start with that.

I think the easiest way on the Opex side is when we increase year over year was about $37 million in terms of total total dollars and when you carve out the new stores, the incentive comp true up which I'll come back to Cove at and the Blackshirts spending it was about $13 million or so that.

Related to same store sales operations, which is roughly 4% of the year over year increase the minimum wage change in Illinois, which just causes compression in our system, we don't pay a lot of minimum wage, but it it forces everything up was probably $2 million or so of the.

At $13 million increase in so.

We do believe the.

It was the right thing for us to do to add hours back into the stores. We tried to be clear that that's we what we were going to do is traffic came back into the stores and there is no doubt that it continues to be a challenging environment for us in terms of just staffing stores because of kogan related.

Quarantines when when we have an exposure in the store not only do we have to close the store to clean at that Weve in quarantine. The staff members that are working in that store, which creates overtime for everybody else and so thats going to continue going forward, but we certainly will be diligent around making sure our labor hours that we use.

Moving in the stores continues to the directionally be consistent with the traffic that we're seeing going through the stores and then on the incentive compensation, it's a little bit of a true up as well as reflective of current performance so of that $9 million increase half of it.

Roughly relates to Truing up previously granted long term incentive performance shares. So those would of been from two one in two years ago, and we did make a true of based on where those are currently trending the other half would be reflective of truing up the current year.

Our estimated bonus program for both the stores and the management team. So for the next two quarters I think we probably captured most of the long term equity true up realistically, but we probably will have incremental a little bit of incremental short term cost in each of the next few quarters assuming performance.

Continues to remain strong okay.

Okay. That's helpful. And then I was just wondering if you could give a little color on.

We are seeing line average tickets.

The various buckets so in the store.

The word versus door at ash versus just.

Purchasing free you're at.

The great any color you can give on those three.

Yes.

Yes, Hi, Karen this is Darin I guess I'd I would just say more broadly what we saw in the quarter was about a 15% increase in average ticket overall.

And that was partially offset by reduction in guest traffic of around 10%.

Thank you. Our next question comes from the line of Ben Brownlow from Stephens, Inc. Your line is now open.

Hi, Thanks, good morning, everybody garnering more than men.

You've talked about the near term ebb and flow of of traffic and specific to prepare to the ebb and flow there and the layering on of constriction, but I'm curious as we come out of kind of at in life returns to normal and you see traffic patterns come back to normal.

How do you think about using promotions to drive engagement and particularly if I can tie it into the comments that you made about cheese prices, which I think we look at both spot and futures markets on Cheez. It looks like there is an opportunity to capture.

Another lock of a pretty attractive cheese prices the way.

How might that enable you to.

At the posture around promotions.

Well Ben.

Certainly is.

Things start to normalize again, which by the way I.

Im not sure. The we would expect to see quote unquote normal coming back until probably mid next year next calendar year depending.

Depending on the distribution of the vaccine and so theres theres still a lot of uncertainty around that piece, but certainly via our will rewards program, we have the ability to target our promotional at activity a little more per.

Precisely that maybe we have in the past so we have some underperforming.

Underperforming day parts in particular in some categories haven't performed as well and so we would we would probably be looking to.

To enhance some promotional activity to to regenerate those categories.

With respect to the cheese block.

Yes, we do have an opportunity to at.

At some point, maybe lock in some more of of our cheese purchasing we're continuing to monitor the market for the the right opportunity to do that to the extent the Wi.

We save on cost of goods, we can we can make a decision as to whether we want to invest some of the savings and promotional activity or not.

I would say that that's that's probably less of a factor in our thinking at as opposed to thinking about where the guest is at any particular point in time of what we think is the right offer this is going to resonate with them.

Okay. Great. My second question is related to the store growth.

So the fact that.

The re acceleration of store growth might be.

Congrats.

Return to normal dynamic and the operating landscape, but.

I think.

You highlighted what your store growth is expected to be for this year do you think in fiscal 22, you can get back to that historical organic and inorganic growth rate kind of exclusive of bucky than other thats going to be a nice boost to your tier long term goal and we'll pull forward some of that long term goal.

But as it stands right now how are you thinking about the re acceleration of store count.

Yes at this point, we expect to be able the to get back onto the the cadence that we were.

The we had originally planned on the real.

The real long pull on the 10 on this has just been of a general slowdown in.

Municipalities being able to work through the permitting process and then.

Part and parcel with that is some of the trades and contractors, where they've made experience.

Some cobot related challenges so that's been a bit of the slowdown we expect the once we get past all of that we.

We should be able to resume back to normal it really hasn't been an internal capacity issue on our end so.

Once we once we think are once the environment returns normal we expect to be back on track, Yes, I would I would add to that then I think by the time, we exit the.

This fiscal year, our actual run rate of stores that were constructing will be will look very consistent with with what we talked about earlier and what our historical track record has been.

Thank you. Our next question comes from the line of Bobby from from Raymond James Your line is now from.

Good morning, everybody. Thanks, the tumor formatting.

I guess I want of all back up on the Opex side of things as we're getting questions about that this morning, but when you. When you think out further we get back at a more normalized world where the the businesses are comping as you'd expect from too.

How are you guys thinking about opex growth either in relation to the new store growth or some type of relation to.

Gross profit growth or for inflation is there is there some benchmark that you're going to be targeting against that we should think about the grade the business on.

Yes.

Ill start with at Bobby when when we go back and look at the historical what's happened in the past from an Opex growth standpoint, we've tended on a same store basis to be adding 2% to 4% of.

Opex growth.

Kind of quarter to quarter on on the same store as we've been building out.

The footprint and I think our EPS.

Expectation is that at certainly would not be radically different than that I would probably go back and take it one one level up the way we will most most effectively try to manage Opex. If you go back to the Investor day.

Communications at the company had we certainly be the expect to be able to be growing opex at a slower rate obviously than we're growing EBITDA over the medium term right, we should be getting benefits of of spreading the.

Operating expenses investments over a larger base and that should accrue to the slower or lower slope of of opex growth over that period of time. So we'll look to keep the whole thing in the medium term growing less than the EBITDA growth rate for sure and on the same store basis kind of quarter to quarter.

It's at two to four percentage historically, what that number has been at in the short term thats, probably a pretty good a pretty good rule of thumb to use.

Is it fair for us the viewed as as a function of inside store gross profit because just the issue when I go back to EBITDA of the fuel margins move around so much in the industry that when you look at in relation to EBITDA growth. The the fuel margins can change.

The impact that analysis on at quarter to quarter basis is it fair to view at in relation to just inside gross profit orders or is that not at a fair way to look at.

Bodies this the Darren.

On the I think Thats, one way of looking at it.

Yes, thats going to vary with the number of factors right.

The store operating hours are going to play a role.

Frankly, even with the inside sales that can vary it if you think.

On one hand our.

Or.

Grocery and general merchandise categories are performing very well and accelerating those are probably less labor intensive than our prepared foods business and so as the prepared foods business accelerates. The there may be some more labor applied there.

Of course that comes of more margin as well. So I think it's it's pretty dynamic, but what we did.

Shared with the street on our Investor day was keeping that opex percentage growth below the EBITDA growth and so that's really how we're looking at at this point.

Thank you. Our next question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is now from.

Thank you good morning.

Hey morning, Bonnie.

Hi.

Hoping the here a little more color on the trends you're seeing Darren.

Brian So far.

During December, especially given the spike in coal the cases that were seeing at some increased lockdown you did mention some of the impacts so far on your business, but the curious to hear any key differences during this way maybe versus.

The first wave maybe you could touch further on.

Any initiatives you might the implementing to better handle the second wave the I'm just thinking through achieve.

Got any learnings from the first wave and maybe why you will see better equipped the time. Thanks.

Yes sure.

So certainly what we're seeing this go around isn't any any.

The anywhere near as challenging as what we experienced the first the first of all around part of it is just we're we're accustomed to operating in this environment now the second piece is I think.

The municipalities and states have generally Sean the the lockdown approach to things, whereas early on in the pandemic states were completely shutting things down and so I think what they're trying to do is be a little more thoughtful around what types of restrictions they put in place where they are seeing.

The outbreaks of Cove, it and trying to address those areas specifically as opposed the locking everything down so.

That's more from a macro perspective and.

We have at a team that monitors the stuff every single day.

In terms of the various government regulations, I think thats. It thats one of the things of that we're a lot sharper on now than perhaps in the early days of the pandemic.

You know all of that being said what we saw in November the we talked about a little bit in in early on in December is that we are seeing some traffic start to slow a little bit it's not anywhere near what we experienced in.

Late fourth quarter, and early first quarter last year, but.

But has certainly started to soften a bit.

Our whole piece of business continues to perform very well like it did before we're seeing alcohol and tobacco improve.

