Q1 2022 Caseys General Stores Inc Earnings Call

[music].

Good day and thank you for standing by welcome to the first quarter fiscal year 2020 to Casey's General stores earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press.

Star one on your telephone.

If you require any further assistance press star zero.

I'd now like to hand, the conference over to your Speaker today, Brian Johnson Senior Vice President.

Of Investor Relations and business development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our first quarter ending July 31, 2021, I'm, Brian <unk> Senior Vice President Investor Relations and business development with me today is Dan Rebalanced, 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 Act of 1995. These forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial conditions liquidity and related sources or needs.

The company's supply chain business and integration strategies plans and synergy.

With opportunities performance at our stores and the potential effects of 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 Buchanan energy acquisition.

Our ability to execute on our strategic plan or to realize benefits from the strategic plan the impact and 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 on our <unk>.

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

A reconciliation of non-GAAP to GAAP financial measures referenced in this call as well as the detailed breakdown of the operating expense increase for the quarter can be found on our website at www Dot cases dot com under the Investor Relations link.

Before I turn the call over to Darin I'd like to point out that would change the titles of two categories that we routinely disclose and discuss grocery and other merchandise has been changed to grocery and general merchandise and prepared food and fountain has been changed to prepared food and dispense beverage. We believe these changes provide a better description of the categories. There's been no change to the.

<unk> within the categories northern calculation of sales and margin.

With that said I would now like to turn the call over to Darren to discuss our first quarter results Dan.

Thanks, Brian and good morning, everyone.

We're looking forward to sharing our results in a moment, but I would like to start with the top priority for cases supporting our team members and their safety and the continuing battle with COVID-19, due to the Delta variant.

It's been a long 18 months and after summer that seemed nearly normal our team has again experiencing COVID-19 case increases are related challenges.

Spider. These obstacles our team has performed exceptionally well and truly makes life better for our communities and guests every day I couldnt be more proud of the resiliency and commitment to cases.

As our guests and communities shift gears from summer and head back to school commuting to work and engaging a fall routine cases will be here ready to serve them.

Return to school is the time to come together in our communities and August Casey's cash for classrooms, giving campaign raised almost $1 million. Thanks to a generous guests and passionate team members. These funds will support grants to local schools in our footprint.

The grant applications opened in October so we look forward to hearing from our communities on what their schools need.

I'd also like to provide some exciting updates with respect to our board of directors.

Proud to share that Greg Trojan, former CEO of Bj's restaurants as joined the Casey's Board.

He brings 25 years of experience, leading national restaurant retail and consumer products companies like guitar Center House of Blues Entertainment, and California Pizza kitchen.

And then Greg to the Casey's board as strategic expertise in areas that fuel the growth of our business focusing on the guest leading an exceptional restaurant caliber foodservice program and being a retail leader.

We look forward to leveraging graves unique perspective and industry expertise to support cases growth and success.

Additionally, our board of Directors recently received recognition from 50.50 women on boards. This organization recognizes companies were female directors hold 50% of its corporate board seats.

Casey's on committed to equity and diversity and are honored to be recognized and appreciate the female leaders who will position on our board.

Finally.

In July we publish our inaugural environmental social and governance or ESG report.

I'm grateful to the entire Casey's team and our board for their support as we developed and delivered this first report.

We understand the responsibility that comes with our role at the heart of the communities and we are committed to creating long term value for all stakeholders. We look forward to sharing our progress along the journey.

Yeah.

Now, let's discuss the quarters results.

As you've seen in the press release, we're off to a great start to the fiscal year diluted earnings per share were $22.0

Just off slightly from the all time high quarter, one year ago.

Adjusted EBITDA was $245.0 million, the highest quarterly EBITDA in company history.

Sales volumes and margin improved dramatically as guest traffic began to rebound driving an all time high gross profit dollar quarter for the company.

We also successfully completed the closing on two highly strategic acquisitions in the first quarter and are already seeing good performance.

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

Inside same store sales were up 8% for the first quarter with an average margin of 45% grabbing.

Grab and go items, such as pizza slices packaged beverages and snacks were up significantly throughout the quarter as guest traffic improved.

Same store grocery and general merchandise sales were up 7% and the average margin was 33% compared to 32, 2% for the same period a year ago.

The store resets completed towards the end of last fiscal year continued to significantly benefit this category.

Beverages outperformed despite high comparisons during the pandemic achieving a two year stack same store growth of 17, 6%.

Although alcohol sales have moderated and were about flat versus pandemic driven buying in the prior year, there's still a cheese, a 22% two year stack sales growth.

Gross profit margin improved due in part to our strategic sourcing efforts from a centralized procurement team.

This category also benefits for our private label effort as we exited the quarter with a four 4% penetration rate or the grocery and general merchandise category.

Same store prepared food and dispense beverage sales were up 10, 8%.

The average margin for the quarter was 61% versus 59, 7% from a year ago.

Sales were up double digits, and bakery items, and dispense beverages pizza slices, where they're starting to show up close to 29% in the quarter.

During the first quarter same store fuel gallons sold were up 9% with a fuel margin up 35, one cents per gallon as cases continued to achieve strong fuel margins, but.

Company took advantage of a favorable renewable fuel credit environment and sold $25.0 million in Rins.

The <unk> team has done a tremendous job balancing fuel volume and margin to optimize the profitability of the category.

I would now like to turn the call over to Steve to go into some detail on the financial statements. Steve. Thank you Darren and good morning total revenue for the quarter was nearly $5.0 billion, an increase of $2.0 billion or 51% from the prior year. This.

This was primarily due to an increase of retail sales of fuel of $881 million driven by a 21, 5% increase of total gallons sold to 667.5 million gallons as well as a 49% increase in the average retail price per gallon.

The average retail price of fuel during the period was $97.0 per gallon compared to $99.0, a year ago ripped.

Reported fuel results do not include the recently acquired Buchanan energy wholesale fuel business, which is included in the other revenue category.

Total inside sales rose, 14% to $2.0 billion grocery and general merchandise sales increased by $104 million.

$840.0 million.

Increase of 14% and prepared food dispensed beverage sales rose approximately $38 million to $312.0 million also an increase of 14%.

Please note the reported figures are favorably impacted by approximately seven 5% more stores being operated on a year over year basis.

As a reminder, we define gross profit as revenue less cost of goods sold but excluding depreciation and amortization.

Casey's had gross profit of $732.0 million in the first quarter, that's an increase of over $100 million from the prior year.

This represents the highest quarterly gross profit in Kcg's history.

It is primarily attributable to higher inside gross profit of $69.0 million or nearly 17% as well as an increase of $28.0 million or 11, 6% in fuel gross profit fueled.

Fuel gross profit benefited by nearly $19 million from the sale of a larger quantity of rins than in a typical quarter.

Our grocery and general merchandise gross profit increased $47.0 million, while prepared food and dispense beverage gross profit increased $31.0 million. We also saw a $16.0 million lift in other gross profit. This is primarily due to the dealer network.

<unk> and car washes acquired from the Buchanan energy acquisition that we now record in the other category.

In addition to higher revenues and gross profit it was encouraging to see inside gross profit margin expansion as well.

Our merchandising and logistics teams are performing exceptionally well in the face of a broader inflationary and supply chain challenged environment.

<unk> gross profit margin was 45%, which is an increase of 90 bps from the prior year quarter the.

The grocery and general merchandise margin was 33% up 80 basis points.

Prepared food and dispense beverage margin was 61% up 130 basis points from prior year.

Casey's enjoyed favorable sales mix shifts both within and across the categories as packaged beverages, along with the chips meat snacks and candy performed well in addition to the resurgence of grab and go items within the prepared food and dispensed beverage category.

Finally, the company enjoyed a favorable wholesale cheese cost comparison cheese costs were $98.0 per pound this quarter compared to $14.0 for the same quarter a year ago.

This positively impacted segment margins by approximately 50 basis points, and an offset inflationary pressures, we received and other commodity products.

Total operating expenses were up 24% were $100.0 million in the first quarter and that's consistent with our expectations approximately 11% of the increase is due to same store employee and store operating expenses increasing.

We added 2 million labor hours back were approximately 14% into the system on a year over year basis as stores returned to near pre Covid operating hours. These additional hours accounted for more than half of the same story increase followed by wage rate.

Creases and store operating expenses, which are also due to higher ours, such as repairs and maintenance and higher utility costs.

On a two year stack basis, we continue to mind, our labor utilization as same store labor hours remain down approximately 4% versus pre COVID-19 levels.

Approximately 8% of the operating expense increase is due to growth in units as we operated a 166 more stores than the prior year and this also includes approximately $8 million in one time deal and integration costs, which was several million dollars lower than we had originally anticipated.

With the large rise in retail fuel prices same store credit card fees also rose and that's accounted for another 3% of the operating expense increase in the quarter.

As mentioned earlier the operating expense increase was in line with internal expectations as the company anticipated that the most significant quarterly increase for fiscal 'twenty two would occur this quarter given the increase in store count and operating hours relative to last year importantly, I'd like to reemphasize that the company still.

<unk> the full year operating expense increased to finish within our previous outlook, which is a mid teens percentage increase.

Depreciation in the quarter was up 15% driven primarily by the store growth along with placing our third warehouse into service.

The effective tax rate for the quarter was 23, 3% compared to 23, 8% in the prior year. This includes an approximately $3 million one time charge associated with revaluing, our deferred tax liabilities as part of the Buchanan energy closing and that was several million dollars lower than we.

We initially expected.

Adjusted EBITDA for the quarter was $245.0 million compared to $245.0 million a year ago. That's an increase of two 3%. This also represents the highest quarterly EBITDA in the company's history.

Net income was down very slightly versus the prior year record to $121.0 million.

The acquisitions that we completed in the first quarter were dilutive to earnings as we expected we remain confident that we will achieve the synergies anticipated with these transactions and that they will be accretive for the remainder of the year.

Our balance sheet remains strong at July 31, cash and cash equivalents were $199 million and we have the full capacity of our $475 million lines of credit, giving us ample available liquidity of $674 million, our leverage ratio ticked up as we had expected upon the closing.

Of the two transactions to two four times.

