Q4 2021 Caseys General Stores Inc Earnings Call
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Yeah.
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Ladies and gentlemen, and thank you for standing by and welcome to the Q4, FY 2020, 1 Casey's General stores earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session. It's the last question during the session would be the press star 1 on your telephone if you require any further assistance. Please press star zero I would now like to turn the call over to Brian Johnson Senior VP you may begin Sir.
Thank you and good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year and April 32.
At the 1 I'm, Brian Johnson, Senior Vice President Investor Relations and business development with me today is Darren Rubella is president and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer before we begin I'll remind you that certain statements made by us. During this investor call may constitute forward looking statements within the meaning of the private Securities Litigation reform.
100000 of 1995 of 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 of needs the company's supply chain business and integration strategies plans and synergies.
Operating.
Opportunities performance at our stores and they tend to the potential effects of COVID-19.
And 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 B can and energy acquisition.
Format, our ability to execute on our strategic plan or the realized benefits from the strategic plan and the impact of duration of COVID-19, and related governmental actions as well as other risks uncertainties and factors, which are described in our most recent annual report on form 10-K, and quarterly reports on form 10-Q as filed with the SEC and available.
<unk> on our website any forward looking statements made during this call reflect our current views as of today with respect of future events, and Casey's disclaims any intention or obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
Now I'd like to turn the call over to Darren.
And that's the fiscal year results Darren.
Thanks, Brian and good morning, everyone.
The past couple of months have you been like no other and that includes our standing financial results, which were pleased to share today.
Pages, 21, and fiscal year yielded the strongest results and a 53 year history and I'm humbled to be the 1 that gets.
And to the scope and we deliver this phenomenal performance with you today.
I wanted to begin my comments by personally and recognizing the over 40000 people that make our business go every day.
We cannot deliver on our purpose to make the lives of our guests and communities better every day without it.
And this past year of the team members reflected this passion and more than.
The share before and they remain dedicated to serving our guests and what was arguably the most challenging environment of our lifetimes.
We remain committed to the health and safety of our team members, who are on the frontline serving local communities and.
In addition to the many safety measures and incentive pay we provided throughout the pandemic.
Recently implemented.
And then Pat and wellness bonus for fully vaccinated team members and have seen encouraging results from this effort.
Beyond our team and the difficult school year wrapped up this spring Casey's cash for classrooms Grant program and that's the $1 billion contribution to support projects and local schools and our communities students.
Teachers and families have a brighter future thanks to the support of cases and our general guests.
Now, let's discuss the results of this past fiscal year.
And we finished fiscal 'twenty, 1 with an all time record diluted EPS of $8.38, a share and 18% increase from the prior year.
The company.
Implement and finish with an all time high adjusted EBITDA of 729 million.
This is a tremendous accomplishment considering the extreme environment. The company has navigated through since the start of the pandemic last March.
Fuel profitability was the primary driver is our centralized fueled team helped drive a gross profit increase of nearly.
And also the 4%.
While offsetting COVID-19 driven pressures on gallon sold we.
We finished the year down 8.1% and same store gallons sold with an all time high annual fuel margin of $34.9 per gallon.
Our merchandise team has to be just as agile as they were forced to react of constantly.
Early 'twenty.
Grab and go and single serve items will replace the larger pack sizes, and grocery and PPE as well as higher demand for beer and alcohol as people begin to consume more at home versus restaurants and bars.
For the year same store inside sales were up 4% led by a 6.6.
And get the same store increase and grocery and other merchandise.
Inside margin dipped slightly from the prior year to 40% due primarily to a mix shift of higher pack sizes and lower prepared food sales.
Fortunately, we're now seeing recovery and are prepared food and the fountain business as the world moves towards a normal traffic.
Patterns.
Guest traffic is rising and we're seeing a resurgence and pizza slices of dispense beverages and bakery as our guest returns of the normal daily routines the.
Fact that our prepared food business at such a large part of our base will create a tailwind after the pandemic the not so many of our peers will enjoy.
Traffic and addition to navigate through a global pandemic and delivering record financial results. The company also did a great job of executing on our long term strategic plan.
As a reminder of the 3 pillars of our strategic plan and are reinventing the guest experience, creating capacity through efficiencies and being where the guest is via disciplined store.
All 3 pillars of supported by an investment and our talent.
We've made a significant impact from the guest experience, particularly with respect to the digital engagement.
Our <unk> rewards program launched just prior to the pandemic now includes more than $3.6 million members and continues to grow.
The growth, we now have over 700 stores and all of our door Dash delivery service and we just recently launched Uber eats and another 700 stores.
Finally, our private label initiative is off to a great start capitalizing on the brand equity we've built up for over 50 years.
We've recently eclipsed 3% of grocery grocery and other merchandise.
And so significantly outperforming our goal of 2% for fiscal 'twenty 1.
This past year, we stood at several capabilities that will help our company operate more efficiently.
Our third distribution center and Joplin, Missouri has now opened and operating servicing over 600 stores and expected to reduce miles driven by.
And I suddenly $1.8 million miles per year.
Our newly formed and centralized procurement team more effectively leverages, our company scale and utilizes contemporary strategic sourcing tactics to drive savings.
We now have a dedicated asset protection team that provides the loss prevention and support throughout the entire organization.
The final.
And the proxy are centralized fuel team continues to deliver great results our.
Our performance excel relative to the industry volume and profitability and our geography during extremely volatile time.
And we continue to see tremendous growth opportunities and our business and remain bullish on our commitment at 345.
The stores over the next 3 years, we're well on our way as we just recently closed and the largest acquisition and our company's history.
The beginning of energy transaction is a perfect strategic fit and will pair our outstanding Pizza program with a well located high volume stores.
We expect the circle K acquisition and Oklahoma to be completed.
And finally closed rather by the end of June.