As a result of that as well, but overall.

Overall, the mix of products and merchandise within the store is staying fairly consistent with what we've seen.

It's just on the on some reduced traffic.

Okay. Thanks, I'll stick with the one question and get back in queue. Thanks.

Thanks Bonnie.

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

Hey, good morning.

I wanted to sales.

Circle up on fuel margins.

Obviously, they've continued to be strong end, maybe above historical average.

Just wanted to ask about kind of the controllables.

Procurement pricing.

The competitive environment from a promotional standpoint, maybe just kind of speak to what you've you've seen.

And what you can stay from the outlook standpoint, thank you.

Yes, Thanks Paul.

I continue to believe that that our fuels team is really outperforming what we're seeing in the rest of the industry and when we look at the various benchmarks, whether it's from opus or we see others of results.

We tend to outperform on gallons, even though our gallons are negative and weve been outperforming our margin at the same time and so.

Even though we're all sort of experiencing an elevated margin environment in a softer gallons environment I.

I would say that our team has has done a better job of navigating that environment at.

And in performing well so.

If we look in the future.

I've.

Made at a point not to try to crystal ball of fuel margins are going to be because of.

That tends to be of Fools errand, but what I will say is at.

I feel very confident in the whatever environment, we're going to find ourselves in that our team is prepared to handle that and we'll we'll navigated appropriately and I think the evidence of the last six to nine months would will be the proof point of that so.

Whatever we end up seeing.

We will be able to deal with it.

No fair enough and then a follow up is just regarding maybe any kind of learning.

That will be interesting the kind of share with the group regarding the.

The rewards program, obviously, you spoke to exceeding 3 million members of the digital sales are triple digits.

Just any other kind of the details.

Details and touch points, there that you can offer.

From this rollout.

Yes sure end all.

The caveat this by saying that so a lot of what we're learning I think is is really of accrues to the competitive advantage for us the Doug.

I don't want to share a whole lot but of.

What I can tell you is a couple of things when we look at the mix of.

Of our rewards guest and their purchasing behavior.

At one of the things we found the its interesting as it gets the income in the store also buy fuel and also make online purchases either through web or mobile app or only 16% of our total guests. So when I look at that I said, there is a huge huge opportunity.

The for us to engage more of those guest at art, taking full advantage of the suite of opportunities to to buy all of our products. So.

When I think about our digital platform, our rewards platform and how we can engage our guests I think theres tremendous upside there and we're just now being able to have visibility to that type of opportunity.

The second thing as we've been digging into our.

Our prepared foods and the fountain performance, we were looking at rewards day, and looking particularly on the dispensed beverage side of things and what we found is that.

We've seen our fountain gas that would normally buy found the preponderance of visits to the store and then.

Smaller portion of the time would buy a bottle and can or packaged beverage we've seen that shift.

Over the last several months with the pandemic to where those guests are more inclined to buy packaged beverages and less inclined to buy fountain. So when we look at the performance between the two categories. We are seeing a shift towards at packaged beverage I think some of that is just.

Related to get comfort around a self serve dispensed beverage versus something that's already package in the bottle or can so we are seeing some of that behavior shift. So it helps us gives us a little more comfort in terms of.

How the per day, the performance of that prepared food and fountain.

Businesses is performance of there's a couple of insights Paul.

Thank you. Our next question comes from the line of Kelly Bania from BMO. Your line is now open.

Hi, good morning, Thanks for taking the questions from earnings.

I'm wondering if you could talk a little bit in more detail about the the.

Good day part and the performance you talked a little bit about breakfast, but.

Maybe just can you remind us what.

What percentage of the mix for prepared foods. The breakfast is at what you're seeing in the other day parts and just.

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The the kind of manage that over the next couple of quarters.

Yes.

When we look at these numbers they of all somewhat improved over the course of the pandemic but were.

Were down from a traffic standpoint in the morning day part were down low double digits and then in the overnight day part as well, we're we're down about the mid teens. So the at lunch in early evening day, part or a little less affected from the traffic standpoint and the.

It is all flow stands to reason with more people working from home the schools being virtual in a lot of cases that the morning commuting traffic has just been off and we see that particularly reflected in our in our breakfast products, our coffee in our in our bakery and donuts in particular.

Okay. That's that's helpful and just I guess the follow up on on the prepared food category.

Darren just any update on how you are feeling about the the.

The test for twice a week deliveries and maybe this is the.

The ideal environment to test at but just just curious how you envision that category longer term.

And the desire to kind of build out some of our capabilities and an end fresher options inside the inside the store.

Yeah sure.

With respect of the twice a week delivery I think youll recall, we had a 400 store test up and running when when cobot hit.

We put the brakes on that to allow things of settle and we have plans to re launch that in.

You know in early part of the the new calendar year, So, we'll get back up and running with that end.

And we'll see how that progresses.

But with respect of the prepared foods overall I think.

Our team is really starting to hit its stride from a product development standpoint, if you recall.

We brought on some so new members to the team and the kind of hitting that five or six month Mark.

With respect of their time at Caseys and if you recall at Investor Day, we talked about when we when you develop a fully of.

That had a product pipeline takes about 18 months from from ideation to commercialization and so we're we're probably 11 10 or 11 months into that process and so the team.

It does have some innovation in the pipeline, we're working through the progression on that with our guests insights and invalidating things, but I'm very optimistic about the future and what the opportunities are that the team are creating but.

It's just going to take a little bit more time to get through the process.

Okay.

Thank you. Our next question comes from the line of Matt. This thing from Jefferies. Your line is now open.

Hey, good morning, Thanks for the question Monday morning, Matt.

Following up on the digital sales trends, the new guest reach and the overall digital opportunity just wondering if you're seeing anything that suggests digital trends may be stickier potentially more incremental Ben maybe what's thought in January perhaps in terms of the prepared food business, where we are from Micah.

Mobile ordering as the percentage of revenue perspective or pick up the first delivery potential increment of talenti from from grocery add ons.

Where do you think you could shake out looking ahead versus where the where you thought it could before the pandemic. Thanks.

Yes, Matt will certainly we think end we've seen that.

The the rewards members of our stickier guess so to speak they do have higher frequency than than we think the.

Yes that are not on rewards and so we definitely see that upside there and we have the influence we have the ability to influence at behavior by connecting with them on a more individualized basis and personalized basis to influence at behavior.

With respect to the overall mix of digital it's still it's still a relatively small part of our overall business. Although it is of a higher percentage of our of prepared foods business, which you would expect because the preponderance of our our E commerce businesses and our our pizza at our whole pie business, but.

Like I mentioned earlier, a little bit more than 50%.

Of our whole pizza orders are now coming in through some sort of digital means whether it's the app or of course.

Of the web site.

I would anticipate the that continues to grow at.

As more and more people become aware of it we get more and more rewards members and we have more adoption and so.

We like that that the gives us the ability to capture more data and be able to influence more behavior.

Yes, thanks for that and I guess just to follow up.

Obviously back in January of two to tell us that digital would be.

As as much of a percentage of sales as it is right now we'd be all scratching our heads of because the of the pandemic has has definitely pulled forward.

The VAT significantly.

But just compared to your expectations back in January or are you surprised at how.

How well the at the company's capabilities are holding up against that demand does that give you incremental confidence going forward that perhaps digital can be a larger piece of the business than than previously thought.

Yes, I don't know that we're surprised has been able to help hold up I'd frankly, I'd be disappointed if it didnt hold up.

In this kind of environment, we've been we've been happy with it of Weve.

We have exceeded our initial targets in terms of rewards members enrolling in the program. So thats been good but I don't know the the pandemic is necessarily encourage more people the enrolling in rewards I think that's been driven more by our our team and the marketing efforts around our rewards program and people have seen value at it.

And in the adopted at I think with respect to actually.

Making more purchases the ecommerce I think yes, we have accelerated some of that but I think the guest experience in that digital space has been a positive one so I think people.

Art, we're kind of.

Nudge there.

As as the result of the pandemic, but now the experience has been good so that they are continuing to to leverage that tool. So.

I think it's the combination of getting a little bit of help.

From the the cobot environment, but then the rewards program and the digital platform itself in.

In the mobile at being very user friendly and a good digital experience of kept people coming back.

Thank you. Our next question comes from the line of Anthony Lebiedzinski from Dougherty and company. Your line is now open.

Hi, good morning, and thank you for taking the question. So so at a question at first on the of fleet card program. So I think you said that the 11% of your total volumes are coming from that.

Can you give us a sense as to whether the those customers are also coming.

Coming into your stores or you'd be able to drive incremental traffic to the stores because of the fleet card program at is there any way you can quantify that please.