For the quarter, the company generated $197 million of free cash flow, which we define as cash flow from operating activities less purchases of property and equipment. This compares to $307 million in the prior year.

Primary difference versus prior year was lower contribution from working capital as the prior year benefited from a favorable fuel price impact on accounts payable as well as the deferral of FICA contributions under the cares Act.

After September meeting the board of directors increased the dividend to <unk> 35 per share.

Which represents the 22nd year in a row of raising the dividend.

We will remain balanced in our capital allocation going forward leaning into the many growth related investment opportunities that we have but continuing to repay debt gradually and tending to the dividend.

The company has opened 142 stores. So far this year, which includes three new store openings to 137 stores from the Buchanan energy and circle K acquisitions, and two independent acquisitions.

Obviously, there continues to be a growing uncertainty around consumer behavior and traffic volumes as the Delta Varian continues to spread throughout the country. The industry is also dealing with product outages and supply chain challenges, both with respect to fuel and merchandise.

However, we feel confident in our previously disclosed fiscal 'twenty two outlook and do not believe its necessary to make any adjustments other than other than that we now expect the effective tax rate for the year to land between 50%.

As previously mentioned, we expect total operating expenses to finish the year up mid teen percentages and that the quarterly year over year increases will gradually decline as the year progresses with a small improvement in the second quarter and more substantial changes in the second half.

The company will continue to endeavor to offset labor inflation with gross profit adjustments and Darren will talk about what we're doing to address the tight labor market shortly.

Looking ahead to the very near term, we expect second quarter earnings to be lower than the prior year due to higher operating expenses and depreciation which will be partially offset by higher gross profit primarily from inside the stores I'll now turn the call back over to Derek.

Thanks, Steve.

First I'd like to congratulate the entire Casey's team for delivering impressive results in the first quarter.

<unk> done it without their hard work and dedication and given the resurgence of the Delta variant will continue to need their perseverance to perform at a high level.

Total inside sales were trending up low to mid single digits through August four fuel, we've experienced low single digit positive gallon growth, while fuel margins remain over 30 per gallon.

The team has done a great job of executing the strategic plan.

If you recall the pillars of the strategic plan to deliver top quintile EBITDA growth our reinvent the guest experience create capacities through efficiencies and being where the guest is the disciplined unit growth.

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

Given the inflationary pressures most retail industries are currently experiencing.

Think it's appropriate to start with creating capacity through efficiencies is there.

It is top of mind for the team right now of cases.

Our distribution center in Joplin, Missouri is fully functional this will help reduce over 1.8 million miles annually from our supply chain and will enable us to keep total G&A and distribution expenses flat for the fiscal year.

This has also brought about more operational flexibility as we manage through broader supply chain challenges with our vendor partners and adapt real time to keep store stock.

Our centralized procurement team is up and running with new software, that's enabling better vendor management and strategic sourcing initiatives.

Our field team continues to drive profitability through retail price optimization and procurement efforts.

Our merchandising team has proven they are capable of navigating through this inflationary environment by effectively managing cost of goods negotiations and making retail price point adjustments as needed.

Also successfully driven sales to more profitable categories from the store resets completed last fiscal year.

And finally <unk>.

Divot label products continue to grow market share inside our stores not only is this a better value option for our guests, but it also improves gross profit margin for the category.

With respect to being where the guest is we're off to a great start integrating integrating the two highly strategic acquisitions that we completed in the first quarter.

Specifically regarding the Buchanan energy transaction, we've begun to move their merchandise and fuel onto our contracts. We are also starting to realize some operating expense savings and just last week rebranded for stores to Casey's that includes our pizza program.

Synergy expectations remain on track for both deals and our dedicated M&A team is actively pursuing more opportunities.

We continue to make great strides as we reinvent the guest experience of cases.

Expanding our digital guest engagement remains a high priority as digital sales were up 14% in the first quarter cycling of 162% increase last year.

We recently expanded our delivery business to include Uber eats marketplace at 750 stores.

Door dash marketplaces up to 890 stores.

We've also implemented door dash White label delivery of third party service that takes orders through our systems at 830 stores.

This enables our casey's rewards members to fully participate with our member benefits on our own app and receive delivery services throughout the entire day.

We still utilize our own delivery drivers at 400 stores and still offer in store pickup and curbside pickup at over 2200 stores.

Our Casey's rewards enrollment continues to grow and we just eclipsed 4 million members in August we have also begun to utilize segmented marketing campaigns, where we offer personalization and day park content on both the web and App.

We believe we can effectively optimize guest behavior with this type of targeted promotional activity.

With respect to investing in our talent. The company has held several mass hiring events to address our staffing challenges and continue to offer retention and referral bonuses.

We believe these efforts are working application rates per store rose over 60% from April 30 to the end of the first quarter.

As a special federal unemployment benefits expired. This month, we expect this trend to continue.

We will remain competitive in the market with respect to pay to adequately staff. Our stores. So we can continue to deliver the outstanding experience our guests have come to expect from cases.

We're also incentivising our team with a $50 bonus to get vaccinated as the health and safety of our team members and our guests as our top priority.

Before I open up the call to questions I would like to take a moment to recognize Julie Jakosky, Our general counsel.

Julie has a 27 year Casey's team member has been a key member of our senior leadership team since 2010.

She plans to retire later this quarter after a long and distinguished career in.

In addition to serving cases, she has been a tremendous advocate for the convenience store industry, serving on various committees and volunteer roles with the National Association of convenience stores, including chairperson of the board.

We're going to personally Miss for advice and counsel and I wish her and her husband, Tom the best Congratulations Julie on a well deserved retirement.

We will now take your questions.

Thank you as a reminder to ask a question you May press star one on your telephone.

To withdraw your question press the pound key we ask that you. Please limit yourself to one question and one follow up.

Our first question comes from Brian Griffin with Raymond James Your line is open.

Good morning, Bobby Griffin.

Thanks for taking my questions and congrats on Bobby Good morning, great quarter.

Thanks.

Good morning, I, just wanted to follow up on the comments around Opex really great to see you guys reaffirm the target despite probably are not probably tougher labor environment and when we originally talked last but can you maybe just give some detail on what the drivers are for the back half of the year Opex slowdown from a year over year growth perspective is there's some <unk>.

Journal initiatives going on is it just a function of the year over year comparisons with the hours anything there to help us think about what would slow down the growth as we as we move through the year.

In Opex.

Yes, Bobby this is Darren I'll start off and then Steve can fill in the blanks for me yes.

Youll recall last year we.

We kind of pulled back hard on.

Operating hours in our stores and in our kitchens as kitchens were restricted or even required to shut down early on as things were on through the pandemic and things started to open up gradually we started to add back some of those hours. So the biggest year over year Delta really took place in the first quarter.

And as things progress throughout the year, we started adding more operating hours back in so those year over year comparisons start to soften a little bit from a from an absolute growth standpoint.

And so that's why you see that start to get a little bit better in the back half of the year see if anything I think some of it is just the math to Darren point. So we won't have the add back of ours.

That we had in the first quarter in the last three quarters.

But we will start to feel a little bit more of the <unk>.

Wage pressure year over year Delta last year in the first quarter, we were still paying some special coven pay to people that gradually worked its way out of the system and so the change in hours is going to be less impactful to us, but the change in rates will become more impactful as we move forward.

And the remainder of the year. We've added most of the new units do you think we're targeting 200 units into the system. This year, obviously more than half of those who have already come into the system. So that will become a little bit less impactful incrementally going forward and then the credit card fees, that's kind of.

Follow the price of fuel to it to a large extent, but the math simply helps us with ours.

The actual wage rates as we as we go forward and so second quarter should be a little bit better year over year than what we saw in the first quarter, but we'll start to see.

Significant improvement in terms of year over year increases as we get into the second half of the year.

And then the only other thing.

Alright.

That is the first quarter, we had a one time deal and integration costs for the two acquisitions that obviously don't repeat themselves in the back half of the year. So you see some softening there as well.

Very helpful. I appreciate the detail I guess, just a quick follow up for my follow up question just on the hours and I think you caught out thing same store hours down a little bit worse.

Pre COVID-19 period.

It just a function of you mentioned efficiency as always looking at the labor hours at the Mic.

The business and kind of demand over the breakfast lunch and dinner period, a also driving some of that and is that.

Close to back to normal is still not back to normal and then how do you see bringing hours back I understand you know the year over year comparisons are different but do you see opportunities to kind of keep.

Pre COVID-19 hours, a little lower even if we go back to a normal mix environment inside your store from business.

Yes, what I would say Bobby is that yes.

We were doing a lot of work around labor management.

Really pre Covid and then throughout Covid in terms of time motion studies standing up a new labor management tool implementing that so I think we were we were getting more efficient with the deployment of our labor hours in the base case and then what we've got going on right now is just.

Difficult comparisons as we cycle unusual circumstances year over year with Covid.

With respect to the breakfast business, we're not all the way back to where we expect to be I think we're going to learn a lot here in the next.

Several weeks post labor day with school fully back in session.

Going back to work or not depending on the del Delta Varian, but.

We just announced today, we launched a new breakfast lineup and new coffee program. So we're we're encouraged by.

The potential that that.

But that program as to offer and so hopefully we will get back, but we're not anticipating having to significantly invest more in labor to meet that need.

Thank you I appreciate the details very helpful Best of luck going forward here.

Thanks, Bobby.

Thank you. Our next question comes from Ben Bienvenu with Stephens. Your line is open.

Hey, Thanks, good morning, guys.

Good morning, Good morning, Matt.

So I wanted to start on the prepared foods business, obviously, we're seeing that come back you talked about the improvement in slices.

If I look at the margin profile of the business. It's on a recovery track for sure, but it's still below kind of where we were pre COVID-19 and I am wondering if thats a function of mix that we maybe are a little bit lighter on.

Beverage side of the equation as you talk about for mobility improving.

Good morning day part essentially starts to improve.

Beverage.

And Bruce with mobility, and a slight mix improves would you expect that margin to start to grind its way back to that pre COVID-19 level or is there anything else that we should be mindful of there.

Yes, I think I think it's going to take some time Ben to.

To get back to pre COVID-19 levels, but.