We also built 40, new stores in fiscal 'twenty, 1 despite pandemic delays.
Our 2 pronged balanced approach to store growth, the organic sales and acquisitions and enables us to be selective and disciplined which we believe is the most effective way to drive shareholder value and generate accretive.
Creative EBITDA and returns on capital investment.
We've also made great strides this year and building out of the capability and diversity of our leadership team.
Some of these new capabilities include technology procurement human resources guest insights and asset protection of.
Leadership team is an effective blend.
The fresh outside perspective, alongside veteran and Casey's leadership.
This mix of talent has been critical for us to execute on the strategic plan during these unprecedented times.
And now I'd like to turn the call over to Steve Bramlage to cover the fourth quarter and more detail Steve.
Thanks, Darren and good morning.
And pleased to be able to share and report.
And some remarkable performance with you today as I Mark My first year with the company.
Our team deserves all the credit and we could not be prouder of the dedication and the agility that they've exhibited at this past year.
The fourth quarter was really a tale of 2 quarters sales and the first half were muted by extremely cold weather throughout most of February.
And the same store comparisons were challenging given the company's strong performance last year right before COVID-19 showed up.
As anticipated our same store sales comps then came roaring back once we began lapsing of the shutdowns from the pandemic.
Please note that the prior year had an extra day due to leap year, but given the size of.
Of the pandemic impact is not material to year over year comparisons.
Total revenue for the quarter was $2.4 billion, which is an increase of $565 million or 31% from the prior year. This was due to an increase and retail sales of fuel of approximately $445 million.
By and increase in the number of gallons sold and the higher retail price of fuel along with an increase and inside sales of $115 million.
Same store fuel gallons sold were up 6.4% compared to the same period a year ago total gallons sold were up 10%.
Driven to 535 million gallons or centralized fuel team continues to successfully balance volume and margin as we aim to grow gross profit dollars Kc's fourth quarter of fuel margin was 33 per gallon versus <unk> 41 per gallon and the prior year.
At the company and did not sell any range during the quarter the.
The average retail price of fuel during this period was $2.70 a gallon compared to $2 <unk> a year ago.
Same store inside sales were up 12, 8% for the quarter as guest traffic counts improved compared to the start.
And then Mick total.
Total inside sales rose 14, 4% to $913 million.
For some additional context, our 2 year stacked fourth quarter same store inside sales growth of 7.2%.
Inside margin rose 100 basis points to 30.
Out of the <unk>, 9%.
Leading the increase in the quarter was prepared food and fountain with fourth quarter same store sales up 13, 4% and grab and go items, such as pizza slices dispense beverages, and bakery rebounded and the fourth quarter as commute to began to return to more normal patterns relative.
<unk> to this time of year ago.
Total prepared food and fountain and sales were up 14, 7% to $264 million with an average margin of 61%.
Grocery and other merchandise same store sales were up 12, 5% for the quarter total grocery and other merchandise.
<unk> sales were up 14, 4% to $650 million or store resets completed and the third quarter are serving us well packaged beverage items, such as sports drinks energy drinks and bottle of water are performing well along with snack items, such as the chips and meat snacks and candy.
The higher volumes of favorable mix, our strategic sourcing initiatives, along with the increased penetration of private brands, which are now over 3% of the grocery and other merchandise category helped to improve margin to 31, 8% for the fourth quarter, which is an improvement of 140 basis points.
Casey said gross profit, which we define as revenue less cost of goods sold but excluding depreciation and amortization of $561 million and the fourth quarter, which is an increase of $36 million from prior year. This is primarily attributable to higher inside gross profit.
Points of $54 million, which was offset by a decline of $22 million of fuel gross profit.
Total operating expenses were up 16% or $59 million to $426 million.
Store level operating expenses, which include things such.
And as labor maintenance advertising and insurance.
We're up $23 million due to the fact the stores were largely opened at traditional operating hours versus the reduced opened times during the pandemic last year.
The increase from operating 36, more stores or about 2% more units and a year ago.
At $7 million the company also incurred $8 million and incremental long term and short term incentive compensation costs due to strong financial performance and $8 million of increased credit card fees due to higher sales volume and an increase and the retail price of fuel and finally.
Finally, the company incurred an additional $5 million and impairment charges related to equipment upgrades and ENV retrofit compliance costs and.
<unk> expense was down 19% to $11.9 million due primarily to refinancing senior notes that were completed in August.
The company also drew $100 million on the line of credit entering the prior year fourth quarter as a precautionary measure at the start of the pandemic, which has obviously been repaid.
The effective tax rate for the quarter was 22, 2% compared to 21% for the prior year due to the reduction and favorable.
Permanent differences offset by a decrease and state tax expense net.
Net income decreased 32, 8% to $41.7 million adjusted EBITDA for the quarter was $146 million compared to $159 million a year ago and that's.
And we'll kind of 11, 6%.
The decline and both earnings and adjusted EBITDA in the quarter was largely due to the outsized fuel margin a year ago that was brought on by a significant reduction and the wholesale price of fuel due to both excess supply and the demand shock from COVID-19.
Our balance sheet remains very healthy our financial flexibility is excellent and we have no material debt maturities coming due until 2025 and.
At April 30, cash and cash equivalents were $337 million and our available liquidity was over $800 million.
The Buchanan and energy acquisition.
The decline closed on May 13th and that was funded with cash on hand, as well as a 300 million dollar bank term loan that matures in January of 2026.
At the June quarterly meeting the board of directors voted to pay a dividend and the amount of <unk> 34 per share.
The company had negative free.
The flow of $37 million and the fourth quarter, and we define that cash flow from as cash flow from operating activities of $141 million less purchases of property and equipment of $178 million. This compares to positive $30 million and the prior year and the difference.
And was driven by the timing of our capital spending primarily new store construction as the company ramped up construction operations throughout the fiscal year. After pausing most activity at the start of the pandemic are.