Yes, Hey, Anthony this is Steve we havent quantified at per Se, but we certainly.

Do believe the if we get incremental commercial business coming to our sites primarily to fuel with diesel products. The absolutely we're getting incremental visits inside the store from that right. Its we don't have a one to one ratio of people as the normal course, who.

Come to fuel up who go inside the store, but we certainly are trying.

To link right. The the commercial program with enrolling people end, caseys rewards et cetera, and create benefit to the individual for them to come inside the store as well as the relationship with the organization. So we will continue to try to drive behavior to go into the store, but at agenda.

The matter, yes, we get more people on the site, we're going to continue to drive more people through the end side of the store.

Got it thanks, and then as far as your same store sales of theirs.

Are there any notable difference as far as your performance at for same store sales between your rural locations at more of the sort of suburban locations.

Yes listen.

As the general matter consistent with what we have seen really throughout the day endemic our rural locations have performed modestly better from the same store basis, whether that's inside the store.

The performance or fuel performance the rural rural spots.

Again, there is the scarcity value with many of those locations at of generally performed a little bit better than than the urban ones and thats been a consistent theme really for for most of the calendar year.

Thank you.

Our next question comes from the line of Irene The Telcel RBC capital markets. Your line is now open.

Thanks, and good morning every line I just want to go from them.

Slide eight lot of.

That's for the whole question of fuel and certainly understand that nobody has the crystal ball, but what we've seen coming out of prior shocks to the assessed at less kind of a permanent staff.

The fuel margins and that's kind of pretty consistent from south. So as you think of the combination SCR enhanced capabilities and what may yet chains to the may at become.

The higher at industry.

Fuel margin how should we all the same taking about.

What that number looks like relative to the last three years because of course for investors that makes a very big difference in terms of what the perceptions around the sustainable earnings levels at Caseys.

Yes, I mean this is Darren.

I guess I would say if you if you took out Covance just count. This this year so of of Covance through that out what you would have seen prior is kind.

A couple of slower steady increase in retail margins for fuel over the last several years and I think thats simply a function.

Of the underlying cost pressures continuing to the effect the businesses end.

The large part because there's.

Such a large base of smaller independent less sophisticated operators out there. They don't have a lot of levers to pull and so the after awhile fuel margin to do that and thats naturally cause margins to inflate overtime I don't think that dynamic is going to change.

The the cost pressures are continuing you see that happening right now with the DMV as we as we move forward the Mg and so.

I think that the preponderance of the industries, we will continue to see higher margins.

That being said, yes.

Yes, the counterbalance there with.

A lot of larger players.

Consolidating the industry and so over a longer period of time, there will be.

The word larger players.

Net.

At some point may seek to.

To maximize market share at the expense of some margin. So it's it's a little the difficult at this forecast, but I would say in each day.

In the intermediate term.

Let's say that the the natural inclination of of.

Gradually increasing.

Increasing fuel margins of probably likely of interest.

Now, where where that shakes out versus today's levels is a little difficult to the handicap.

[laughter].

Thank you so much for that and then I just wanted to come back to.

At the whole prepared food question, the and the new product launches and the insights at you're getting from the fed.

Yes, certainly at your digital engagement and thinking even just from the current environment.

Terry short term people aren't going to be stuck at home over Christmas and things like that are you thinking about how the in the short end on short term until you get the salt pipeline at about seven.

Product launches that can really just stimulate that the man.

The bridge the gap.

Yes, certainly we're we're working on things that that we can do in the short term.

While we are building the capability for the long term some of that is the tends to be a little more tactical.

In nature, I don't want to get into the specifics of that for competitive reasons, but yes.

Yes, we are certainly not sitting.

Sitting on our heels waiting for the next six months the pass for the product pipeline the catch up.

So we're balancing folsom short term opportunities, while we're pursuing the long term.

The development pipeline.

Thank you. Our next question comes from the line of Brian Nick Lara from bearing the capital. Your line is now opened.

Good morning, Thank you for taking my question Hi, Brian.

I think Irene kind of asked the kind of the bulk of my question, but I was wondering if you can give us more color on how fuel margins continue to impact the M&A environment, particularly the the small tuck in variety as you had mentioned at has given a welcome. Despite some potential aren't the targets earlier this year and particularly I'm curious how.

How the duration of these abnormally high margins compares the kind of like what you hope you guys of expected internally as at the year has gone on thank you.

Yes, it would.

With respect of the M&A environment.

What weve seen in experiences that.

The elevated fuel margins have given some of the smaller operators of the whole that of an opportunity to.

Two of hang on all said I think of.

They are also beginning to realize that.

The pandemic is going to start from wind down of maybe the these margins are at sustainable as as they would have liked at.

These at these levels, albeit the probably end up at a higher price and where they started.

I think also what's factoring in at the end of the the calendar year change in administration potential changes in tax laws. So theres a lot of things at play right now that the weak.

We believe will start to incurred some people that may be sitting on the sidelines.

For this calendar year to maybe think differently in the next calendar year. So we would expect some activity the to pickup.

Moving forward.

And then just on the duration of of how long kind of the these I mean I think the the fuel margins continue to the surprise I'm just curious kind of how it's.

Hi, this is land at relative to your expectations.

Yes, well what.

Well, we experienced early on was.

Then as traffic dropped.

The market kind of compensate for that with increased margins and so.

We would expect that.

I guess, we expected the margins do somewhat persist for as long as the pandemic impacts of the the impacts on traffic in gallons sold were going to persist now so.

So I don't think thats been a surprise at.

Im not sure the any of US had a real expectation about when the pandemic would would start to subside.

We certainly had forecasted internally that we expected the resurgence in the fall because that's what we're hearing from.

The scientific community of that Thats, starting to play out so.

I'm not sure we had an expectation about when things would end the other than once the vaccine was widely distributed that would take place on the thing now.

The best data, we have on that as at probably sometime mid.

Calendar at 21 is when things will start to maybe the look a little bit more normal.

Thank you. Our next question comes from the line of Chuck.

From Coskey from Northcoast Research your line is now open.

Good morning, everyone on price.

Sort of the technical question in looking at the credit card fees.

They were about flat year over year in the second quarter, but the down significantly in the half and that implies of of course.

The first quarter as well, what's going on there and what is the tell us about demand trends.

Yes, I think I don't think there is too much to read into it per se I mean, the quarter to quarter.

Sequential trend in credit card fees is to some extent going to be driven by the price of fuel right and what we're seeing in terms of the retail price of fuel and from a year over year standpoint.

We're always in the midst of various renegotiations with with financial institutions around some of the fees and so I don't think there's anything we would point to that theres been a substantive change in the way we're incurring for the way, we would expect to incur credit card fees over the medium zone.

From the price of fuel certainly drives that I'm quite a bit in any particular quarter.

Any any of them.

Hope that you can significantly influence credit card fees with the.

Through the negotiations.

Total of certainly something we're going to try to do over over the longer term. There's there's a lot of moving parts in those discussions and you know, it's always going to be a substantial piece of of expense for us, but it's big enough that we're going to remain diligent in terms of trying to manage it to the to the best.

Of our ability, but no we would certainly not.

Have any near term expectation of of change.

Change directly because of the conversations we're having now because of just quite a long lead time for us to get the stuff.

Through the pipe.

Thank you. Our next question comes from the line of John well Yao from JP Morgan. Your line is now from.

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

Ill just do one I know, we're kind of short on time. So I appreciate the color earlier on the of the post.

The lucky's.

Numbers on the is there any view you can give us on what run rate capital spend levels might look going forward. Following the transactions just thinking about.

Maintenance level, the 94, new stores that I know I think you discussed on the prior call of.

$50 million over three years to achieve synergies. So just just trying to see where you think the kind of run rate level would would shake out.

Yes, I'll start with at John So I think the the net the net investment back into the bucket of stores to get our kitchens in over the next couple of years of a 50 $50 million number thats still of that that's a reasonable estimate based on.

The information we have our point of view has not changed as it relates to that at all I think from a run rate perspective, you know, they're they're running.

The call it somewhere.

Six number if I if I look at it from a DNA perspective, the probably the easiest way from me to describe the you know I would expect once we get through.

Intangible valuation associated with that transaction, we probably will incur somewhere in the neighborhood of about $20 million of incremental DNA from that deal right, we'll be depreciating their assets there'll be a couple more.

The in dollars of additional intangible amortization and the money that we put in probably $5 million to $6 million and so I think $20 million going forward for the first couple of years, all end would be reflective of kind of the cost of of the capital investment that we will be receiving from that transaction.

Thank you at this time I'm showing no further questions I would like to turn the call back over the Darrin rebels CEO for closing remarks.

Yes, Thank you and thanks for taking the time to day join us on the call. The think the company is well positioned financially to take on whatever challenges and opportunities may come from.