Certainly with the morning day part is still under pressure.

We're seeing.

We're seeing better bakery and coffee sales than we were a year ago, we're still not all the way back to where we were before and then the same applies to the other dispense beverages found in frozen while improving over prior year still not all the way there.

And.

So we're still working our way towards getting back to that margin rate. The other thing is that we have seen some inflation in some of the ingredients that we use in our prepared foods. So while we've been able to mitigate that to a certain extent through through our cheese lock or through pricing.

We have seen inflation in a lot of the other ingredients and toppings for our various food products, which has put a little pressure on those margins.

Okay that makes sense.

And then you noted that you sold some additional rooms this quarter. It doesn't look like it was.

A huge amount but.

It's tough to tell with specificity I'm curious if you could offer any color on.

What the kind of surplus balance of brands is that you are carrying forward.

And maybe maybe not when you expect to sell them, but just give us some sense of what's remaining out there. So we can think about appropriately modeling fuel margins.

Yes.

Take that Ben so we.

We carried over.

A little more than 4 million physical rents from the fourth quarter.

To the first quarter of this year that normal course, we probably historically would have sold those rents in the fourth quarter and those had a had a value at average prices in the fourth quarter roughly $5 million. So we kind of carried that $5 million of value into the first quarter. When we did.

All of those we have completely sold all of those in the first quarter market prices have continued to go up so we realized somewhere in the neighborhood of 7% or $8 million of value from those 4 million plus of brands.

I would tell you we're pretty much caught up in terms of being balanced with bank I don't anticipate that we will we did not carry anything forward of note from <unk> into <unk> I don't think we have any plans currently to carry anything forward.

So I would expect we will sell.

However, we generate and so that's a function obviously of the type of fuel that we that we ended up selling and whether we splash blended are or not but I wouldn't expect the carryover impacts rent monetization going forward I think this was a one off event just given the circumstances of what was happening.

With prices at that point in time.

Okay very helpful. Thank you very much.

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

Good morning.

Hi, Bob.

Keith I was just hoping for a little more color on the integration process. It sounds like it's been going well, so far and you mentioned like synergies.

Track, but maybe you could highlight.

The synergies and where you might have more upside than you thought previously and now that you've had.

More time to analyze the business and then as we look forward.

Do you have a better sense of the upside potential to Bucky margin and thinking about.

You'll see that grow share even keel and the timing of that as you start to layer in some of your capability.

Yes Bonnie.

Like I mentioned in my opening remarks, we feel really good about the integration process. So far and it's this is a little more complex because this was a stock deal. So we have the entire G&A infrastructure.

Of the company and we're still very early days, we've only added about 90 days at this point so.

The process is working according to plan.

We are starting to wind down some of the operations in their office.

Part of what we acquired there was a small distribution center that they have and we're starting to wind down those operations and expect to be out of that by the end of the year, but we are.

In the process of converting stores over to Casey's from Bucky's and we've got the first four open and operating or we're seeing encouraging results there, but obviously very early days.

I would say probably from the.

From an upside perspective, there's probably a couple of areas.

We feel good about.

One is on fuel and fuel margins, we've really.

Seen an uptick in the fuel margins in that business, particularly in the Illinois stores versus what we had originally anticipated. So that's been a positive upside. We also have a reverse synergy opportunity with carwash. They were they really put a lot of focus and emphasis on their car wash business, which is something that we've been getting into but.

But frankly haven't done a great job of and so we've been able to take some of their folks that are experts in that area.

And help us apply some best practices. So we think there's some upside there we're not really changing any of our modeling expectations from this I think it would be.

Be a little bit too premature to do that but.

Suffice it to say, we're encouraged with what we've experienced so far we're confident this is going to work out according to plan.

Okay I appreciate that color. Thank you.

Thanks.

We have a question from Kelly Bania with BMO capital Your line is open.

Hi, good morning, Thanks for taking our questions.

Good morning.

Good morning wondering if you could talk a little bit more about the breakfast.

The new breakfast line, and maybe just kind of walk us through some of the potential math, there and what what does breakfast account for today in terms of that day part of within prepared foods and where do you think this could go over time.

And just any impact to margins or your labor labor model.

Hey, Dave.

Yes Kelly.

Really excited about the breakfast launch.

Yes.

<unk> done a couple of things we are focused on improving some of the existing products that we already had just getting higher quality ingredients.

And different bills. So in some of our breakfast sandwiches are breakfast biscuits or croissant sandwiches, improving some of the quality. There. We've also rationalized some of the lower lower performing skus out to make it more efficient to operate the kitchens.

And then our culinary team developed a new product.

Our breakfast handheld product that leverages, our made from scratch dough.

Unique builds with sausage, and egg and cheese, or bacon, and egg and cheese, but leveraging that Doe in a unique way. So its handheld is very portable and car friendly and.

As we go into the fall you've seen a lot of <unk> concepts lean into breakfast because everybody is trying to get the breakfast business back, but I would argue there's not been any real innovation in the breakfast. It's all the same stuff.

We think we've got a unique product with this handheld.

Differentiate in the marketplace nobody else will be able to produce this because it is made from scratch in our kitchens every day.

So we really like that.

<unk>.

We've rebuilt our breakfast burrito that is really in our consumer testing has been a fan.

Fan favorite so we've got high expectations of that and then probably the single biggest thing we did.

We upgraded our coffee platform so we.

Yeah.

Over the summer we replace the equipment at all 2300 of our stores to have been to Cup coffee program. So the coffee technology grinds of beans, and brews each cup of coffee fresh.

So that will enable us to reduce waste makes it easier to execute in the stores.

From a labor standpoint.

Provide fresh coffee 24, 7%. So we're really excited about that process as well. So we think when you take all of that we've got a little bit of labor efficiency on the coffee piece, we got a little bit more complexity on the food side, we think that's a wash from a labor standpoint, but.

<unk> a much better experience for the guests.

I think we lost Kelly did we lose you.

Just following up on that as you think about your guidance for the year for mid single digit comps are you.

Baking in any contribution from this new initiative.

And just if you could elaborate I think you commented on the low single digit through August is that in line. It sounds like it's in line with your expectations.

Yes, low to mid single digits for inside sales and that's what we're experiencing now.

And would anticipate at this point, we've really had we knew this breakfast lineup was coming so that's been baked into our expectations for the year.

It's going to be a very competitive breakfast environment in the fall like I've mentioned before with most every <unk> concept that has breakfast trying to get back into that business. So we expect we need this to be competitive we think we're differentiated and we will.

Outperform but.

Had that baked into our numbers for the year.

Thank you.

Thank you. Our next question comes from Matthew Fishbein with Jefferies. Your line is open.

Hey, good morning, guys. Thanks for the question.

Good morning, good morning.

So some of the companies gallons per store uptick in the quarter was likely due to that additionally.

You can add stores to the mix, but I think same store gallon still improved a bit on a per store basis relative to 19 COVID-19 that is.

While fuel margins, even even excluding the call it two and a half cent per gallon impact from a larger rig contribution still sequentially increased quarter over quarter.

And you did highlight your expectation to lift.

Inside store gross margins and help offset that opex headwind, but.

Given cost inflation facing the entire industry and given most of the industry doesn't have that strong inside store lever that Casey's does.

Opex increases from your perspective.

Where do you see industry steel margins and their ability to remain stable or expand further from here.

As gallons continue to come back or maybe asked a different way if the industry cost outlook were to increase in the near term do you believe there is still room on the fuel margin side for the industry to offset it.

Yes, Matt I would say that at this point, we'd have to say that these margins are sustainable at least in the near term and it's for the reasons that you mentioned the underlying cost to operate this business are going up I mean, everything from from labor, which.

Well documented and everybody's.

Dealing with that there is some inflation, we're seeing some are probably experiencing a more than we are but they are experiencing it. Nonetheless <unk> compliance with just kicked in April is another another piece of the equation and so and of course credit card fees that were experiencing right now so all of those things are making it.

More opex heavy environment and to your point earlier.

Most most other retailers in the industry don't have the levers we have to offset that so thats, most likely going to find its way into the into the fuel price.

So I would say these margins are somewhat sustainable whether they they lasted 30 cents a gallon or north of 30, a gallon longer term.

<unk>.

Is anybody's guess, but I would certainly expect that they're going to remain elevated from where they were historically because there's no. Other place for most of these folks to go to recapture this opex has got to go somewhere and I think thats, where it is most likely to end up.

Yeah makes sense, thanks for that and just to follow up on inside gross margin. Some of your peers are having higher than normal out of stocks and stores, mostly driven by their collection of distributors, having their own labor and fill rate issues.

And I know category and subcategory mix, the procurement opportunity private brand products, that's already lifting inside gross margins for you, but I'm presuming there is still room for improvement just.

Industry supply chain headwinds hopefully softening at some point going forward. So I just I guess just to clarify given yourself distribution model and grocery is that additional control of the supply chain, helping in this environment or would you say you're still having some of that transitory supply chain headwinds fill rates from your suppliers.

Stocks in store.

Well I'll tell you Matthew.

Or the fact that we own our own supply chain has been a huge benefit to us during this whole time.

I'll be the first to say, we have we have experience our own challenges with the supply chain because manufacturers are struggling to produce products, but the fact that we control the supply chain has given us a lot of flexibility or give you. An example, we've had some suppliers that can't get product to us because of driver shortage.

As well, we have our own fleet of drivers and trucks. So we can send attractor to a manufacturer pick up a trailer and get it back to our distribution centers continued to distribute product. We have some products that we distribute ourselves that otherwise would be DSD supplied products and we've seen as we've gone into competitor stores.

These stores are out of stock on a lot of those products that we're able to self distribute and manage so.

And then the last piece that you mentioned with private label having.

Having the private label products has enabled us in some categories. When we've been short within that category from a national brand supplier to flex over and provide our own product in that same category. In makeup for some of those out of stocks. So we think we are definitely in a better in stock position because of that flexibility than than a lot of our competitors.

<unk> or <unk>.

Being said it has been a challenge.

And it's a new challenge every day that we hear from certain suppliers.

And on their end.

We're from labor shortages to driver shortages in some time in some cases, it's raw material shortages.

That have occurred so.