Our record year to date free cash flow of $363 million continue.
The cash favorably impacted by higher earnings and strong working capital performance due to proactive efforts to extend our payment terms and increase in fuel prices and the deferral of FICA payments under the cares Act.
The company opened 40, new to industry stores this year and completed the acquisition of 5 additional.
To be doors.
And while the pace of the economic recovery post the pandemic makes it difficult to forecast. The next fiscal year. We can provide some modeling information based on what we know right now.
We currently expect full year same store sales for both fuel and inside sales to increase.
<unk> had single digit percentages.
Total operating expenses are expected to increase in the mid teen percentages and Thats, primarily driven by the fact, we will operate approximately 200 more stores during fiscal 2022, that's a 9% increase and our units as.
And by most of additional hours of labor and other operating costs associated with maintaining pre COVID-19 hours of operations and higher rates of pay that we are experiencing across our entire footprint.
These will be partially offset by lower incentive compensation accruals and COVID-19 related spending.
As well, Ken and W. Can and energy acquisition is expected to add approximately $45 million of EBITDA and fiscal 'twenty 2.
The acquisition is expected to be accretive to earnings for the fiscal year, but it will be dilutive and the first quarter as we incur approximately $11 million and onetime acquisition.
And in closing related costs.
The company also expects to incur $4 million to $6 million and non cash tax charges associated with revaluing, our existing deferred tax liabilities upon closing as the apportionment of our state tax profitability will change.
The acquisition is expected to add Approx.
Proximately 200 million retail gallons and $150 million of inside sales before any synergies and.
And please keep in mind. These sales estimates are not included in the same store sales outlook mentioned earlier.
Depreciation and amortization expense is expected to be approximately 3.
$300 million for the year and that includes the Joplin distribution center being placed into service as well as approximately $14 million at the Buchanan and energy transaction, including purchase price amortization.
Annual interest expense should be approximately $50 million and the effective tax rate should be around 26.
And 6% and that's inclusive of the discrete charge and the first quarter.
The company expects to invest approximately $500 million from the purchase of property and equipment.
This amount excludes purchase price for acquisitions, but it does include the capital spent on acquisition remodel projects for.
Both the Buchanan energy and circle K acquisitions.
Looking specifically to the first quarter, we expect Q1 year over year earnings to be lower due to unfavorable fuel margin comparisons higher operating expenses as well as the closing costs related to Buchanan and energy our same store volumes.
Our fuel gallons and inside sales and the quarter will likely finish up and the high single digits and we're currently experiencing fuel margins and the low 30 range with that I'll turn the call back over to Darren.
Thanks, Steve first I'd like to congratulate the entire team the team again for delivering a record year.
<unk> from the results.
Casey's is well positioned and not just compete but the win and accelerate our growth y.
Because of our business model is uniquely positioned to take advantage of this moment given our strategic plan.
And and prices typically the momentum ahead for our differentiated food business, our recent M&A milestones and the strength of our balance sheet.
I couldnt be more excited about the opportunities at waste cases, this coming fiscal year.
We're seeing positive momentum for our prepared food items from pizza to bakery and.
Beverages, we expect that trend to continue.
Culinary innovation within our prepared food and fountain category will also drive results and fiscal 'twenty 2 and.
In April we rolled out of new made from scratch cheesy bread stick product thats been a big hit with our guests.
It's particularly exciting about this product that leverages our made from.
Scratch pizza dough, and we've been using all of our pizza for many years.
Or does the key differentiator from our competitors and we will leverage this strength the springboard other innovation and the not so distant future.
In addition to elevating our food offerings the stores I've never been more guests ready and merchandise and to deliver product sales volume.
<unk> and velocity.
Resetting our stores as of resulted in our in store experience working even harder for US just in time for peak summer traffic.
A key component of that reset was the optimize the placement of our private label products.
We have already become the number 1 brand for packaged bakery meat snacks as well as in essence fees of the.
At the store.
Looking ahead, we plan to double the number of Skus offered under the Casey's brand to keep the momentum rolling of this initiative.
We're listening to and building deeper relationships with our guests to better serve them.
Through a new more robust guest insights and analytics capability, we're growing our knowledge and.
And many of our guests and will have greater visibility into our customers' preferences and needs than ever before.
With over $3.6 million and Casey's rewards members, we have a captive audience that will enable us to target and effectively communicate promotions that can influence guest behavior.
Casey's rewards members spend more per.
Action and the typical guest.
Also get to actively ravine redeemed promotional offers shop with significantly higher frequencies and those who don't you.
Using loyalty program data allows us the taylors segment of campaigns of our guests that will be even more effective.
Finally, given our strong balance.
<unk> sheet recently completed Joplin distribution center and macroeconomic pressures of smaller operators may have difficulty navigating through I'm very bullish on our ability to grow our store count.
Our dedicated M&A team is making considerable outreach and given the likely changing tax environment, the timing might be right for those operators.
Later as the exit the industry.
And we'll be ready to do a system of the when the time is right the transition their business and we believe we are excellent stewards of the businesses as we add our prepared foods to their stores.
In closing as you can see I'm very proud of our team's performance and remain extremely optimistic for our company the immediate and long term future.
Of.
Of course, none of this would be possible without our 40000 team members who are out there working extremely hard every day to serve our guests and to each other and the communities.
Thank you for all of you do for cases will now take your questions.
Ladies and gentlemen of your question or comment at this time. Please press the Star then the 1 key.
On your Touchtone telephone if your question has been answered the question of move yourself from the queue. Please press the pound key and we also ask that you limit yourself to 1 question and 1 follow up our first question comes from Karen short with Barclays.
And housekeeping and I, just kind of clarify in terms of your of Claire to date and commentary and gallon.
And then store comps is that and just to clarify at that way and trending today.
And then I had a bigger picture question.
Right.