In the back half of this fiscal year so.

We'll wrap it up for now and hope everybody as I have the holiday.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by and one of them for the second quarter fiscal year, just south of 21, Casey's General stores earnings conference call at the.

Hi, all parts of the line going to listen only mode at the site.

This presentation there will be a question answer session talk of question during the session only couple store one of your telephone.

At the advisor doesn't day of golf or if the recorded if you're acquiring of for the rest of junk that's why it's always the Oh.

Well, we're not like down the office all of your Speaker today, Brian Johnson Senior Vice President of Investor Relations development. Thank you. Please go ahead Sir.

Thank you good morning, and thank you for joining us to discuss the results from our second quarter ended October 31st 2020, I Am Brian Johnson Senior Vice President Investor Relations and business development development with me today is Denver, Dallas, President and Chief Executive Officer at Steve Bramlage, Chief Financial Officer, before we begin I'll remind you that certain state.

Thats made by US during this investor call May constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of these.

These forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial conditions liquidity and related sources or need the company's supply chain business and integration strategies plans and synergies growth opportunities performance at our stores and.

Central back the COVID-19.

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 the integration of the Kennen energy acquisition, our ability to execute on our strategic plan or the realize the benefits from the strategic plan the.

The impact the duration of come at 19 and related governmental actions as well as other risks uncertainties and factors, which are described at our most recent annual report on form 10-K, the quarterly reports on form 10-Q as filed with the SEC and the available on our web site.

Any forward looking statements made during this call reflect our current views as of today with respect the future events and Casey's disclaims any intention or obligation to update or revise forward looking statements, whether as a result of new information the future events or otherwise.

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

Thanks, Ryan and good morning, everyone. We're really excited to share of second quarter results with you.

First our team deserves all the credit for a continued growth and positive performance. Despite.

Despite the pandemic and changing environment over 40000 team members are serving our guests and ensuring our stores have what they need to be there for our communities. Our team is winning together and I'm grateful for their dedication in.

In addition to being at a top convenience retailer were part of the fabric of the communities that we operate in where we know each other by name and show up for each other when the need.

As the purpose states, we're here to make life better for our communities and guests every day chasing.

Caseys charitable giving aims to have an impact by supporting fundamental needs through the three pillars education hunger and community service today I'd like to share. Some areas were cases is having a meaningful impact.

During the month of September with the help of our team members and generous guess, we raise money for over 15 million meals for 58 local food banks in our communities, which has seen increased demand since the onset of the pandemic.

First we jump started our support with the donation, defeating the Americas COVID-19 relief fund in May and then we integrated into our annual plan.

So in in store, giving campaign in partnership with Coca Cola and feeding America, we funded much needed meals that will feed children and families in our neighborhoods.

Then in October Pcs announced its first ever grant program as part of our cash flow classrooms initiative.

Our work in education focuses on the helping local K through 12 schools and the people. They serve students teachers and families. This grant program is currently in progress and we look forward to sharing news of the grantees in March.

Thank you to our vendor partners each caseys team member that asked for donations at our registers and especially to our guests who truly do good when they shop at Caseys.

Now, let's discuss the quarter's results.

As you've seen our press release, we had a tremendous second quarter diluted earnings per share rose, 36% to $3 per share the.

Results of this quarter were quite well balanced driven by both stronger fuel margin in the higher inside sales volumes and profits in the year ago.

We also recently announced an agreement for the largest acquisition in our company's history.

At the Skus that became an energy acquisition, a little later, but suffice it to say, we believe it will be a tremendous strategic fit and we look forward to welcoming the bucket of stores and the employees of the Caseys family.

Our innovation around digital guest engagement is expanding as we continue to add members. The caseys rewards, we're beginning to use it to affect consumer behavior.

Finally, our board voted the raised the dividend at the December meeting as a sign of confidence and optimism for our future.

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

During the second quarter, we continued to experience a favorable fuel margin environment.

Fuel gross profit was at 45 per cent compared to the prior year with the fuel margin of 35.3 cents per gallon.

Same store gallons sold were down 8.6% compared the prior year due to continued traffic disruption from the pandemic. The we did see sequential improvement from the first quarter.

The average retail price of fuel during this period of $2.07, a gallon compared to $2 of 47 cents a year ago.

Total gallons sold for the quarter were down 6% to 578 million gallons.

Our fuel team continues to do a great job driving performance and we're pleased with our fuel results relative to the industry and publicly available information the.

Team is using real time data to drive pricing decisions and has been incredibly successful and maximizing gross profit dollars at our stores.

With respect to fuel procurement, we currently have 64% of our gallons in the contract near optimal levels fine.

Finally, our fleet card program has over 8600 accounts with over 21000 active cards in the market our commercial business now represents approximately 11% of our total gallons.

Same store inside sales were up three and a half percentage for the quarter with an average margin of 41%.

The company experienced sequential sales improvement of 400 basis points versus the first quarter.

Like the first quarter, we continued to see larger basket size more than offset the lower inside guest traffic.

At the grocery and other merchandise category continues to shine with same store sales of 6.6% for the quarter at an average margin of 33.3%.

During the alcohol continue to perform well we've also experienced growth in both packaged beverages end tobacco do.

The the larger pack size demand higher Marlboro loyalty redemptions and improved in store execution.

Total prepared food and fountain sales were down 3% to $289 million in the second quarter same store sales were down 3.6% the.

The average margin for the quarter was 60.1% versus 60.9% from a year ago.

We had sequential sales improvement of 620 basis points versus the first quarter and our margins improved sequentially as well.

That being said this area of our bid the business continues to be the one most impacted by lower guest counts from the pandemic, especially in the morning day part for many of our guests continue to work from home or deal with virtual schooling arrangements.

Bakery and dispense beverages specialty coffee part of the categories. Most at adversely impacted the both showed volume improvements versus first quarter.

Conversely, whole pizer, continuing to perform exceptionally well with the units up 17% compared to the same quarter a year ago aided in part by our digital efforts.

Digital sales are up 127% the make up over 50% of total whole pie orders I.

I would now like to turn the call over to Steve to go into some details on the financial statements. Steve. Thank you Dan and good morning revenue for the quarter was $2.2 billion, a decline of $272 million or 11% from the prior year. This was due to the decline in retail sales of fuel of approximately $321 million.

Driven by the lower number of gallons sold and the lower retail price of fuel total.

Total inside sales were up 5.1% to over $1 billion.

Grocery and other merchandise sales increased by $58 million, while sales of prepared food at fountain fell approximately $9 million. Please note that all reported figures are favorably impacted by approximately 2% more stores being operated on a year over year basis.

Just a reminder, that we do not record of lottery ticket sales as inside sales rather we record our net commission earned in other.

Lottery ticket sales have performed well throughout the pandemic and if we had record at them as part of our inside same store sales our year over year performance in the second quarter would have increased by approximately 100 basis points.

Caseys had gross profit.

We defined as revenue less cost of goods sold but excluding depreciation and amortization of $632 million in the second quarter, an increase of nearly $75 million from the prior year and the.

This is primarily attributable to higher fuel and inside gross profit of $63 million at $11 million respectively.

Our grocery and other merchandise gross profit increased $19 million, while the prepared food and fountain gross profit declined $8 million generally are inside the store performance. Both in terms of volumes and margins improved sequentially on the year over year basis versus the first quarter as guest counts in the store.

Has improved and our operating and merchandising teams executed well.

Inside gross profit margins were 41%.

Grocery and other merchandise margins were 33%, which is in line with the prior year.

Prepared food and fountain margins were a touch above 60% a decline of approximately 80 basis points from the prior year while.

While the margin decline of smaller versus the prior year than what we experienced in the first quarter. We continued to be pressured due to adverse mix in extra waste in this segment more than other areas of the business.

The company had 70% of cheese usage locked at $1.98 per pound the wholesale cheese costs rose considerably throughout the second quarter, causing the final total average cheese cost for the quarter to be $2 at 18 cents per pound, which is even with the prior year's second quarter.

As a reminder, our chief lock end at the end of December that we will be opportunistic buying forward the favorable market conditions allow.

Total operating expenses were up 10% to $410 million. There are several factors driving this increase from.

First the increase from operating 38, or 2% more stores than a year ago is $9 million.

We also incurred $9 million and incremental incentive compensation due to the company's strong performance. This increase is driven both by short term incentive plans at both the store and corporate level along with the accounting for previously granted long term performance based equity compensation.

We also incurred $1 million in expenses related to the Buchanan at energy acquisition, as well as $5 million and co good related expenses, such as cleaning and sick pay.

We are committed to taking care of our team members and guests. During these extraordinary times and calendar year to date, we have made $32 million and investments related to coated and necessary safety measures.