It's across the board.

Like I said I like our spot of having positive control over the over the supply chain being able to flex and adjust to keep our stores in stock.

Awesome. Thank you very much.

We have a question from Chuck.

And.

With Northcoast research your line is open.

Good morning, everyone, great quarter, I've got a question about the pizza business.

You mentioned that the supply excuse me there is a resurgence in the single slice business how does that.

Coordinate with the whole pie business as the ladder dropping off or have you held on to that can you sort of talk about the financial impact as those parts of the pizza business move around.

Yes Chuck.

The slice business has definitely come back where you were up about 29% year over year and slices, but.

The whole pizza business in the slides business really don't compete much with each other.

The slides business is primarily a morning and afternoon day parts breakfast and lunch day part occasion as you get more into the evening time and dinner, that's when we shift over to the whole pie business. So.

They really kind of complement each other more than <unk>.

In conflict with each other now that being said our whole pie business has softened a little bit versus prior year, obviously, when everything was shut down the whole pie business really surge but.

Two year stack basis, we're up double digits in the whole pie. So we feel like we've held onto a lot of that incremental growth that we experienced during the height of the pandemic, but we gave a little bit back, but overall, we're really happy with where the pizza businesses right now and it's continuing to grow.

Alright. Thank you that's very helpful.

Our next question comes from Anthony Lebed Zelinsky from Sidoti <unk> Company. Your line is open.

Yes, good morning, and thank you for taking the question. So in terms of the procurement initiatives. How far along are you with that process or may be kind of in baseball terms can you give us a sense as to what inning are you in now I just wanted to get a sense as to the opportunity that you have in front of you.

Yeah, I'll start with that Anthony I mean, we're early innings for sure.

With our strategic sourcing initiatives generally it probably varies a little bit by by category. So we obviously.

We're working on multiple facets here some of it for sure is supply the existing supply agreements that were already in place that we need to kind of age through normal course for many of our suppliers. We had more I think historical informal relationships that probably werent.

As legally binding as you might expect for an organization of our size and so we are working through most of those I think on the grocery business. We've had a lot of success over the last year renegotiating and entering into favorable.

<unk> contracts with a lot of our CPG and DSD suppliers and I think we're seeing that.

For sure and the margin improvement in that category, where we don't talk much about inflation pressure in that category and that's a function of.

The procurement progress that we've made on the prepared food side. There is less currently under renegotiated long term contract, that's where most of our focus is right now if you think of a commodity suppliers.

Suppliers everything from cheese proteins, a lot of emphasis on that I would expect by the end of the year. We will have made quite a bit of progress not only in.

Locking up longer term agreements, but also making sure we have less dependency on single source suppliers than we do today in certain categories and given Darren earlier comment just around supply chain challenges I think we all would feel better with a little more redundancy.

In certain aspects of our supply chain and then finally on the on.

On the indirect side things like construction et cetera, we spend quite a bit of capital dollars.

<unk> put in some new systems that we referenced earlier.

US to be I think much more formal in creating competitive scenarios for future capital spending that will continue to yield fruit for a while so we've got a long way to go and I would expect that all of those who contribute positively to the margin improvement opportunities that we talked about over the next really.

Several years.

Got it yeah, thanks for that detailed answer.

So just to follow up on the on the part of that so as far as cheese cost are concerned obviously, that's a big component of your prepared food category.

Where are you now as far as cheese, plus near term and how does that compare versus a year ago.

We're about.

We've got about half of our second quarter requirements locked in if you look at the spot curve today I would tell you.

We.

<unk> achieved cost impact in the second quarter to be comparable to what we had in the first quarter. So we had I think its about an 8% decline in the commodity cost in the first quarter I think we're looking at something similar to that in the second quarter. We are not locked beyond the second quarter and we'll continue to watch the mark.

And try to be.

Opportunistic around that but I think second quarter will be a tailwind in the spot prices today would put catalysts have a little bit of a little bit of headwind cost at the moment second half of the year, but currently would not be significant.

Got it thank you and best of luck.

Thanks.

We have a question from John Royall with Jpmorgan. Your line is open.

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

Is there anything you can share on the pro forma year over year performance.

The Buchanan.

<unk>.

The major differences point out between legacy <unk> and the acquisition.

We feel the Canadian beverage buried in the same store metrics.

Anything you can share on Buchanan itself not evident in the GAAP numbers would be helpful.

Maybe maybe I'll just start I mean, obviously, we didn't we didn't own the assets for the entire quarter. So the comp is a little bit challenging if you're just looking at it I would say generally speaking to Darren earlier comments.

I think we're about where we thought we would be I think at the highest level. We spent a little bit less in terms of kind of closing integration related costs than we had thought we were going to which helped us a little bit we had a lower tax charge. Just once we went through all the numbers than we thought so.

I think we will spend a little bit less upfront for sure. They are as a business dealing with the same kind of dynamics. We are their fuel profitability is higher than what we had originally expected it to be which is consistent with obviously what people are seeing overall in the industry, but we feel.

Good about it being a net contributor at about $45 million of EBITDA.

To us in this fiscal year by the time the dust settles. There that will include some synergy capture as Darren referenced starting in the second quarter I think we will start with G&A in fuel and as construction progresses, we'll start to see some inside the store realization there, but most of that in fairness, we probably.

And the following following fiscal year.

Great. Thank you and then second one is just more housekeeping, but can you talk about the cadence of Capex.

In Newbuild activity.

He was pretty light, which I think is pretty typical.

Storage when you look back.

Historical years, but I'm going to take it's under 10% of the full year guide. So you can just talk about kind of the cadence of Newbuild activity.

Would you expect it to progress the rest of the year that'd be helpful. Thanks.

Yes, <unk> was light for sure I think second Q will also be light.

We're going to spend most of our time in the second quarter working on integrating the acquisitions remodels that et cetera. I don't think we will have a significant number of new new to industry builds come up in the second quarter. So it will be backend loaded in.

We're somewhat dependent on making sure we successfully manage through supply chain challenges on the construction side right getting pieces of equipment in it.

Any easier than than stocking the warehouses for goods for resale. So it will be a back end loaded schedule.

And most of the new units that we will end up building will come up in the second half of the year.

Great. Thank you very much.

Thank you we're quite we have a question from Cristina <unk> with Deutsche Bank. Your line is open.

Hi, good morning, and congrats on a great quarter.

You may begin your mid single digit inside they are still our guidance for the year, but I was wondering if maybe you could parse out just at a higher level. How you are thinking about performance at grocery versus prepared foods.

A quarter and a little over a month into the year.

On the consumer behavior.

With the spread of Delta, but keep going back into school. What are you seeing in terms of store traffic and conversion trends really going back to your story.

Yes, Kristina <unk> with respect to traffic.

It's I think it's a little bit early to tell with the back to school.

And back to school for a few days and most of our geography and that was a holiday week and now we're just coming back. So I would say yesterday was probably our first fully back to school day.

So we're anticipating that our traffic will improve but.

We got to get a couple more days into it before we we have a real sense I think the the.

The wildcard on on traffic to a certain extent as people returning to work and I think.

A couple of months ago pre the Delta variant really getting.

Some momentum thing most companies were planning on returning back to work after labor day, and a lot of those companies have sort of pushed those plans a month or two in some cases pushed all the way to the end of the calendar year. So we're just going to have to see how that progresses.

With the Delta virus.

Delta variant and.

And how we do that all that being said.

We expect to continue some momentum with the grocery category, but we will be cycling over the.

The store resets here substantially in third and fourth quarter. So that those comps will probably soften and then we will continue to pick up some momentum.

Prepared food and dispense beverages as those traffic patterns start to return to normal so I would say.

Grocery probably softening in the back half of prepared food, maybe accelerating a bit Steve any yes.

But grocery grocery will be.

Below prepared food for the rest of the year and that's just a function of the math right with what we're lapping from the prior.

Prior year.

Alright, Thats, great and I just wanted to follow up about how you're positioning your business going forward now that we're more out and about getting vaccinated.

How do you plan on really holding onto some of the new customers that you have acquired and how you're thinking about layering in the loyalty program potentially in a more personalized way and promotions to drive engagement and traffic back to the stores, even as you know people still continue to work from home.

Yes, we're definitely going to leverage our.

Our investment in the rewards program and our digital technology and.

If you think about <unk>.

<unk> been marketing so far from a digital standpoint, we look at we have a kind of a blended strategy. We use a curation, which is where we market to one message to a broad swath of people to the majority of guests.

And that's about 55% of what we do today about 30% of what we do is segmentation, where we get different cohorts of guests and we have a specific promotional message to those guests and then about 15% of it today is individualized, where we tailor the message to an individual.

Consumer based on what we anticipate their behavior to be.

As we move throughout this year, we're going to shift that mix. So by the end of the year, we expect about 60% of our digital activity will be individualized to each consumer.

And then about 20% will be more segmented approach or duration. So we're going to fundamentally shift our approach to being more targeted to individual needs and what we anticipate those needs are based on the affinities and we've seen through their purchasing behavior and so we would expect that that would have a positive impact.

And make that experience.

More sticky more attracted to the guests moving forward.

Great. Thank you very much.

Thank you. Our next question comes from Brian Mcnamara with Bamberg Capital. Your line is open.

Good morning, Thank you for squeezing me in here.

You exited the quarter with private label, representing about four 4% of your grocery and general merchandise sales, where do you see that penetration landing this fiscal year and over the medium term and our new stores and acquired stores, starting with a higher private brand penetration relative to the rest of the fleet.

Yes, Brian you're right the private label exited.

August was four 4% penetration rate our goal for the year is 5.25%. So we expect to continue that migration and then over time, we expect to get to 10%, but that's going to be a multiyear exercise.

<unk> already launched 209 private label products since we launched the program and we have another 60 products in the pipeline that will be launching between now and the third quarter. So we feel confident in getting to that to that level of penetration on the new stores I am not sure that we are.

We're seeing any.

Significant difference between new stores in existing stores.

The acquisition stores, it's fair early stages will bring in those products as we convert those stores. The Casey so very early days on.

Those but I would anticipate that they would reach the same mix as our more traditional stores.

Great and then just a quick follow up.