So that's where we expect to land for the entire quarter, we're actually a little ahead of that quarter to date today and that's a function of just the timing and the prior year.
<unk> of the shutdowns and the reopening so the shutdowns were more significant at the beginning of the first quarter last year, and it's a little easier comp. So that that number that we gave is where we expect to land for the first quarter.
Okay.
And then so I guess I just wanted to talk a little bit about Europe.
Mid teen commentary on Opex. So obviously, you pointed out and I'm, assuming and rank order what the contributing factors are on the mid teen guidance for growth, but I guess, you know obviously, you have and algorithm of EBITDA of 8% to 10% growth and with this comp guidance and you're.
Opex guidance, we're getting to kind of mid single digit high single digit decline and EBITDA for the year. So wondering if you could kind of parse that out a little bit more because it doesn't seem like you should be getting higher sales growth I guess for the opex that you're guiding to.
I'll, maybe start with that.
A couple of things embedded in their care and so the easiest way of do Opex first the easiest way for me to think about.
The components of the Opex is we're going to get the 9% more units coming in with at approximately 200 stores and 75% of those units are going to come in.
And essentially now and we've already closed Buchanan and we're closing circle K. This month, so thats coming in and the early first quarter essentially fully loaded and so that's a big component of.
Of that increase and so of that.
If youre doing a little bit of averaging on the rest of the units and 7.7%.
And 9% of the increase is just the timing of the new units come in and coming in and at leisure.
Some of our 7% to 8% for the rest of the Opex on what we would call the mothership and if you go back to the fact, we will definitely have more hours and the system because of the way we are scheduling this year versus COVID-19.
And you've got rising wages, you actually you have opex going up somewhere in that mid to low high single digit number.
Is not terribly far off from where our medium term algorithm would have us to be and and we have not obviously made any comments specifically around EBITDA.
Expectations clearly the acquisitions.
And our bringing Inc.
Incremental EBITDA associated with them, but our commitment to that.
8% to 10% EBITDA growth over the medium term as we are fully aligned behind that I think we feel very very good about our ability to achieve that we just happened.
Out of a pretty big slug of acquisition related.
Operating expense coming into the system all at the same time and this fiscal year.
Okay, but just to clarify and the wages I think you typically talked about kind of 5% being the standard pressure.
Year on year out is that of.
And to change and to this year or is that still the right kind of the number to think about.
And I think we will have higher than that this year I think we're currently running of.
About 100 basis points or so higher than that number with our current forecast we are dealing with the same dynamic that youre reading about and the paper for all retailers.
And there is clearly labor pressure in terms of both availability and wage rates and the system. So that would be reflective of what we know today and I think at the touch higher than what we've had and the last year or 2 for sure.
Okay, Thanks, very much and I'll get back in the queue.
Yes.
Our next question comes from Bonnie Herzog with Goldman Sachs.
<unk>.
Thank you good morning, everyone I.
I guess I and I.
I had a question. This morning on your prepared food same store sales at ended up much stronger and the quarter. Then it was trending early on where I think your trends were actually negative. So could you share how each of the months and the quarter maybe for US we're trending at.
And really when things turn positive, resulting in sales being up 13, 4% and the.
And if you could provide how this business has been trending so far and May and early June and I think that would be really helpful. And curious also to hear how consumer behavior has evolved.
And the last couple of months, especially with vaccine counts increasing.
Has conversion and increasing a lot and what about basket sizes and maybe some comments on shopping hours. Thank you.
Yes, Bobby this is Darren.
I guess trends throughout the quarter, if you recall.
And our March call, we were just coming out of February and February we had some really adverse weather.
Situations and throughout the Midwest and so.
And that kind of compounded by the fact, we're cycling over a really strong prepared foods performance the prior year and.
And so we were a little bit depressed on.
The food's going into that call.
Of course right. After that we took the the back half of March and all of April we're cycling over the shutdowns from Covid, so things materially shifted and accelerated.
That was also helped to a certain extent by the fact that things were starting to reopen a little bit.
And and relax so we saw great momentum in the prepared foods business and we continue to see that momentum.
Moving forward and so what we're seeing from a consumer behavior standpoint.
Is.
Is the morning day part of starting to recover a bit we're not all of the way back.
2 to pre COVID-19 levels, but.
If you if you look at our traffic patterns, we have add some significant improvement and the morning day, part and and the overnight day part, which affects the the breakfast category as well.
People are starting to go back to work we are now in the summer so of course.
Schools are out so we don't think that that full recovery and the morning day part is really going to kick in until the fall when school is back in session.
At the moment, we are experiencing some nice increases and prepared foods and we expect that momentum to continue throughout the summer.
Okay. Thank you.
Our next question comes from Bobby Griffin with Raymond James.
Good morning, and Bobby Thank you for taking my questions.
1 quick housekeeping I wanted to check on the Opex does the mid teens commentary for FY 'twenty to include the $11 million of acquisition costs.
Yes, it's full of fully loaded number yes.
Okay, and then are you going at 1 time out of that cost or should we include that in when we arrive and everything is going be on a GAAP basis, just wanted to make sure we get the model of apples to apples and the first quarter.
We will continue to report on a GAAP basis, and just quantify the impact of all of the transaction related activity.
Perfect and I appreciate the detail and then I guess bigger picture of kind of wise from me just diving into the fuel margin a little bit.
Fourth quarter, and our ROE I believe of pretty material outperformance versus the versus the industry as well as you know and you had a rising crude environment as well going on this quarter. So just curious when you. When you look at that is do you believe that's still.
And 1 of a function of the port of <unk> co.
Covid environment or at this point is the outperformance is really a function of all of the work the field team's been doing on sourcing and pricing.
And that type of outperformance could be somewhat sustainable going forward.
Yes, Bobby this is Darren I would say at.
It's a combination of both of those things and certainly our field team has done a fantastic job of navigating this environment and at such a challenging environment to say the least but.