While we finished the quarter down 2% in same store labor hours, our same store operating expenses dollar increase was closer to 4% at.

As we communicated previously we plan to at labor to the stores as traffic recovered.

However, we have experienced incremental staffing challenges with respect to co. Good related quarantines and that is driving additional overtime further.

Furthermore, the July minimum wage increase in Illinois fully impacted our wage structure in the quarter.

We will continue to be diligent in monitoring our labor hours at the stores and Rightsizing store hours vis-a-vis traffic patterns, but we do expect to incur additional kobin related costs in the third quarter that will likely land between Q1, and Q twos levels of spending.

Interest expense was down 16% to $10.6 million due primarily to the refinancing of the senior notes that was completed in August.

The effective tax rate for the quarter was approximately 24% comparable to the prior year.

We believe we will finish the year within the TR between 24 at 26% and this is inclusive of the impact that we expect from closing the Buchanan energy acquisition.

Net income increased nearly 37% to $112 million adjusted EBITDA for the quarter was $223 million compared to $184 million, a year ago and increase of 21%.

Our balance sheet continues to be strong and has further benefit in the quarter benefited in the quarter from the refinancing.

We have ample financial flexibility available to us both to absorb the Buchanan energy transaction and the pursue our longer term strategic objectives.

At October 31, cash and cash equivalents were $405 million and we have the full undrawn capacity of our $325 million in lines of credit.

Our leverage ratio stands at approximately 1.9 times and we have no maturities of significance due until 2025.

At the December quarterly meeting the board of directors voted to increase the dividend, 6% to 34 cents per share.

The company generated $86 million in free cash flow in the second quarter, which we define as cash flow from operating activities of $200 million less purchases of property and equipment of $114 million.

This compares to negative $8 million in the prior year end was driven by higher earnings favorable working capital performance and lower capital spending.

Capital expenditures were down $27 million from the second quarter, a year ago, primarily due to co bid related delays in construction projects.

The company has opened 15 stores so far this year.

Our new store pipeline includes 77 sites of which 23 are under construction.

We also have four acquisition stores under agreement. In addition to the Beacon of energy transaction and we continue to believe we will finish the year with approximately 40 newly constructed stores.

While we are not providing earnings guidance for the fiscal year, given the ongoing uncertainty around consumer behavior and traffic volumes from COVID-19. There are a few modeling guidelines that we can provide for the impact of the Buchanan energy transaction, which we continue to expect to close by the end of the calendar year.

We expect to incur approximately $10 million in closing related costs at our third quarter, and that's primarily advisory and legal fees. We also continue to anticipate a one time non cash tax expense of $6 million to $7 million thats associated with the revaluation of our deferred taxes.

Hi abilities on closing due to a change in the state income tax the portion that.

Over the next several quarters, we expect to incur an additional $7 million to $10 million and integration related costs. We expect the transaction will be EBITDA accretive to us in the fourth quarter of this fiscal year and EPS accretive in our fiscal 2022.

We continue to expect to realize $23 million in the synergies by the third year on top of the $47 million in acquired LTM EBITDA.

As for the financing of the transaction, we anticipate using approximately $250 million to $300 million in cash on hand, raising at approximate $250 million five year term at.

Taking a temporary draw on our revolver for the remainder of the purchase price.

As a result, we expect interest expense for the remainder of our fiscal year to be between 25% to $27 million debt to EBITDA is expected to be 2.3 times at closing still leaving us with ample liquidity.

Finally, I would like to remind you the seasonally at the third quarter is free cash flow negative for the company and this year should be no different given the timing of our capital expenditures I'll now turn the call back over to the Aaron Thanks, Steve.

I'm very happy with the performance of the company throughout the second quarter although.

Although we remain very confident in our long term plan, we're cautious in our outlook over the winter months.

While the developing news around vaccine progress should give all of us cause for optimism. The reality today is co. The cases of search throughout the Midwest.

The should also be no surprise at the CDC recommendations on limiting holiday travel at large gatherings the movement of schools the virtual instruction.

And tighter restrictions on many social activities at the.

Started to again take a toll on guest traffic.

Reported today year over year same store fuel gallons sold are trending down mid teens, the weakening from our second quarter averages.

The fuel margins remain higher than historical averages in our approximately 30 cents per gallon currently.

Inside sales quarter to date are positive in the low single digits somewhere between our first quarter and second quarter experience.

Prepared food remains pressured and is trending down mid single digits. So far this quarter gross.

Grocery and other merchandise is trending positive mid single digits led by strong tobacco and alcohol sales and continued momentum behind our various merchandising initiatives.

We finished the quarter with food restrictions in place at 120 stores and given the recent surge in cases that is possible restrictions may increase.

Even though the business is seeing a softening of the pace of the recovery. We saw in the summer months I'm still pleased with the progress on our long term strategic plan.

We refer to one of the strategic pillars of the plan is being where the guest is the primary objective of this pillar is to accelerate our store growth specifically, adding 345 stores over the next three years. This goal received the significant boost after we disclose our plan to acquire Buchanan energy. The 94 store chain loaded created here in the middle.

West.

The stores known as bikinis are a perfect strategic fit for Caseys, they're located primarily in Nebraska, and Illinois and are situated end markets that we find very attractive the.

The budget team has done an outstanding job locating the stores and busy corners, and they do many things well operationally.

The stores are high volume sites, averaging more than double our fuel volume while the inside sales are in line with an average caseys we.

We believe our pizza will thrive at their stores per.

Prepared food is currently only 7% of their inside sales compared to our mix of 31%. So theres tremendous opportunity here to grow that portion of their business.

We believe our scale and distribution capabilities can also bring significant margin synergies to the business.

In addition to the 94 retail stores the company currently support the dealer network of 79 stores the.

The stores are run by independent operators in our supply fuel by Buchanan energy via long term fuel supply agreements I'm personally very excited to have this new capability here of cases as it gives us greater flexibility with future acquisitions.

Seeing this work successfully first hand in the plays well with our strategic objective to accelerate M&A.

The purchase price net of tax benefits is $500 million, which represents of 10.6 times EBITDA multiple we expect to realize approximately 23 million in synergies from the transaction by the third year as well as $3 million from newly opened stores that are not included in their current financial performance.

All of this will result in the 6.8 times multiple of EBITDA with fully realized run rate synergies of price of will allow us to quickly create value for caseys shareholders.

Our balance sheet will remain strong post close which will enable us to continue to execute on our strategic plan to accelerate further unit growth.

With respect to the guest experience, we continue to see momentum with our digital engagement. Our Caseys rewards program recently surpassed 3 million enrolled members of 17% increase throughout the quarter.

The program is effectively supported our private label launch of two liter and 20 on soft drinks the special offers and promotions the.

The program also recently tested guests segmented campaigns using specific packaged beverage data as well as promotions to encourage revisits to the store will.

We will continue to increase personalization as we grow our guest database.

Our jordache partnership continues to perform.

Performed well and we believe we are reaching a new guest base, 59% of the orders for the quarter were submitted outside of our own standard delivery hours of four to nine pm.

We're also in the early stages of piloting a partnership with overeating.

Our curbside pickup option has also been well received and is currently in place at all locations.

We believe both capabilities will help us navigate through any potential challenges posed by resurgence income at this winter.

Our private label program is picking up momentum.

We launched 29, new items through the end of the second quarter. We have plans at 50 items through the third quarter in a variety of categories from packaged beverages to package bakery and snacks.

We have nearly achieved our fiscal 21 goal of 2% penetration already and think we have over 150 skus by the end of the fiscal year.

In closing I, just want to pass on my appreciation to the entire Caseys team for continuing to execute our long term strategic plan and delivering fantastic second quarter results. We will now take your questions.

Thank you as a reminder, we ask the little please ask one question on the one follow up question if needed.

Ask the question you wanted the press star one on your telephone so one of which all your questions at the banking. Please stand by we'll welcome Bob the culinary roster.

Our first question comes from the line of Karen short from Barclays. Your line of now from Hi.

Hi, Thanks very much.

I just wanted to ask.

Talk a little bit about operating expense growth.

Gross profit dollar growth.

So when you back at the.

Covenants the dollar.

But the is it looks like the GAAP.

At this kind of on the slate.

4% of between the two so I just wondering if that's the right way to think about the GAAP kind of given the current environment and then wondering if you could just talk a little bit of at how you're thinking about.

Bonuses going forward or how we should think about it. It was this 9 million I would like to true up.

Given the results from the first half.

Little color, there and then I hadn't from.

Separate question.

Hey, good morning, carrying the Steve I'll start with that.