Fuel margins I mean, <unk> there is still pretty high do they continue to influence the M&A environment or our potential targets more willing to sell than they have been during this elevated fuel margin environment, given potential capital gains tax treatment changing thanks.

Yeah, I think I think you hit it you hit the nail on that I think it's less about fuel margins right now more about.

Just the underlying cost and complexity of operating the business today and particularly in this environment was with Covid and then compounding that is the potential of the capital gains tax changes and I know they are talking about that as we speak and so we are seeing increased level of deal flow and so we're.

King at other opportunities but.

We expect that that's going to be a catalyst in the near term for increased M&A activity.

You will lose your Brian over the last time I think we're ready for that question.

Alright. Thank you guys appreciate it.

Thank you. Our next question comes from Karen short with Barclays. Your line is open.

Hey, Good morning, guys. This is actually Renato <unk> on for Karen.

Thanks for fitting us into the call.

Just just one one quick one for me can you just talk a little bit more about the competitive landscape.

<unk>.

From a breakfast day part perspective, and then if you could just remind us what breakfast is as a percent of prepared food sales that would be great. Thank you.

Yes.

It was in terms of the landscape I think.

What you saw a year ago when lots of businesses, we're shutting down offices, we're shaping how people were sheltering in place you saw disproportionate impact on the breakfast day part and that that had everybody from Starbucks to the rule to Mcdonald's to us antibody those in the morning day part was <unk>.

By that and so now <unk>.

Forward a year later I think everybody's.

Optimistic about getting that business back to normal as more schools or insertion in person.

More people are returning to work then and there was a year ago. So you've seen.

Mcdonald's come out with more promotional activity Wendy's has certainly been very active in the space Taco Bell just announced that they are bringing breakfast back after suspending it.

And so there's a lot of.

A lot of increased activity so.

Like I mentioned before we like our position we think we've actually got real innovation that the others don't have that are kind of recycling what they've been doing historically. So we think we have a niche there that we can capitalize on.

Breakfast is about a third of our prepared foods business.

A lot of that comes in our breakfast pizza, but a lot of other things like doughnuts and baked goods and coffee.

And sandwiches also play a big role and that's where we've we've innovated as on the coffee and I'm a breakfast.

The other breakfast lineup and so we'll always have that base of breakfast pizza to to lean on but we've got the innovation on top of it that we think will help us to accelerate our breakfast growth.

Oh.

Perfect that's great color, thanks, and best of luck.

Thanks.

Thank you and Theres no other questions in the queue I'd like to turn the call back to Dan rebel lids for closing remarks.

Thank you for taking the time today to join US on the call I'd also like to thank our team members one more time for their efforts this quarter, we're off to a great start to fiscal 'twenty. Two we will continue to be nimble as we navigate through the recent delta variant resurgence. Unfortunately, we've demonstrated our ability to deliver results on our long term strategic plan both normal <unk>.

And during a global pandemic I am confident we will continue to drive shareholder value. So thank you and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

[music].

Good day, and thank you for standing by and welcome to the first quarter fiscal year 2020 to Casey's General stores earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone.

If you require any further assistance press star Zero I would now like turn the conference over to your Speaker today, Brian Johnson Senior Vice President.

Investor Relations and business development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our first quarter ended July 31, 2021, I'm, Brian Johnson Senior Vice President Investor Relations and business development with me today is Denver, Dallas, 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 Act of 1995. These forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial conditions liquidity and related sources or needs.

The company's supply chain business and integration strategies plans and synergies growth opportunities performance center stores and the potential effects of 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 four.

Looking statements, including but not limited to the integration of the Buchanan energy acquisition, our ability to execute on our strategic plan or to realize benefits from the strategic plan the impact and 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 on our website any forward looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intentions or obligations to update or revise forward looking statements, whether a result of new information future events or.

Otherwise.

A reconciliation of non-GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of the operating expense increase for the quarter can be found on our website at www Dot <unk> dot com under the Investor Relations link.

Before I turn the call over to Darin I'd like to point out that would change. The titles are two categories that we routinely disclose and discuss grocery and other merchandise has been changed to grocery and general merchandise and prepared food and fountain has been changed to prepared food and dispense beverage. We believe these changes provide a better description of the categories. There's been no change to the products.

Within the categories northern calculation of sales and margin.

But that said I would now like to turn the call over to Darren to discuss our first quarter results Dan.

Thanks, Brian and good morning, everyone. We're looking forward to sharing our results in a moment I would like to start with the top priority from cases.

Supporting our team members and their safety and the continuing battle with COVID-19, due to the delta varying.

It's been a long 18 months and after some of the same nearly normal our team has again experiencing COVID-19 case increases and related challenges in spite of these obstacles. Our team has performed exceptionally well and truly makes life better for our communities and guests every day I couldnt be more proud of the resiliency and commitment to cases.

As our guests and communities shift gears from summer and head back to school meeting to work and engaging the fall routine cases will be here ready to serve them.

Turning to schools in time to come together in our communities and August Casey's cash for classrooms, giving campaign raised almost $1 million.

Thanks to our generous guests and passionate team members. These funds will support grants to local schools and our footprint.

The grant applications opened in October so we look forward to hearing from our communities and what their schools need.

I'd also like to provide some exciting updates with respect to our board of directors.

I'm proud to share that Greg Trojan, former CEO of Bj's restaurants as joined the Casey's Board.

He brings 25 years of experience, leading national restaurant retail and consumer products companies like guitar Center House of Blues Entertainment, and California Pizza kitchen.

And Greg to the Casey's board as strategic expertise in areas that fuel the growth of our business focusing on the guest leading an exceptional restaurant caliber foodservice program and being a retail leader.

We look forward to leveraging greg's unique perspective and industry expertise to support cases growth and success.

Additionally, our board of Directors recently received recognition from 50.50 women on boards. This organization recognizes companies were female directors hold 50% of its corporate board seats.

The cases are committed to equity and diversity and are honored to be recognized and appreciate the female leaders who will position on our board.

Finally.

In July we publish our inaugural environmental social and governance or ESG reports.

I'm grateful to the entire Casey's team and our board for their support as we developed and delivered this first report.

We understand the responsibility that comes with our role as a hardware communities and we are committed to creating long term value for all stakeholders. We look forward to sharing our progress along the journey.

Yeah.

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

As you've seen in the press release, we're off to a great start to the fiscal year diluted earnings per share were $22.0

Just off slightly from the all time high quarter, one year ago.

Adjusted EBITDA was $245.0 million, the highest quarterly EBITDA in company history.

Sales volumes and margin improved dramatically as guest traffic began to rebound driving an all time high gross profit dollar quarter for the company.

We also successfully completed the closing on two highly strategic acquisitions in the first quarter and are already seeing good performance.

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

Inside same store sales were up 8% for the first quarter with an average margin of 45%.

Grab and go items, such as pizza slices packaged beverages and snacks were up significantly throughout the quarter as guest traffic improved.

Same store grocery and general merchandise sales were up 7% and the average margin was 33% compared to 32, 2% for the same period a year ago.

The store resets completed towards the end of last fiscal year continue to significantly benefit this category.

Packaged beverages outperform despite high comparisons during the pandemic achieving a two year stacked same store growth of 17, 6%.

Although alcohol sales have moderated and were about flat versus pandemic driven buying in the prior year. They still achieved a 22% two year stacked sales growth.

Gross profit margin improved due in part to our strategic sourcing efforts from a centralized procurement team.

This category also benefits for our private label effort as we exited the quarter with a four 4% penetration rate of the grocery and general merchandise category.

Same store prepared food and dispense beverage sales were up 10, 8%. The average margin for the quarter was 61% versus 59, 7% from a year ago.

Sales were up double digits, and bakery items, and dispense beverages pizza slices or the star of the show up close to 29% in the quarter.

During the first quarter same store fuel gallon sold were up 9% with a fuel margin of $35.01 per gallon as cases continues to achieve strong fuel margins.

The company took advantage of a favorable renewable fuel credit environment and totaled $25.0 million in Rins and.

Our field team has done a tremendous job balancing fuel volume and margin to optimize the profitability of the category.

I'd now like to turn the call over to Steve to go into some detail on the financial statements. Steve. Thank you Darin and good morning total revenue for the quarter was nearly $5.0 billion, an increase of $2.0 billion or 51% from the prior year. This.

This was primarily due to an increase of retail sales of fuel of $881 million driven by a 21, 5% increase of total gallons sold to 667.5 million gallons as well as a 49% increase in the average retail price per gallon.

The average retail price of fuel during the period was $97.0 per gallon compared to $99.0, a year ago ripped.

We reported fuel results do not include the recently acquired Buchanan energy wholesale fuel business, which is included in the other revenue category.

Total inside sales rose, 14% to $2.0 billion.

Grocery and general merchandise sales increased by $104 million to $840.0 million.

An increase of 14% and prepared food and dispense beverage sales rose approximately $38 million to $312.0 million also an increase of 14%. Please.

Please note the reported figures are favorably impacted by approximately seven 5% more stores being operated on a year over year basis.

As a reminder, we define gross profit as revenue less cost of goods sold but excluding depreciation and amortization.

<unk> had gross profit of $732.0 million in the first quarter, that's an increase of over $100 million from the prior year.

This represents the highest quarterly gross profit in Kcg's history.

It is primarily attributable to higher inside gross profit of $69.0 million.

Or nearly 17% as well as an increase of $28.0 million or 11, 6% in fuel gross profit fuel.

Fuel gross profit benefited by nearly $19 million from the sale of a larger quantity of rins than in a typical quarter.

Our grocery and general merchandise gross profit increased $47.0 million, while prepared foods and dispensed beverage gross profit increased $31.0 million. We also saw a $16.0 million lift in other gross profit. This is primarily due to the dealer network activity.

<unk> and car washes acquired from the Buchanan energy acquisition that we now record in the other category.

In addition to higher revenues and gross profit it was encouraging to see inside gross profit margin expansion as well.

Our merchandising and logistics teams are performing exceptionally well in the face of a broader inflationary and supply chain challenged environment.

<unk> gross profit margin was 45%, which is an increase of 90 bps from the prior year quarter.