We still are executing on pricing very well.
And the team is doing a great job there and then all of the procurement.
Some side, we're at 75% of our fuel volume under contract at this point and.
We have opportunities to continue to.
To refresh and renew some of those those contracts and we think we have some favorability there as well but.
And I'd have to say.
At this point.
Chairman and I think which is where youre going.
After a year of these kind of margins and I have to believe that the pressures on smaller operators are not going away and we just talked about labor pressures, that's certainly coming the AMD liability shifts just occurred that's happening credit card.
And at a rising those are all pressures that smaller operators simply don't have a lot of levers to mitigate and so they're forced into taking that and.
And and fuel pricing and that's constructive at the margins for the industry. So.
I've said, all along I think that.
Feasibly won't continue to stay at this level of margin, but I don't think we're going back to pre COVID-19 levels of margin either there'll be somewhere in between there.
But as long as these challenges and the industry persist I think we're going to see that reflected and and more elevated fuel margins.
Okay, Great and I guess lastly.
We've talked with on prepared food great to see the sales trends really start to pick up.
As we start to lap these comparisons and the country reopens just the.
The pathway back to kind of the 62% gross margin range at that business was and before Covid at that all just a function of volume or given some of the inputs is at pricing and mix of business like anything.
And for me really just to help us think about how we can return back to that pre COVID-19.
Gross margin range.
Yes, I think Theres a theres a couple of things are certainly velocity helps the margins is the write offs as a percentage of of the sales volume decrease so certainly that's a component.
Anything that.
There's a mix component as well, where the breakfast day part and tends to be a little bit higher margin, but we're losing but we're not losing but were.
We haven't completely regained the velocity and the morning day part that we had once before so.
Still working on that but.
And then there were assessing whether we have.
Retail pricing opportunities as well, but we think all of that is.
Part of the equation to getting those margins back.
Back to more historic levels.
And.
Thank you. Our next question comes from Ben day ever knew of Stephens.
Yeah.
Hey, Thanks, good morning, guys.
Morning, Good morning, I wanted to piggyback on karen's questions about Opex.
You stated your commitment to the long term EBITDA growth algorithm I'm.
And I'm curious you've I think within that you've targeted at high single digit opex growth.
As a component of the EBITDA.
And if we continue to see and inflationary wage environment would you expect that level to be higher and would that potentially and apparel your ability to deliver the the EBITDA growth.
And that you would like to.
And and then I'm also curious.
And as you think about the variability on.
And the Opex this year.
If you deliver upside growth to your same.
Same store sales would you expect your opex growth to accelerate as well or could we get a little bit better leverage on that of your same store sales growth accelerates more than you expect.
Yes. Good morning, Ben This is Steve I'll start and maybe you can handle the first.
Question first of we're not walking away from our algorithm commitment at all I think we feel very good about our ability to continue to generate EBITDA consistently over the medium term and long term and that 8.8% to 10%.
CAGR range, if we feel good about that I mean to the extent.
There is incremental.
Sure and the system and for sure that there is right. We will go back to what Darin talked about before what would you expect us to do right. We have a lot of tools given our scale to how do we counteract that we can we will schedule of smarter. We will obviously look for ways to automate more within the store environment. There are.
Pricing levers at certain price points available for us to take and and so we will take all of the actions you would expect and.
And he wanted to take you have the.
Decent size of of labor.
Component of their cost of sales to take and and so I don't feel like pressure on opex.
Opex and any discrete period of time.
Puts us into a situation that all of the other levers available to us arent arent able to offset I think we may have to run at slightly different play for sure, but there is plenty of optionality and our model to to keep us on the path of generating the the EBITDA targets.
Yeah, and Ben and I I would just add to that that you know those those targets the age of 10% EBITDA growth I mean, those of our CAGR of numbers and.
And so over a period of time, there's a lot of timing that goes into that and obviously, we had a very strong year. This past year that were wrapping up.
We've got some unique.
We have things going into this year, where we're closing 2 big acquisitions and theres costs associated with those early on all of those stores at early on so I don't think that the algorithm is at risk at all there is just the timing and sequencing element to it and and to Steve's point.
Around the increased costs.
Costs are not unique to Casey's. This was a lot of the cost pressures that we're experiencing cost pressures at the entire industry is experiencing as well. So we do think theres going to be and inflationary component too.
And what goes on we're currently assessing that the the.
The good news for us is that.
We were proactive and.
The trading on cost of goods for for this fiscal year. So our for this calendar year, rather so we've already got costs locked in for through the end of the calendar year and a lot of our major category. So we've.
2 of certain extent immune to the cost pressure that's coming on some of our.
Negotiate and store categories, but the rest of the industry may not be and so we'll be able to leverage that and.
As prices move up we'll be able to move that up as well and be able to counteract some of the cost pressures. We're experiencing I think the maybe the last thing I'd add to that point is just a reminder of quarter of our Opex is.
Not store related and.
And so I would fully expect.
On that component of the business, we'll work very hard to keep that flat right and we'll get the benefit of spreading overhead over a larger and larger base of stores right, we don't need to add.
Overhead.
And at the same rate that we're adding store units and so that that will provide some natural offset to any anything that is happening and the field.
Okay understood very helpful.
I wanted to ask about your commentary that you didn't sell any rent and the quarter. Obviously, we're in a very.
Inflationary of RIN price environment, F&D and tight and that market.
I'm curious are you holding a day of rins and expecting to sell them in future quarters and while at the same lines. How is your increased.
Contracted fuel.
<unk> impacting your ability to generate rins.
And then not have any bearing on the number of brands that you're able to sell.
Yes.
I will start with the second part first.
Our contracts with our suppliers really doesn't impact the number of brands that we collect so there's there's really no impact there with respect to.
Selling the Rams R R.