I think the easiest way on the Opex side as you know when we increase year over year was about $37 million in terms of total total dollars and when you carve out the new stores, the incentive comp true up which I'll come back to co bid and the Blackshirts spending it was about $13 million or so that rig.

Related to same store sales operations, which is roughly 4% of the.

Year over year increase the minimum wage change in Illinois, which just causes compression in our system, we don't pay a lot of minimum wage, but it it forces everything up was probably $2 million or so of that $13 million increase in so.

We do believe the.

It was the right thing for us to do to add hours back into the stores. We tried to be clear that that's we what we were going to do is traffic came back into the stores and there is no doubt that it continues to be a challenging environment for us in terms of just staffing stores because of coated really.

At quarter end teams when when we have an exposure in the store not only do we have to close the store to clean at that Weve in quarantine. The staff members that are working in that store, which creates overtime for everybody else and so thats going to continue going forward, but we certainly will be diligent around making sure our labor hours that were.

The using in the stores continues to the directionally be consistent with the traffic that we're seeing going through the stores and then on the incentive compensation, it's a little bit of a true up as well as reflective of current performance so of that $9 million increase half of it roughly.

Roughly relates to Truing up previously granted long term incentive performance shares. So those would of been from two one and two years ago and we did make a true of based on where those are currently trending the other half would be reflective of truing up the current year.

Our estimated bonus program for both the stores and the management team. So for the next two quarters I think we probably captured most of the long term equity true up realistically.

We probably will have incremental a little bit of incremental short term cost in each of the next few quarters, assuming performance continues to remain strong.

Okay. That's helpful. And then I was just wondering if you could give a little color on what you.

Moving on average ticket.

At the various buckets so in the store within our loyalty.

Endorsed at versus door at Ash versus just.

Purchasing free your at night.

Using jordache micro lift the grey and the any color you can give on those three of them.

Yes.

Yes, Hi, Karen this is Darin I guess I had I would just say more broadly what we saw in the quarter was about a 15% increase in average ticket overall.

And that was partially offset by reduction in guest traffic of around 10%.

Thank you. Our next question comes from the line of Ben Brownlow from Stephens, Inc. Your line is now open.

Hi, Thanks, Good morning, everybody Martin Martin men.

You've talked about the near term ebb and flow of of traffic and specific to prepare to the ebb and flow of there and the layering on of constriction, but I'm curious as we come out of kind of at in life returns to normal and you see traffic patterns come back to normal.

How do you think about using promotions to drive engagement and particularly if I could tie it into the comments that you made about cheese prices, which I think we look at both spot and futures markets on Cheez, it looks like Theres an opportunity to capture.

Another lock of a pretty attractive cheese prices, the how might that enable you to.

At the posture around promotions.

Well then.

Certainly is.

Things start to normalize again, which by the way Ed.

I'm not sure the we would expect to see.

Quote unquote normal coming back until probably mid next year next calendar year depends.

Depending on the distribution of of vaccine and so there's there's still a lot of uncertainty around that piece, but certainly VR will rewards program, we have the ability to target our promotional at activity a little more per.

Precisely that maybe we have in the past so we have some underperforming.

Underperforming day parts in particular in some categories and performed as well and so we would we would probably be looking to.

To enhance some promotional activity to to regenerate those categories.

With respect to the cheese Locke.

Yes, we do have an opportunity to at.

At some point, maybe lock in some more of of our cheese purchasing we're continuing to monitor the market for the the right opportunity to do that to the extent the Wi.

We save on cost of goods, we can we can make a decision as to whether we want to invest some of the savings and promotional activity or not.

I would say that that's that's probably less of a factor in our thinking at as opposed to thinking about where the guest is at any particular point in time of what we think is the right offer this is going to resonate with them.

Okay. Great. My second question is related to the store growth.

So the fact that.

The re acceleration of the store growth might be.

Congrats.

Return to normal dynamic of the operating landscape, but.

I think.

You highlighted what your store growth as expected to be for this year do you think in fiscal 22, you can get back to that historical organic and inorganic growth rate kind of exclusive of bucky than at Thats going to be a nice boost to your tier long term goal and we'll pull forward some of that long term goal.

But as it stands right now how are you thinking about the re acceleration of store count.

Yes at this point, we expect to be able to get back onto the the cadence that we were.

The we had originally planned on the real.

The real long pull on the 10 on this has just been a general slowdown in.

Municipalities being able to work through the permitting process and then.

Part and parcel with that is some of the trades in contractors, where they've made experience of.

From Covance related challenges, so thats been a bit of the slowdown we expect the once we get past all of that.

We should be able to resume back to normal it really hasn't been an internal capacity issue on our end so.

Once we once we think are once the environment returns normal we expect to be back on track, Yes, I would I would add to that then I think by the time, we exit this fiscal year, our actual run rate of stores that were constructing will be will look very consistent with with what we talked about earlier and what our historical.

Track record has been.

Thank you. Our next question comes from the line of Bobby Burleson from Raymond James Your line is now open.

Good morning, everybody. Thanks for Tomorrow formatting.

I guess I want of all backup on the Opex side of things as we're getting questions about that this morning, but when you. When you think out further we get back at a more normalized world where the the businesses are comping as you'd expect them to.

How are you guys thinking about opex growth either in relation to the new store growth or some type of relation to.

Gross profit growth or or inflation is there is there some benchmark that you're going to be targeting against that we should think about to grade the business on.

Yes, I'll start with up obviously, when we go back and look at the historical what's happened in the past from an Opex growth standpoint, we've tended on a same store basis to be adding 2% to 4% of.

Opex growth.

Kind of quarter to quarter on on the same store as we've been building out.

The footprint on and I think our.

Expectation is that it certainly would not be radically different than that I would probably go back and take at one one level up the way we will most most effectively try to manage Opex. If you go back to the Investor day.

Communications at the company had we certainly be at expect to be able to be growing opex at a slower rate obviously than we're growing EBITDA over the medium term right, we should be getting benefits of of spreading the.

Operating expenses investments over the larger base and that should accrue to a slower or lower slope of of opex growth over that period of time. So we'll look to keep the whole thing in the medium term growing less than the EBITDA growth rate for sure and on the same store basis kind of quarter to quarter.

Or is that 2% to 4% is historically what that number has been at in the short term, that's probably a pretty good of pretty good rule of thumb to use.

It is it fair for us the viewed as as a function of inside store gross profit because just the issue when I go back to EBITDA at the fuel margins move around so much in the industry that when you look at in relation to EBITDA growth. The the fuel margins can change from kind of impact that analysis on at quarter to quarter basis is it fair to view at in relation to just.

Inside gross profit orders or is that not of a fair way to look at.

Bobby this the Darren.

Okay, I think thats, one way of looking at it.

Yes, that's going to vary with the number of factors right.

The the store operating hours are going to play a role.

Frankly, even with inside sales that can vary it if you think.

On one hand our.

Or.

Grocery and general merchandise categories are are performing very well and accelerating those are probably less labor intensive than our prepared foods business and so as the prepared foods business accelerates. The there may be some more labor applied there.

Of course that comes of more margin as well. So I think it's it's pretty dynamic, but what we did.

Yes at shared with the street on our Investor Day was keeping that opex percentage growth below the EBITDA growth and so that's really how we're looking at at this point.

Yes.

Thank you. Our next question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is now open.

Thank you good morning.

Hi, Bonnie.

Hi.

Hoping the here a little more color on the trends you're seeing during the.

Then Brian so far.

During December, especially given the spike in coal the cases that were seeing at increased Lockdowns you did mention some of the impact so far on your business, but the curious to hear any key differences during the slave maybe versus the.

The first wave maybe you could touch further on.

Any messages you Michael implementing to better handle the second wave I'm just thinking through the to you.

Got any learnings from the first wave and maybe why you will see better equipped thats time. Thanks.

Yes sure.

So certainly what we're seeing this go around isn't any end.

The anywhere near as challenging as what we experienced the first the first of all around part of it is just we're we're a custom the operating in this environment now the second piece is I think you.

Municipalities and states at generally Sean the the lockdown approach to things.

Whereas early on in the pandemic states were completely shutting things down and so I think what they're trying to do is the a little more thoughtful around what types of restrictions they put in place where theyre seeing outbreaks of cove, it and trying to address those areas specifically as opposed the locking everything down so.

That's more from a macro perspective and.

We have at a team that monitors the stuff every single day.

In terms of the various government regulations, I think thats. It thats one of the things of that where a lot of sharper on now than perhaps in the early days of the pandemic.

You know all of that being said what we saw in November the we talked about a little bit in in early on in December is that we are seeing some traffic start to slow a little bit it's not anywhere near what we experienced in.

Late fourth quarter, and early first quarter last year, but.

That has certainly started to soften a bit.