The grocery and general merchandize margin was 33% up 80 basis points.

Prepared food and dispense beverage margin was 61% up 130 basis points from prior year.

Casey's enjoyed favorable sales mix shifts both within and across the categories as packaged beverages, along with the chips meat snacks and can be performed well. In addition to the resurgence of grab and go items within the prepared food and dispensed beverage category.

Finally, the company enjoyed a favorable wholesale cheese cost comparison cheese costs were $98.0 per pound this quarter compared to $14.0 for the same quarter a year ago.

This positively impacted segment margins by approximately 50 basis points, and an offset inflationary pressures, we received and other commodity products.

Total operating expenses were up 24% were $100.0 million in the first quarter and Thats consistent with our expectations approximately 11% of the increase is due to same store employee and store operating expenses increasing.

We added 2 million labor hours back were approximately 14% into the system on a year over year basis as stores returned to near pre Covid operating hours. These additional hours accounted for more than half of the same story increase followed by wage rate.

Creases and store operating expenses, which are also due to higher ours, such as repairs and maintenance and higher utility costs.

On a two year stacked basis, we continue to mind, our labor utilization as same store labor hours remain down approximately 4% versus pre COVID-19 levels.

Approximately 8% of the operating expense increase is due to growth in units as we operated 166 more stores than the prior year and this also includes approximately $8 million in one time deal and integration costs, which was several million dollars lower than we originally anticipated.

With the large rise in retail fuel prices same store credit card fees also rose and thus accounted for another 3% of the operating expense increase in the quarter.

As mentioned earlier the operating expense increase was in line with internal expectations as the company anticipated that the most significant quarterly increase for fiscal 'twenty two would occur this quarter given the increase in store count and operating hours relative to last year importantly, I'd like to reemphasize that the company is still expected.

<unk> the full year operating expense increased to finish within our previous outlook, which is a mid teens percentage increase.

Appreciation in the quarter was up 15% driven primarily by the store growth along with placing our third warehouse into service.

The effective tax rate for the quarter was 23, 3% compared to 23, 8% in the prior year. This includes an approximately $3 million one time charge associated with revaluing, our deferred tax liabilities as part of the Buchanan energy closing and that was several million dollars lower than we.

We initially expected.

Adjusted EBITDA for the quarter was $245.0 million compared to $245.0 million a year ago. That's an increase of two 3%. This also represents the highest quarterly EBITDA in the company's history.

Net income was down very slightly versus the prior year record to $121.0 million.

The acquisitions that we completed in the first quarter were dilutive to earnings as we expected we remain confident that we will achieve the synergies anticipated with these transactions and that they will be accretive for the remainder of the year.

Our balance sheet remains strong at July 31, cash and cash equivalents were $199 million and we have the full capacity of our $475 million lines of credit, giving us ample available liquidity of $674 million, our leverage ratio ticked up as we had expected upon the closing.

Of the two transactions to two four times.

For the quarter, the company generated $197 million of free cash flow, which we define as cash flow from operating activities less purchases of property and equipment. This compares to $307 million in the prior year.

Primary difference versus prior year was lower contribution from working capital as the prior year benefited from a favorable fuel price impact on accounts payable as well as the deferral of FICA contributions under the cares Act.

After September meeting the board of directors increased the dividend to <unk> 35 per share.

Which represents the 22nd year in a row of raising the dividend.

We will remain balanced in our capital allocation going forward leaning into the many growth related investment opportunities that we have but continuing to repay debt gradually and tending to the dividend.

The company has opened 142 stores. So far this year, which includes three new store openings to 137 stores from the Buchanan energy and circle K acquisitions, and two independent acquisitions.

Obviously, there continues to be a growing uncertainty around consumer behavior and traffic volumes as the Delta Varian continues to spread throughout the country. The industry is also dealing with product outages and supply chain challenges, both with respect to fuel and merchandise.

However, we feel confident in our previously disclosed fiscal 'twenty two outlook and do not believe its necessary to make any adjustments other than other than that we now expect the effective tax rate for the year to land between 50%.

As previously mentioned, we expect total operating expenses to finish the year up mid teen percentages and Thats, a quarterly year over year increases will gradually decline as the year progresses with a small improvement in the second quarter and more substantial changes in the second half.

The company will continue to endeavor to offset labor inflation with gross profit adjustments and Darren will talk about what we're doing to address the tight labor market shortly.

Looking ahead to the very near term, we expect second quarter earnings to be lower than the prior year due to higher operating expenses and depreciation which will be partially offset by higher gross profit primarily from inside the stores I'll now turn the call back over to Derek.

Thanks, Steve first I'd like to congratulate the entire Casey's team for delivering impressive results in the first quarter.

<unk> done it without their hard work and dedication and given the resurgence of the Delta variant will continue to need their perseverance to perform at a high level.

Total inside sales were trending up low to mid single digits through August four fuel, we've experienced low single digit positive gallon growth, while fuel margins remain over 30 per gallon.

The team has done a great job of executing the strategic plan.

If you recall the pillars of the strategic plan to deliver top quintile EBITDA growth our reinvent the guest experience create capacity through efficiencies and being where the guest is via disciplined unit growth.

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

Given the inflationary pressures most retail industries are currently experiencing.

Think it's appropriate to start with creating capacity through efficiencies is there.

It is top of mind for the team right now of cases.

Our distribution center in Joplin, Missouri is fully functional this will help reduce over $9.0 million miles annually from our supply chain and will enable us to keep total G&A and distribution expenses flat for the fiscal year.

This is also brought about more operational flexibility as we manage through broader supply chain challenges with our vendor partners and adapt real time to keep store stock.

Our centralized procurement team is up and running with new software that it's enabling better vendor management and strategic sourcing initiatives.

Our field team continues to drive profitability through retail price optimization and procurement efforts.

Our merchandising team has proven they are capable of navigating through this inflationary environment by effectively managing cost of goods negotiations and making retail price point adjustments as needed.

<unk> also successfully driven sales to more profitable categories from the store resets completed last fiscal year.

And finally private label products continue to grow market share inside our stores not only is this a better value option for our guests, but it also improves gross profit margin for the category.

With.

Respect to being where the guest is we're off to a great start integrating integrating the two highly strategic acquisitions that we completed in the first quarter.

Specifically regarding we became an energy transaction, we've begun to move their merchandise and fuel onto our contracts. We are also starting to realize some operating expense savings and just last week rebranded <unk> stores. The cases that includes our pizza program.

Synergy expectations remain on track for both deals and our dedicated M&A team is actively pursuing more opportunities.

We continue to make great strides as we reinvent the guest experience and cases.

Expanding our digital guest engagement remains a high priority as digital sales were up 14% in the first quarter cycling of 162% increase last year.

We recently expanded our delivery business to include Uber eats marketplace at 750 stores.

Door dash marketplaces up to 890 stores.

We've also implemented door dash White label delivery of third party service that takes orders through our systems at 830 stores.

This enables our casey's rewards members to fully participate with our member benefits on our own app and receive delivery services throughout the entire day.

We still utilize our own delivery drivers at 400 stores and still offer in store pickup and curbside pickup at over 2200 stores.

Our Casey's rewards enrollment continues to grow and we just eclipsed 4 million members in August we have also begun to utilize segmented marketing campaigns, where we offer personalization and day part content on both the web and App.

We believe we can effectively optimize guest behavior with this type of targeted promotional activity.

With respect to investing in our talent. The company has held several mass hiring events to address our staffing challenges and continuing to offer retention and referral bonuses.

We believe these efforts are working application rates per store rose over 60% from April 30 to the end of the first quarter.

As a special federal unemployment benefits expired. This month, we expect this trend to continue.

We will remain competitive in the market with respect to pay to adequately staff. Our stores. So we can continue to deliver the outstanding experience our guests have come to expect from cases.

We're also incentivizing our team with a $50 bonus to get vaccinated as the health and safety of our team members and our guests as our top priority.

Before I open up the call to questions I would like to take a moment to recognize Julie <unk>, Our general counsel.

Julia has a 27 year Casey's team member has been a key member of our senior leadership team since 2010.

She plans to retire later this quarter after a long and distinguished career in.

In addition to serving cases, she has been a tremendous advocate for the convenience store industry, serving on various committees and volunteer roles with the National Association of convenience stores, including chairperson of the board.

We're going to personally Miss for advice and counsel and I wish her and her husband, Tom the best Congratulations Julie on a well deserved retirement.

We will now take your questions.

Thank you as a reminder to ask a question you made the press star one on your telephone.

To withdraw your question press the pound key we ask that you. Please limit yourself to one question and one follow up.

Our first question comes from Brian Griffin with Raymond James Your line is open.

Good morning, this is Bobby Griffin.

Thanks for taking my questions and congrats on Bobby Good morning, great quarter.

I just wanted to morning, I just wanted to follow up on the comments around Opex really great to see you guys reaffirmed the target. Despite probably are not probably a tougher labor environment and when we originally talked last but can you maybe just give some detail on what the drivers are for the back half of the year Opex slowdown from a year over year.

Growth perspective is there are some internal initiatives going on is it just a function of the year over year comparison with the hours anything there to help us think about what would slow down the growth as we as we move through the year.

In Opex.

Yes, Bobby this is Darren I'll start off and then Steve can fill in the blanks for me.

Yes.

You recall last year we.

We've kind of pulled back hard on operating hours in our stores and in our kitchens as kitchens were restricted or even required to shut down early on as things were on through the pandemic and things start to open up gradually we started to add back some of those hours. So the bill.

Year over year Delta really took place in the first quarter and as things progress throughout the year, we started adding more operating hours back in so those year over year comparisons start to soften a little bit from a from an absolute growth standpoint.

And so that's why you see that start to get a little bit better in the back half of the year Steve anything.

Some of it is just the math to Darren points. So we won't have the add back of ours.

That we had in the first quarter in the last three quarters.

But we will start to feel a little bit more.

Wage pressure year over year Delta last year in the first quarter, we were still paying some special COVID-19 pay to people that gradually worked its way out of the system and so the change in hours is going to be less impactful to us, but the change in rates will become more impactful as we move forward.