Monitors the the RIN market closely and every day and the fact of matter was raising prices were going up pretty ratably throughout the entire quarter. So we didn't see a need to sell into a rising market. So we just we held onto them and we're waiting to opportunistically.
<unk> test win that.
Those RIN values were kind of leveling out and then we do protect ourselves on the downside of they started the slide back we can we can sell them at a certain price so.
And that's kind of how we've approached it will continue to do that opportunistically.
And.
And so that's where we're.
At on that 1.
Thank you. Our next question comes from John Roy with Jpmorgan.
Hey, good morning, guys. Thanks for taking my question.
Can you talk about the cadence of synergy capture and buggies and the first 3 years.
Now I think the fiscal 'twenty.
The SEC suggest probably not much hitting in the first year and then.
Do you have and EBITDA estimate on the on the circle K stores, you can speak to.
Yeah, Hey, John Good morning, This is Steve I'll start with that.
And your premise is right I don't think theres going to be.
Significant synergy capture number.
2 guidance associated with Bucky certainly not in the first half of this year, obviously as we get our feet on the rest we had committed to about $23 million of total synergy capture over and over a 3 year period of time and if you think about the pieces and we'll get some of the G&A and the fuel related.
There are procurement synergies I think some of that will come through and.
And the current fiscal year, albeit again, probably not and the and the first half, but the majority of the synergies are going to be associated with.
The lift around inside the store mix.
The mix as we put kitchens into a lot.
Related stores and obviously it takes time for us to permit those sites and to do the actual renovations. So I would expect our PP&E number. This year reflects the fact, we'll be spending extra money to remodel those stores I think the synergy capture associated with that spend probably is more of a fiscal 'twenty 3.
Item, but it will we will probably get a couple of million dollars. This year, but I think that will be back half loaded the.
And I'd add to that is when you do these acquisitions.
And you build your synergy targets pro forma based on what you believe you know going into it and then once you own.
And it then you get under the Hood and you get the really see everything that's going on and I'll tell you.
Our team on the ground is even more optimistic now about the potential synergy capture than we were probably going into it. So we feel very very confident on both of these.
And that our synergy.
<unk> targets are well within reach and perhaps habits and even though further upside.
Okay.
That's helpful. Thank you and then.
Can you parse of your guidance for inside sales the of mid single digit between prepared food and grocery and maybe just high level and then any commentary on margins on the grocery stores.
Sorry at the grocery side and.
Fiscal 'twenty, 2 just coming off of the drag from mix you had during the pandemic.
We've.
Directionally I would tell you if you just think of what we're lapping from a comp standpoint.
I would expect the prepared food number for the year to be stronger on a year.
Based on the grocery number if you just start thinking of those 2 have to average back to the inside sales, we're not kind of quantify those 2 but mathematically prepared food should have and easier set of comps frankly than the grocery side of the business and I think from margin perspective on the grocery side of the business I think we feel.
Year over year at about about that right a lot of the initiatives there.
Net.
Influenced the the good performance on margin, we had and the fourth quarter around strategic sourcing Darren referenced.
A lot of the cost of cost of goods sold.
Contracts are sorted here for this fiscal year and.
Very good sorted and a favorable fashion for us obviously private brand penetration is only going to help us here the mix as a general rule with merchandise resets is going to help us and so I think I'm not sure we would it's reasonable to expect quarter to quarter outperformance like we had and the fourth quarter every every time, but I think.
And I think pretty good about.
And there is some momentum behind the margin accretion and the grocery side of the business going forward.
Thank you. Our next question comes from Anthony <unk> with Sidoti and company.
Good morning, and thanks for taking the question so.
In terms of.
We felt increased wages and claims that you are seeing as everybody else.
As far as of the ability to offset that.
And you touched on a little bit the.
At the.
As far as smaller operators are feeling the pain too.
And as far as just wondering about your.
The need to offset the weather youre looking at the <unk>.
Higher gas margins or increase and pricing inside the stores.
Should we think about that.
Yes, Anthony this is Darren I don't want to get into the specifics of what exactly we will do but we have a pretty wide range of tools.
The ability disposal and we do have retail pricing that we can always take we have fuel pricing that we can always take and manage our prepared foods business.
<unk> presents a unique opportunity for us and that.
And those.
That those food products are not commoditize.
Rules that are a lot of other.
The categories within the store, where the consumer walks around knowing what the what the right prices of certain items in that category versus perhaps on some of the other center store categories.
We can always be more efficient with our general operations and with labor and so we put a lot of app.
And like aligned and optimizing our schedule to make sure we're providing the right amount of labor for our stores and the meet the demand of of gas. So.
And again, there's a lot of a lot of different levers, we will pull and we continue to monitor that and.
And.
And operate as efficiently as we can.
Got.
Thanks for that and then.
Just wondering if you can quantify as far as the Casey's rewards program as far as of spending.
Transact opened.
At the as far as how that at different summit and member and the.
Frequency that youre seeing so far from your loyalty.
Got it and number is.
Yeah and.
With respect to that.
And we have a deferred revenue impact and the grocery category of about 20 basis points.
Prepared food and found its a little bit higher about 60 basis points.
And <unk>.
Certainly our.
Rewards program.
Guests are our most frequent shoppers and our most loyal guests day.
They come to the store more often and they tend to spend more money when they do and so.
So that's.
That's been a real positive for us and as we continue to grow that.
The database, we continue to learn more about them and their habits and that we can more directly.
The market to them and their cohorts and drive more frequency, but we're up to $3.6 million members at that number continues to grow and we're really pleased with how quickly that ramped up considering we just relaunched that program just right before the pandemic started.
Thank you our next question.
Cash from Kelly Bania with BMO capital.
Yeah.
Hi, good morning, Thanks for taking the questions. Thanks, Kevin.
And just.
I want to go back to the the questions about just the EBITDA CAGR and I think.