Our whole piece of business continues to perform very well at like it did before we're seeing alcohol and tobacco improve.

As a result of that as well but.

Overall the.

The mix of products and merchandise within the store is staying fairly consistent with what we've seen.

It's just on the on some reduced traffic.

Okay. Thanks, I'll stick with the one question and get back in queue. Thanks.

Thanks Bonnie.

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

Hey, good morning.

I wanted to sales.

Circle up on fuel margins.

Obviously, the have continued to be strong end, maybe above historical average.

Just wanted to ask about kind of the controllables.

Procurement pricing.

The competitive environment from a promotional standpoint, maybe just kind of speak to what you've you've seen.

And what you can stay from the outlook standpoint, thank you.

Yes, Thanks Paul.

I continue to believe that that our fuels team is really outperforming what we're seeing in the rest of the industry and when we look at the various benchmarks, whether it's from opus or we see others of results.

We tend to outperform on gallons, even though our gallons are negative and weve been outperforming our margin at the same time and so.

Even though we're all sort of experiencing an elevated margin environment in a softer gallons environment I.

I would say that our team is has done a better job of navigating that environment.

And in performing well so.

If we look in the future.

I've.

Made at a point not to try to crystal ball of fuel margins are going to be because of.

That tends to be of Fools errand, but what I will say is at.

I feel very confident that whatever environment, we're going to find ourselves in that our team is prepared to handle that and we'll we'll navigated appropriately and I think the evidence of the last six to nine months would will be the proof point of that so.

Whatever we end up seeing.

We will be able to deal with it.

No fair enough and then follow up is just regarding maybe any kind of learning.

That would be interesting the kind of share with the group regarding the.

The rewards program, obviously, you spoke to exceeding 3 million members of the digital sales are triple digits.

Just any other kind of the details.

The details and touch points there that you can offer from.

From this rollout.

Yes sure end.

Our caveat this by saying that so a lot of what we're learning I think is is really of accrues to the competitive advantage for us.

I don't want to share a whole lot but.

What I can tell you is a couple of things when we look at the mix of.

Of our rewards guest and their purchasing behavior.

One of the things we found the its interesting as it gets the income in the store also buy fuel and also make online purchases either through web or mobile app or only 16% of our total guest so when I look at that I said, there is a huge huge opportunity.

The for us to engage more of those guest at art, taking full advantage of the suite of opportunities to to buy all of our product. So.

When I think about our digital platform, our rewards platform and how we can engage our guests I think theres tremendous upside there and we're just now being able to have visibility to that type of opportunity.

The second thing as we've been digging into our.

Our prepared foods and the fountain performance, we were looking at rewards day day, and looking particularly on the dispensed beverage side of things and what we found is that.

We've seen our fountain gas that would normally buy found the preponderance of visits to the store and then.

Smaller portion of the time would buy bottle and can or packaged beverage we've seen that shift.

Over the last several months with the pandemic to where those guests are more inclined to buy packaged beverages and less inclined to buy fountain. So when we look at the performance between the two categories. We are seeing a shift towards at packaged beverage I think some of that is just.

Related to get comfort around a self serve dispensed beverage versus something thats already package in the bottle and or can so we are seeing some of that behavior shift. So it helps us gives us a little more comfort in terms of.

How the per the performance of that prepared food and fountain.

Businesses is performing so there's a couple of insights Paul.

Thank you. Our next question comes from the line of Kelly Bania from BMO. Your line is now open.

Hi, good morning, Thanks for taking the questions Marty.

I'm wondering if you could talk a little bit more detail about the the.

Good day part and the performance you talked a little bit about breakfast, but.

Maybe just can you remind us what.

What percentage of the mix for prepared foods, the breakfast is and what you're seeing in the other day parts and just.

[music].

What you can do the kind of manage that over the next couple of quarters.

Yes.

When we we look at these numbers they of all somewhat improved over the course of the pandemic but were.

Were down from a traffic standpoint in the morning day part of were down low double digits and then in the overnight day part as well, we're we're down about the mid teens. So the at lunch in early evening day, part or a little less affected from the traffic standpoint, and then the.

It is all all of stands to reason with more people working from home the schools being virtual and a lot of cases that the morning commuting traffic has just been off and we see that particularly reflected in our in our breakfast products our coffee in our in our bakery end donuts in particular.

Okay. That's that's helpful. At just I guess the follow up on the prepared food category.

Darren just any update on how you are feeling about the the.

The test for twice a week deliveries and maybe this is the.

The ideal environment to test at but just just curious how you envision that category longer term.

And your desire to kind of build out some of our capabilities and then fresher options inside the inside the store.

Yeah sure.

Yeah with respect of the twice a week delivery I think you'll recall, we had a 400 store test up and running when when cobot hit.

We put the brakes on that to allow things of settle and we have plans to re launch that end.

In early part of the the new calendar year, So, we'll get back up and running with that end.

And we'll see how that progresses.

But with respect to the prepared foods overall I think.

Our team is really starting to hit its stride from of product development standpoint, if you recall.

We brought on some new members to the team and the kind of hitting that five or six month Mark.

With respect of their time at Caseys and if you recall at Investor Day, we talked about when we when you develop a fully of.

That had a product pipeline takes about 18 months from from ideation to commercialization and so we're we're probably 11 10 or 11 months into that process and so the team.

It does have some innovation in the pipeline, we're working through the progression on that with our guests insights and invalidating things, but I'm very optimistic about.

The future and what the opportunities are that of the team are creating but.

The just going to take a little bit more time to get through the process.

Okay.

Thank you. Our next question comes from the line of Matt. This same from Jefferies. Your line is now open.

Hey, good morning, Thanks for the question Marty Good morning, Matt.

Following up on the at the digital sales trends, the new gas to reach and the overall digital opportunity just wondering if you're seeing anything that suggests digital trends may be stickier potentially more incremental than maybe was thought in January perhaps in terms of the prepared food business at where we are from Mike.

Mobile ordering as a percentage of revenue perspective or pick up first delivery potential incrementality from from grocery add ons.

Where do you think it could shake out looking ahead versus where the where you thought it could before the pandemic. Thanks.

Yes, Matt will certainly we think end we've seen that.

The the rewards members of our stickier guest so to speak they do have higher frequency than than we think GAAP.

Yes that are not on rewards and so we definitely see that upside there and we have the influence we have the ability to influence at behavior by connecting with them on the more individualized basis of personalized basis to influence at behavior.

With respect to the overall mix of digital it's still it's still a relatively small part of our overall business. Although it is of a higher percentage of our prepared foods business, which you would expect because of the preponderance of our our E commerce businesses and our our pizza at our whole pie business, but.

Like I mentioned earlier, the little bit more than 50% of.

Of our whole pizza orders are now coming in through some sort of digital means whether it's the app or of or the web site.

At anticipated that continues to grow as more and more people become aware of it we get more and more rewards members and we have more adoption and so.

We like that that the gives us the ability to capture more data and be able to influence more behavior.

Yes, thanks for that and I guess, just a follow up.

Obviously back in January fuel to tell us that digital would be as as as much of a percent of sales as it is right now we'd be all scratching our heads because the of the pandemic has has definitely pulled forward.

That significantly, but just compared to your expectations back in January are you are you surprised at how.

How well the at the company's capabilities are holding up against that demand does that give you incremental confidence going forward that perhaps digital can be a larger piece of the business than than previously thought.

Yes, I don't know that we're surprised has been able to help hold up I'd frankly, I'd be disappointed if it didnt hold up in this kind of environment. We've been we've been happy with it of Weve.

We have exceeded our initial targets in terms of rewards members enrolling in the program. So thats been good the downloaded the pandemic is necessarily encourage more people the enrolling in rewards I think that's been driven more by our our team and the marketing efforts around our rewards program and people have seen value at.

Net and.

The adopted at I think with respect to actually.

Taking more purchases the ecommerce I think yes, we have accelerated some of that but I think the guest experience in that digital space has been a positive one so I think people.

Art, we're kind of.

Nudge there.

As as the result of the pandemic, but now the experience has been good so that they are continuing to to leverage that tool. So.

I think it's the combination of getting a little bit of help.

From the the cobot environment, but then the rewards program and the digital platform itself.

In the mobile at being very user friendly and a good digital experience of kept people coming back.

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

Hi, good morning, and thank you for taking the question. So so at a question first the on the of fleet card program. So I think you said that the 11% of total volumes are coming from that.

Can you give us a sense as to whether the those customers are also.

Moving into your stores are you are you able to drive incremental traffic to the stores because of the fleet card program at is there any way you can quantify that please.

Yes, yes.

The this is Steve we havent quantified at per Se, but we certainly.