And the remainder of the year. We've added most of the new units you think we're targeting 200 units into the system. This year, obviously more than half of those who have already come into the system. So that will become a little bit less impactful incrementally going forward and then the credit card fees that's going.

Follow the price of fuel to a to a large extent, but the math simply helps us with ours and the actual wage rates as we as we go forward and so second quarter should be a little bit better year over year than what we saw in the first quarter, but we will start to see.

Significant improvement in terms of the year over year increases as we get into the second half.

And then the only other thing.

Alright.

That is the first quarter, we had a one time deal and integration.

<unk> costs for the two acquisitions that obviously don't repeat themselves in the back half of the year. So you see some softening there as well.

Very helpful. I appreciate the detail I guess, just a quick follow up for my follow up question just on the hours I think you'd called out theme in store hours down a little bit worse.

Pre COVID-19 period is that just a function of you.

You mentioned efficiencies always looking at the labor hours.

Mix of the business and kind of demand over the breakfast lunch and dinner period, a also driving some of that and as that mix.

Close to back to normal still not back to normal and then how do you see bringing hours back.

I understand the year over year comparisons are different but do you see opportunities to kind of keep <unk>.

Greek yogurt hours, a little lower even if we go back to a normal mix environment inside your store from business.

Yes.

I would say Bob is that we.

We were doing a lot of work around labor management.

Really pre Covid and then throw alcove. It in terms of time motion studies standing up a new labor management tool implementing that so I think we were we were getting more efficient with the deployment of our labor hours in the base case and then what we've got going on right now is just.

Difficult comparisons as we cycle unusual circumstances year over year with Covid.

With respect to the breakfast business, we are not all the way back to where we expect to be I think we're going to learn a lot here in the next <unk>.

Several weeks post labor day with school fully back in session people going back to work or not depending on the del Delta variant, but.

We just announced today, we launched a new breakfast lineup and new coffee program. So we're we're encouraged by.

The potential that that.

That program has to offer and so hopefully we will get back, but we're not anticipating having to significantly invest more in labor to meet that need.

Thank you I appreciate the details very helpful Best of luck going forward here.

Thanks, Bobby.

Thank you. Our next question comes from Ben Bienvenu with Stephens. Your line is open.

Hey, Thanks, good morning, guys.

Good morning, Good morning, Matt.

So I wanted to start on the prepared foods business, obviously, we're seeing that come back you talked about the improvement in slices.

If I look at the margin profile of the business. It's on a recovery track for sure, but it's still below kind of where we were pre COVID-19 and I am wondering if thats a function of mix that we maybe are a little bit lighter on that.

Beverage side of the equation as you talk about towards mobility improving.

As the morning day part essentially starts to improve.

<unk> beverage.

Improved with mobility.

Slight mix improves would you expect that margin to start to grind its way back to that pre COVID-19 level or is there anything else that we should be mindful out there.

Yes, I think I think it's going to take some time then to.

To get back to pre COVID-19 levels, but.

But certainly with the morning day part is still under pressure.

We're seeing while we're seeing better bakery and coffee sales than we were a year ago, we're still not all the way back to where we were before and then the same applies to the other dispense beverages found in frozen while improving over prior year still not all the way there and.

And so that we're still working our way towards getting back to that margin rate. The other thing is that we have seen some inflation in some of the ingredients that we use in our prepared foods. So while we've been able to mitigate that to a certain extent through through our cheese lock or through price.

<unk>, we have seen.

Inflation in a lot of the other ingredients and toppings for our various food products, which has put a little pressure on those margins.

Yeah, Okay that makes sense.

And then you noted that you sold some additional rooms this quarter. It doesn't look like it was a huge amount.

It's tough to tell with specificity I'm curious if you could offer any color on.

What the kind of surplus balance of Rins is that you are carrying forward.

Maybe maybe not when you expect to sell them, but just give us some sense of what's remaining out there. So we can think about appropriately modeling fuel margins.

Yes.

Take that Ben so we.

We carried over.

Little more than 4 million physical rents from the fourth quarter.

To the first quarter of this year. The normal course, we probably historically would have sold those rents in the fourth quarter.

Those had a had a value at average prices in the fourth quarter roughly $5 million. So we kind of carried that $5 million of value into the first quarter. When we did sell those we have completely sold all of those in the first quarter market prices have continued to go up so we realized somewhere.

In the neighborhood of seven or $8 million of value from those 4 million plus brands.

I'd tell you were pretty much caught up in terms of being balanced with the bank I don't anticipate that we will we did not carry anything forward of note from <unk> and <unk> I don't think we have any plans currently to carry anything forward.

And so I would expect we will sell.

We generate and so that's a function obviously of the type of fuel that we that we ended up selling and whether we splash blended are or not but I wouldn't expect the carryover impacts ran monetization going forward I think this was a one off event just given our circumstances and what was happening.

With prices at that point in time.

Okay very helpful. Thank you very much.

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

Good morning.

Hi, Bob.

Keith I was just hoping for a little more color on the integration process.

Sounds like it's been going well, so far and you mentioned like synergies.

But maybe you could highlight.

The synergies and where you.

You might have more upside than you thought previously.

Now that you guys have had.

Sure.

The business then as you look forward do you have a.

Yes of the upside potential to Bucky margin and thinking about.

We did grow share even keel and the timing of that as you start to layer in some of your capability.

Yes Bonnie.

Like I mentioned in my opening remarks, we feel really good about the integration process. So far and it's this is a little more complex because this was a stock deal. So we have the entire G&A infrastructure.

Of the company and we're still very early days, we've only added about 90 days at this point so.

The process is working according to plan.

We have started to wind down some of the operations in their office.

Part of what we acquired there was a small distribution center that they have and we're starting to wind down those operations and expect to be out of that by the end of the year, but we are.

In the process of converting stores over to Casey's from Bucky's and we've got the first four open and operating we are seeing encouraging results there, but obviously very early days.

I would say probably from the.

From an upside perspective, theres, probably a couple of areas that we feel good about.

One is on fuel and fuel margins, we've really.

Seen an uptick in the fuel margins in that business, particularly in the Illinois stores versus what we had originally anticipated. So that's been a positive upside. We also have a reverse synergy opportunity with carwash. They were they really put a lot of focus and emphasis on their car wash business, which is something that we've been getting into but.

But frankly haven't done a great job of and so we've been able to take some of their folks that are experts in that area.

And help us apply some best practices. So we think there's some upside there we're not really changing any of our modeling expectations from this.

A little bit too premature to do that but.

Suffice it to say, we're encouraged with what we've experienced so far we're confident this is going to work out according to plan.

Okay I appreciate that color. Thank you.

Thanks.

We have a question from Kelly Bania with BMO capital Your line is open.

Hi, good morning, Thanks for taking our questions.

Good morning.

Good morning wondering if you could talk a little bit more about the breakfast.

The new breakfast line, and maybe just kind of walk us through some of the potential math, there and what what does breakfast account for today in terms of that day part of within prepared foods and where do you think this could go over time.

And just any impacts to margins or your labor labor model.

<unk>.

Yes Kelly.

Really excited about the breakfast launch.

Yes.

<unk> done a couple of things we are focused on improving some of the existing products that we already had just getting higher quality ingredients.

And different bills. So in some of our breakfast sandwiches are breakfast biscuits or croissant sandwiches, improving some of the quality. There. We've also rationalized some of the lower lower performing skus out to me.

Make it more efficient to operate the kitchens.

And then our culinary team developed a new product.

Our breakfast handheld product that leverages, our made from scratch dough.

Unique builds with sausage, and egg and cheese, or bacon, and egg and cheese, but leveraging that Doe in a unique way. So its handheld is very portable and car friendly and.

As we go into the fall you've seen a lot of <unk> concepts lean into breakfast because everybody is trying to get their breakfast business back, but I would argue there's not been any real innovation in the breakfast. It's all the same stuff.

We think we've got a unique product with this handheld.

Differentiated in the marketplace nobody else will be able to produce this because it's made from scratch in our kitchens everyday.

So we really like that.

<unk>.

We've rebuilt our breakfast burrito that is really in our consumer testing has been a fan frame fan.

<unk> fan favorite so we've got high expectations of that and then probably the single biggest thing we did well.

It was we upgraded our coffee platform. So we.

Yeah.

Over the summer we replace the equipment at all 2300 of our stores to have been to Cup coffee program. So the coffee technology grind, the beans, and brews each cup of coffee fresh.

So that will enable us to reduce waste makes it easier to execute in the stores.

From a labor standpoint, and provide fresh coffee 24, 7%. So we're really excited about that process as well. So we think when you take all of that we've got a little bit of labor efficiency on the coffee piece, we've got a little bit more complexity on the food side, we think thats, a wash from a labor standpoint, but.

<unk> a much better experience for the guests.

I think we lost Kelly did we lose you.

Just following up on that as you think about your guidance for the year for mid single digit comps are you.

Taking in any contribution from this new initiative.

And just if you could elaborate I think you commented on the low single digit through August is that in line. It sounds like it's in line with your expectations.

Yes, low to mid single digits for inside sales and that's what we're experiencing now.

And would anticipate at this point, we really had we knew this breakfast lineup was coming so that's been baked into our expectations for the year.

It's going to be a very competitive breakfast environment in the fall like I mentioned before with most every <unk> concept that has breakfast trying to get back into that business. So we expect we need this to be competitive we think we're differentiated and we will.

Outperform, but we have that baked into our numbers for the year.

Thank you.

Thank you. Our next question comes from Matthew Fishbein with Jefferies. Your line is open.

Hey, good morning, guys. Thanks for the questions.

Good morning, good morning.

So some of the companies gallons per store uptick in the quarter was likely due to that addition of Buchanan.

We can in stores to the mix, but I think same store gallon still improved a bit on a per store basis relative to 19 COVID-19 that is.

While fuel margins, even even excluding the call it two and a half cent per gallon impact from a larger rig contribution still sequentially increased quarter over quarter.

If you did highlight your expectation to lift.

Inside store gross margins and help offset that opex headwind, but given cost inflation facing the entire industry and given most of the industry doesn't have that strong inside store lever that case. This does that offset opex increases from your perspective.

Where do you see industry steel margins and their ability to remain stable or expand further from here.