The maybe the better way to ask the question is just are you are you thinking about growth from.
Fiscal 'twenty 1.
Basically of very fueled a lot of volatility, but a very fuel margin driven year for EBITDA and earnings.
The good base that we can think that and you can continue to kind of have that algorithm of 8% to 10% off of that or is there any anomalies that we should think about.
Question, maybe at the.
Prior year to think about at a more normalized algorithm of crowds fountain.
Yeah.
Kelly is the Darrin I'll take that I think when youre looking at the algorithms.
And say and kind of the way we think about it is that.
Certainly fuel margin has been.
The.
And then a favorable tailwind for us.
At the pandemic again, we expect those margins to be elevated from where they were a couple of years ago pre pandemic.
And don't expect them to necessarily maintain at the levels that we experienced.
And the last fiscal year.
And so that we think will start to equivalent as volume start to come back and then on the store side.
We expect volumes to recover.
Over over the course of the year or 2 more.
We are assembling pre pandemic levels and so.
That's really how the algorithm works.
Both of these things.
And kind of shifts from 1 side of the other but ultimately.
Planes out of it.
At 8% to 10% EBITDA CAGR.
We are committed to and again.
And when we made that commitment and we said it was a CAGR because things happen and.
Theres variables from a year.
Year to year standpoint, and certainly the pandemic created 1 variable we have acquisition and integration.
Creating another variable, but we still feel very bullish about the idea that the algorithm works at <unk>.
Just going to be some timing and sequencing as the how that how that recovery ultimately plays out and the.
The acquisition.
Acquisition integrations play out as well.
Okay. Thank you and that's that's helpful.
A couple of more questions on my end.
In terms of the gallon the comp gallon outlook.
For mid single digit I guess.
Just curious how you think about.
How your share is.
<unk> dot and tracking and gallons what your strategy is and I guess, maybe we were thinking maybe that would be a little higher next year and just looking at kind of the national average data, but maybe.
Just curious of what Youre seeing and your market and how you're kind of managing that that kind of comp gallon.
Strategy at this point.
Yeah, well, yeah well.
What we're seeing and our geography frankly as the base based on all of the information we can gather and we're outperforming.
Our competitors from a from a gallon standpoint, as well as the margin standpoint, so recall our strategy has been to optimize gross profit dollars and that's a balance.
At between getting growing profitable gallons and so.
I think we've done a good job of that so far and again based on the indicators that we see and our geography. We think we're outperforming so we don't believe we're losing any market share from that standpoint, the cadence of that growth.
This is going to the.
The largely be dependent on.
1 how we how we execute which we've already talked about and and the other piece is just how things reserve resumed to more normal and.
So what we've seen and our geography is traffic is starting to improve people are starting to go back to work.
<unk> now we're in the summer and schools out and so we think that the summer will will probably normalize a little bit and then we're going to get back to the fall and from what we've seen and heard so far at.
It appears and most school districts are going to go back to in person and school. So we believe that more people will be.
<unk> out and about more people will be going back to work because daycare challenges will be will have been addressed and so we think we will start to see some more of that recovery of <unk>.
Furthermore, and throughout the course of the year.
I still believe ultimately that theres going to be a bit of of dynamic with some virtual work.
In addition to people.
Coming back to work so.
That dynamic is going to have to play out over time, So we think the <unk>.
Certainly from a gallon standpoint, we will continue to grow but we were also.
Cognizant of the fact that this recovery is going to take a little bit of time.
Thank you. Our next question comes from Matt.
And with Jefferies.
Hey, good morning, Thanks for squeezing me in here can.
Can you remind us where these acquired stores are in terms of cost per store relative to the base and I think you said a quarter of the Opex is not store related in terms of total company.
In terms of the expected wage pressure next.
Year store wages, probably the larger contribution to the total increase but which is generally seeing more pressure right now is at store wages or.
Warehouse and distribution.
And also if you could provide any color on maybe how much of the the mid teens increase and Opex is owing to the.
Full year of Joplin being up and running.
Yes, Hi, Matt This is <unk> and I'll try to deconstruct that I mean, generally speaking and I would tell you we are.
I think it's just as tight and tough of a market for us on the warehouse distribution side in terms of wages and just labor availability is at is store labor.
I'm not sure I would draw much of the distinction between that and there's certainly less.
Wage pressure as a general rule on salary and staff, but on the distribution side I think it seems like it looks a lot like the store environment based on what we see.
Right now to your question around the acquired stores.
It's a little bit of of mix on an average I think the <unk>.
A typical bucky's stores, a little bit bigger than an average.
Casey's store, if you're just using it across the system. So those stores would come in with a little higher per store Opex number then.
What we have on average, but they are also going to generate higher EBITDA per store and so I think at wood.
And would be my point there the circle K deal of those would tend to be a little smaller stores generally than our average footprint stores. So you probably have the it's just on the other side.
Of the of the Buchanan.
Conversation and can you remind me there is 1 more question I think and there.
It was Joplin, Oh, Joplin listen our job Joplin is going to save us money on a year over year basis, just because we are taking the miles off the road. So we have.
Several million dollars of distributions savings from Joplin and fiscal.
<unk> 22, which is embedded and that overall opex number that's what's helping us.
<unk> on that 25% that's non store related Jocelyn has given us the benefit there.
Thank you. Our next question comes from Paul Trussell with Deutsche Bank.
Hi, Good morning, and this is actually at the speed at the time.
And Paul you know thanks for squeezing us in here and I, just sort of a follow up question. I mean, you talked about your outlook for inside com sales could be at the sort of end up mid single digit range and you know you touched on this earlier, but can you just walk us through again at the various puts and takes the gross profit margins for inside sales and you know, we really think about the various.
Pi and Pony cheese, and any potential claim commercial and my hat.