Do believe the if we get incremental commercial business coming to our sites primarily to the fuel with diesel products. The absolutely we're getting incremental visits inside the store from that right. Its we don't have a one to one ratio of people as the normal course, who cash.

The fuel up who go inside the store, but we certainly are trying to.

To link right. The the commercial program with enrolling people end, caseys rewards et cetera, and create benefit to the individual for them to come inside the store as well as the relationship with the organization. So we will continue to try to drive behavior to go into the store but of the gen.

No matter, yes, we get more people on the side, we're going to continue to drive more people through the end side of the store.

Got it thanks, and then as far as your same store sales. The is there any notable difference as far as your performance of for same store sales between your rural locations at more of the sort of suburban locations.

Yes listen.

As the general matter consistent with what we have seen really throughout the day endemic our rural locations have performed modestly better from the same store basis, whether that's inside the store.

The performance or fuel performance the rural rural spots.

Again, theres the scarcity value with many of those locations of generally performed a little bit better than than the urban ones and thats been a consistent theme really for from most of the calendar year.

Thank you.

Our next question comes from the line of Irene The Telcel RBC capital markets. Your line is now open.

Thanks, and good morning, everyone I, just want to look at them back.

Slide eight is from watching the whole question of fuel all end certainly understand that nobody has the crystal ball.

But what we've seen coming out of prior shocks to the system is kind of a permanent step.

Cash flow margins, that's kind of pretty consistent result, so.

Do you think at that at the combination SCR enhanced capabilities and what may yet chains to the may at become.

A higher interest rate.

Fuel margin.

How should we all the same taking about.

What that number looks like relative to the last three years because of course for investors that makes a very big difference in terms of what the perceptions around the sustainable earnings levels at Caseys.

Yeah, our interest as Darren.

I guess I would say if the if you took out Cove at just count. This this year so of of Covance through that out what you would've seen prior is of kind.

Kind of a slower steady increase in retail margins for fuel over the last several years and I think thats simply a function.

Of underlying cost pressures continuing to the effect of businesses end.

The large part because there's.

Such a large base of smaller independent less sophisticated operators out there. They don't have a lot of levers to pull in so the after rely on fuel margin to do that and thats naturally cause margins to inflate overtime I don't think that dynamic is going to change.

The the cost pressures are continuing you see that happening right now with the DMV as we as we move forward the AMG and so.

I think that the preponderance of the industry, we will continue to see higher margins.

That being said, yes.

Yes, the counterbalance there with.

A lot of larger players come.

Consolidating the industry and so over a longer period of time the LT.

The word larger players.

At some point may seek to do.

Maximize market share at GE expense of some margin. So it's it's a little bit difficult at forecast, but I would say any interest.

In the intermediate term.

Let's say that the the natural inclination of of.

Gradually increasing.

The increasing fuel margins is probably likely the process.

Now, where where that shakes out versus today's levels is a little difficult to the handicap.

Yes.

Thank you so much for that and then I just wanted to come back.

At the whole prepared food question, the and the new product launches and the insights at you're getting from the fed.

Yes, Sir your digital engagement and thinking even just from the current environment.

Terry short term people at going to be stuck at home over Christmas and things like that are you thinking about how the.

In the short end on short term until you get the asphalt pipeline.

Several product launches that can really just stimulate that the man got.

To bridge the gap.

Yes, certainly we're we're working on things that that we can do in the short term.

While we are building the capability for the long term some of that it tends to be a little more tactical and.

In nature, I don't want to get into the specifics of that for competitive reasons, but yes.

Yes, we are certainly not sitting.

Sitting on our heels waiting for the next six months the pass for the product pipeline the catch up.

So we're balancing folsom short term opportunities, while we're pursuing the long term.

The development pipeline.

Thank you. Our next question comes from the line of Brian Nick Ninlaro from Berenbaum Capital. Your line is now opened.

Good morning, Thank you for taking my question.

Brian.

I think Irene kind of at kind of the bulk of my question, but I was wondering if you could give us more color on how fuel margins continue to impact the M&A environment, particularly the the small tuck in variety as you had mentioned at has given a welcome the despite the some potential targets earlier this year at.

End, particularly I'm curious how how the duration of these abnormally high margins compares the kind of like what you hope you guys of expected internally as the years gone on thank you.

Yes.

With respect to the M&A environment, when Weve seen an experience is that.

The elevated fuel margins have.

Given some of the smaller operators of all that of an opportunity to.

Two of hang on all said I think of.

They are also beginning to realize that.

The pandemic is going to start from wind down of maybe the these margins are sustainable as as they would have liked at.

These at these levels, albeit the the probably end up at a higher price and where they started.

I think also what's factoring in the at the end of the the calendar year change in administration potential changes in tax laws. So theres a lot of things at play right now that the week.

We believe we will start to incurred some people that may be sitting on the sidelines.

For this calendar year to maybe think differently in the next calendar year. So we would expect some activity the pickup moving.

Moving forward.

And then just on the duration of of how long kind of the.

I think the the fuel margins continue to the surprise I'm, just curious kind of how it's.

Hi, this is landed relative to your expectations.

Yeah, well what.

Well, we experienced early on was.

That as traffic dropped.

The market kind of compensate for that with increased margins and so.

We would expect that.

I guess, we expected the margins do somewhat persist for as long as the pandemic impacts of the the impacts on trafficking gallons sold were going to persist now so.

So I don't think thats been the surprise at.

Im not sure the any of US had a real expectation about when the pandemic would with starts of side.

We certainly had forecasted internally that we expected the resurgence in the fall because thats, what we are hearing from.

The scientific community of that Thats, starting to play out so.

I'm not sure we had an expectation about when things would end the other than most of the vaccine was widely distributed that would take place side of thing now.

The best data, we have on that as at probably sometime mid.

Calendar at 21 is when things will start to maybe the look a little bit more normal.

Thank you. Our next question comes from the line of Chuck.

Darren Gough Kim from Northcoast Research. Your line is now open.

Good morning, everyone on price.

Sort of of the technical question in looking at the credit card fees.

They were about flat year over year in the second quarter, but the down significantly in the half and that implies of of course of.

The first quarter as well with what's going on there and what is the tell us about demand trends.

Yes, I think I don't think there is too much to read into it per se I mean, the quarter to quarter.

Sequential trend in credit card fees is to some extent going to be driven by the price of fuel right and what we're seeing in terms of the retail price of fuel and from a year over year standpoint.

We're always in the midst of various renegotiations with with financial institutions around some of the fees and so I don't think there is anything we would point to that theres been a substantive change in the way we're incurring for the way, we would expect to incur credit card fees over the medium term.

From the the price of fuel certainly drives the im quite a bit at any particular quarter.

Any any.

Hope that you can significantly influence credit card fees.

Through the negotiations.

Well, it's certainly something we're going to try to do over over the longer term. There is theres a lot of moving parts in those discussions and you know, it's always going to be a substantial piece of of expense for us, but it's big enough that we're going to remain diligent in terms of trying to manage it to the to the best.

The variability, but no we would certainly not.

Have any near term expectation of of change.

Changed directly because of the conversations we're having now because of just quite a long lead time for us to get the stuff through.

Through the pipe.

Thank you. Our next question comes from the line of John well Yao from JP Morgan. Your line is now from.

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

I'll just do one I know, we're kind of short on time. So appreciate the color earlier on the of the post bikinis.

Numbers I mean is there any view you can give us.

On what run rate capital spend levels might look going forward following the transactions just thinking about.

None of level of the 94, new stores and I know I think you discussed on the prior call of.

$50 million over three years to achieve synergies. The just trying to see where you think the kind of run rate level with which shakeout.

Yes, I'll start with at John So I think the the net the net investment back into the bucket of stores to get our kitchens in over the next couple of years of a 50 $50 million number thats still the that's a reasonable estimate based on.

The information we have our point of view has not changed as it relates to that at all I think from a run rate perspective, you know they're running.

The call it somewhere.

Six now out of it if I look at it from at DNA perspective, the probably the easiest way from me to describe the you know I would expect once we get through.

Intangible valuation associated with that transaction, we probably will incur somewhere in the neighborhood of about $20 million of incremental DNA from that deal right, we'll be depreciating their assets there will be a couple million dollars of additional.

Intangible amortization and the money that we put in probably $5 million to $6 million and so I think $20 million going forward for the first couple of years, all end would be reflective of the kind of the cost of of the capital investment that we will be receiving from that transaction.

Thank you at this time I am showing no further questions I would like to turn the call back over the Darrin rebels CEO for closing remarks.

Yes, Thank you and thanks for taking the time today of join US on the call I think the company is well positioned financially to take on whatever challenges and opportunities may come our way in the back half of this fiscal year. So.

We'll wrap it up for now and I hope everybody as I have the holiday.

Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.