I'll start with cheese right now based on where about 70% locked and the first quarter I think we'll have a little bit of deflation on cheese and the first quarter couple of pennies, a pound and that'll be a modest tailwind for.
Costco margin if you look at all for the rest of the year of the current strip would be very comparable and for a total year and in terms of cheese costs. So on a full year basis I don't think cheese will have a significant impact on margin 1 way or the other for us, though it'll be a little bit of of benefit.
And the first quarter and then when you back to product cost on the grocery side of the business I think we're well insulated from inflation on the product cost standpoint, I think thats going to probably be a tailwind for us and that grocery category, we are more exposed to commodity.
<unk> cost on the prepared food side of the business beyond just cheese, where we've got proteins et cetera that have a little bit more pressure, but I don't think there is more product cost inflation and the system today than we've dealt with and the last couple of years.
Our our remarkable.
Visionary pressure generally is going to be on the wage side more than on the product side as we sit here today.
Got it that's helpful and secondly, I just wanted to ask about your capital allocation priorities. Obviously, you have just completed at your largest acquisitions of day.
The growth has to be accelerating here as we exit COVID-19.
Covid, but you do have of $300 million share buyback authorization. So how do you think about the balance between all of your strategic initiatives paying down debt and resuming of share buyback program at some point.
Yes. This is Darren.
I'll start with that.
Our strategy has been and.
And continues to be that we're going to.
Invest all of our discretionary capital towards growth and so after we certainly satisfy the dividend.
Go ahead and.
Invest in growth opportunities.
And that's why we have done and that's what.
Continue to do.
From.
And so as long as those growth opportunities present themselves.
We don't have any short term plans to take advantage of the the share buyback authorization that we have it's out there if we don't have those opportunities.
From a.
And from a leverage standpoint, the balance sheet is in great shape of about 2.5 times debt to EBITDA as we sit here today post closing the Buchanan transaction, we will pay down some debt over the course of the year, we like to have that debt to EBITDA ratio down and the low twos, but aside from that that's how we're looking at at.
What we will invest and growth certainly take care of and protect the dividend, we'll delever a little bit on the balance sheet and we have the share price authorization or the share repurchase authorization out there if.
If we choose to use it and just maybe to reinforce the Aaron's commentary from the the prepared comments. The reason were over index on growth is because.
And for from a value creation standpoint at <unk>.
If we can drive incremental EBITDA and and we can improve returns on capital with growth investments. We think that's the right play to run from the shareholder perspective, and we don't see and end of those opportunities here and in the near term and so that feels like the right place for us.
To put the marginal investment dollar certainly for the next couple of years based on what we see right now.
Thank you. Our next question comes from Chuck Cerankosky with Northcoast research.
Okay.
Good morning, everyone.
Okay.
And.
Looking at.
Some of these inflationary trends, especially in your cost.
Cost of goods area is there any opportunity for inside margin I.
The forward buying to help you out other than fuel.
Can you ask that question 1 more time check when you say in.
Inside margin and buying to help of forward Ryan.
And I've heard of that part and I'm, sorry, yes, listen we do we obviously do some of that with with the cheese commodity we occasionally we will do that with some of the other commodities, we de facto by locking and supply agreements with a lot of the growth.
Grocery providers on the.
CPG and DSD side of the business right, we have locked and our cost of goods for the calendar year for beyond the calendar year for several of those so I think we have essentially done that on the grocery side, and where where it makes sense for us.
We will do at on the prepared food side, but it's probably there is there is less forward certainty on that side of the business today than there is on the grocery side just by the nature of the contracts that we have.
Thank you.
Okay.
Or.
The last question comes from Brian Mcnamara with <unk> capital markets.
Hey, good morning, Thanks for taking the question so of euro quarter removed from the big store reset and I'm curious how the private brand rolled out at just trending relative to your internal expectations. You exited Q3 of the 3% penetration and it seems like you've stayed there for Q4, how do you see private brand.
Brand penetration at year from now.
Yes, Brian This is Darrin, we're really pleased with how that's progressed and.
More recently.
And we're getting a little bit closer to that 4% net.
Mix of private brands as we go into the summer time and at some of the the beverage.
Average category start to accelerate water in particular, we're nearly at 50% share and bottled water within the within our stores for Casey's brand.
We've also got another 100 plus items in the pipeline that we expect to rollout over the next.
For the 6 months so.
We feel like we're well on track to continue to grow that business.
We haven't given out any real targets for for this year, but.
Suffice to say, we feel really good about.
The innovation around those categories. The pipeline that we have and the continued rollout of at so we expect to <unk>.
Continue to grow that share at a pretty meaningful clip.
Got it and then just 1 quick last 1 from me speaking with another C store industry participant recently, the alpine and at least to me that 2021 could be the biggest year ever in terms of industry consolidation.
It sounds like you guys are optimistic as well, but I'd be curious.
On.
Thoughts on the opportunities Youre, seeing and M&A and the drivers of those opportunities. Thank you.
Yes.
We're pretty bullish on the opportunity within the industry as well and we've talked about some of those drivers.
During the call with increased cost pressures increased regulatory pressures.
You need to have scale and capability to really compete effectively in this environment the.
And the other thing that I think is really going to create some tailwind from an M&A standpoint is the potential tax changes and tax treatment of capital gains and so.
Is that at that.
At ultimately.
And he comes to pass and capital gains rates double.
Which is the sum of the discussion right now Theres a lot of these independent operators that are if they were on the margins before they are probably looking to sell right now and so we have we have seen some increased interest our M&A team is actively reaching.
And out too.
2 candidates throughout our geography to see if there's interest and so we're having conversations right now and we think.
And there'll be more opportunities to come.
Thank you. This concludes the Q&A portion of today's conference I'd like to turn the call back over to Darren.
Alright, well, thanks to everybody for joining us this morning on the call and we're looking forward to the visiting with you again on our first conference our first quarter conference call and September. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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