As gallons continue to come back or maybe asked a different way if the industry cost outlook were to increase in the near term do you believe theres still room on the fuel margin side for the industry to offset it.

Yes, Matt I would say that at this point, we'd have to say that these margins are sustainable at least in the near term and it's for the reasons that you mentioned the underlying cost to operate this business are going up I mean, everything from from labor, which is.

Well documented and everybody's.

Dealing with that there is some inflation, we're seeing some are probably experiencing a more than we are but theyre experiencing it nonetheless.

<unk> compliance with just kicked in April is another another piece of the equation and so and then of course credit card fees were experiencing right now so all of those things are making it.

More opex heavy environment and to your point earlier, most most other retailers in the industry don't have the levers we have to offset that so thats, most likely going to find its way into the into the fuel price.

So I would say these margins are somewhat sustainable whether they they lasted 30 cents a gallon or north of 30, a gallon longer term.

<unk>.

The body's guess, but I would certainly expect that they're going to remain elevated from where they were historically because there's no. Other place for most of these folks to go to recapture this opex has got to go somewhere and I think thats, where it is most likely to end up.

Yes, it makes sense, thanks for that and just to follow up on inside gross margin. Some of your peers are having higher than normal out of stocks and stores, mostly driven by their collection of distributors, having their own labor and fill rate issues.

And I know category and subcategory mix, the procurement opportunity private brand products, that's already lifting inside gross margins for you, but I'm presuming there is still room for improvement just.

Industry supply chain headwinds hopefully softening at some point going forward. So I just I guess just to clarify given yourself distribution model and grocery is that additional control of the supply chain, helping in this environment or would you say you're still having some of that transitory supply chain headwinds fill rates from your suppliers and out of stocks and.

Store.

Well I'll tell you Matthew.

Or the fact that we own our own supply chain has been a huge benefit to us during this whole time.

I'll be the first to say we have we have.

<unk>, our own challenges with the supply chain because manufacturers are struggling to produce products, but the fact that we control the supply chain has given us a lot of flexibility I gave you. An example, we've had some suppliers that can't get product to us because of driver shortage as well, we have our own fleet of drivers and trucks.

We can send attractor to a manufacturer pickup a trailer and get it back to our distribution centers continued to distribute product. We have some products that we distribute ourselves that otherwise would be DSD supplied products and we've seen as we've gone into competitor stores that these stores are out of stock on a lot of those products.

So we're able to self distribute and manage so.

And then the last piece that you mentioned with private label having.

Having the private label products has enabled us in some categories. When we've been short within that category from a national brand supplier to flex over and provide our own product in that same category. In makeup for some of those out of stocks. So we think we are definitely in a better in stock position because of that flexibility than than a lot of our competitors.

<unk> or <unk>.

You said it has been a challenge.

And it's a new challenge every day that we hear from certain suppliers.

And on their end.

Anywhere from labor shortages to driver shortages in some time in some cases is raw material shortages.

That have occurred so.

It's across the board.

I said I like our spot of having positive control over the over the supply chain being able to flex and adjust to keep our stores in stock.

Awesome. Thank you very much.

We have a question from Chuck Cerankosky with Northcoast Research your line is open.

Good morning, everyone great quarter.

Had a question about the pizza business.

You mentioned that the supply excuse me there is a resurgence in the single slice business how does that.

Coordinate with the whole pie business as the ladder dropping off or have you held on to that can you sort of talk about the financial impact as those parts of the pizza business move around.

Yes Chuck.

The slides business has definitely come back where you are up about 29% year over year and slices, but.

The whole pizza pizza business in the slides business really don't compete much with each other.

The slides business is primarily a morning and afternoon day parts breakfast and lunch day part occasion as you get more into the evening time and dinner, that's when we shift over to the whole pie business.

They really kind of complement each other more than.

In conflict with each other now that being said our whole pie business has softened a little bit versus prior year, obviously, when everything was shut down the whole pie business really surge but.

Two year stack basis, we're up double digits in the whole pie. So we feel like we've held onto a lot of that incremental growth that we experienced during the height of the pandemic, but we gave a little bit back, but overall, we're really happy with where the pizza businesses right now and it's continuing to grow.

Alright. Thank you that's very helpful.

Our next question comes from Anthony <unk> from Sidoti <unk> Company. Your line is open.

Yes, good morning, and thank you for taking the questions. So.

Terms of the procurement initiatives, how far along are you with that process or maybe out of baseball terms can you give us a sense as to what inning are you in now I just wanted to get a sense as to the opportunity that you have in front of you.

Yeah, I'll start with that Anthony I mean, we're early innings for sure.

With our strategic sourcing initiatives generally it probably varies a little bit by by category. So we obviously.

We're working on multiple facets here some of it for sure is supply to existing supply agreements that were already in place that we need to kind of age through normal course for many of our suppliers. We had more I think historical informal relationships that probably werent.

As as legally binding as you might expect for an organization of our size and so we are working through most of those I think on the grocery business. We've had a lot of success over the last year renegotiating and entering into favorable.

<unk> contracts with a lot of our CPG and DSD suppliers and I think we're seeing that.

For sure and the margin improvement in that category, where we don't talk much about inflation pressure in that category and that's a function of.

The procurement progress that we've made on the prepared food side. There is less currently under renegotiated long term contract, that's where most of our focus is right now if you think of a commodity suppliers.

Suppliers everything from cheese proteins, a lot of emphasis on that I would expect by the end of the year. We will have made quite a bit of progress not only in.

Locking up longer term agreements, but also making sure we have less dependency on single source suppliers than we do today in certain categories and given Darren earlier comment just around supply chain challenges I think we all would feel better with a little more redundancy.

In certain aspects of our supply chain and then finally on the on.

On the indirect side things like construction et cetera, we spend quite a bit of capital dollars.

<unk> put in some new systems that we referenced earlier.

<unk> us to be I think much more formal in creating competitive scenarios for future capital spending that will contribute to yield fruit for a while so we've got a long way to go and I would expect that all of those who contribute positively to the margin improvement opportunities that we talked about over the next really back.

Several years.

Got it thanks for that detailed answer.

So just to follow up on the on the part of that so as far as cheese cost are concerned obviously, that's a big component of your prepared food category.

Where are you now as far as cheese, plus near term and how does that compare versus a year ago.

We're about.

We've got about half of our second quarter requirements locked in if you look at the spot curve today I would tell you.

We anticipate a cheese cost impact in the second quarter to be comparable to what we had in the first quarter. So we had I think its about an 8% decline in the commodity cost in the first quarter I think we're looking at something similar to that in the second quarter. We are not blocks beyond the second quarter and will continue.

So watch the market and try to be.

Opportunistic around that but I think second quarter will be a tailwind in the spot prices today would put catalysts have a little bit of a little bit of headwind cost at the moment in the second half of the year, but currently would not be significant.

Got it thank you and best of luck.

Thanks.

We have a question from John Royall with Jpmorgan. Your line is open.

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

Is there anything you can share on the pro forma year over year performance.

The Buchanan asset this quarter.

<unk>.

The major differences point out between legacy <unk> and the acquisition.

We feel the cadence members bearing in the same store metrics, but maybe you could share on Buchanan itself not evident in the GAAP numbers would be helpful.

Maybe maybe I'll just start I mean, obviously, we didn't we didn't own the assets for the entire quarter. So the comp is a little bit challenging if you're just looking at it I would say generally speaking to Darren earlier comments.

I think we're about where we thought we would be I think.

At the highest level, we spent a little bit less in terms of kind of closing integration related costs than we had thought we were going to which helped us a little bit we had a lower tax charge. Just once we went through all the numbers than we thought so I think we will spend a little bit less upfront for sure.

They are as a business dealing with the same kind of dynamics. We are their fuel profitability is higher than what we had originally expected it to be which is consistent with obviously what people are seeing overall in the industry, but we feel good about it being a net contributor to about four.

$5 million of EBITDA.

To us in this fiscal year by the time.

<unk> settles there that will include some synergy captures as Darren referenced starting in the second quarter I think it will start with G&A and fuel and as construction progresses, we'll start to see some inside the store realization there, but most of that in fairness, we probably be in the following <unk>.

Following fiscal year.

Great. Thank you and then second one is just more housekeeping, but can you talk about the cadence of Capex.

New build activity <unk> was pretty light, which I think is pretty typical historically.

Historically, when you look back.

Historical years, but in this case, it's under 10% of the full year guide. So you can just talk about kind of the cadence of.

Newbuild activity.

How would you expect that to progress the rest of the year that'd be helpful. Thanks.

Yes, <unk> was light for sure I think second Q, we will also be light.

We're going to spend most of our time in the second quarter working on integrating the acquisitions remodels that et cetera. I don't think we will have a significant number of new new to industry builds come up in.

In the second quarter, so it will be backend loaded and we.

We're somewhat dependent on making sure we successfully manage through supply chain challenges on the construction side right getting pieces of equipment in it.

This is not any easier than stocking the warehouses for goods for resale. So it will be a back end loaded schedule.

Most of the new units that we will end up building will come up in the second half of the year.

Great. Thank you very much.

Thank you we have a question from Cristina <unk> with Deutsche Bank. Your line is open.

Hi, good morning, and congrats on a great quarter.

You may begin your mid single digit inside sales guidance for the year, but I was wondering if maybe you could parse out just at a higher level, how you're thinking about performance at grocery versus prepared foods.

Quarter, and a little over a month into the year and.

From a consumer behavior perspective, with the spread of delta, but keeps going back into school.

Are you seeing in terms of store traffic and conversion trends really going back to your story.

Yes, Kristina <unk> with respect to traffic.

I think it's a little bit early to tell what the back to school.

And back to school for a few days and most of our geography and that was a holiday week and now we're just coming back. So I would say yesterday was probably our first fully back to school day.

So we're anticipating that our traffic will improve but.

We got to get a couple more days into it before we we have a real sense I think the the.

The wildcard on on traffic to a certain extent as people returning to work and I think.

A couple of months ago pre the Delta variant really getting some.

Some momentum thing most companies were planning on returning back to work after labor day, and a lot of those companies have sort of pushed those plans a month or two in some cases pushed all the way to the end of the calendar year. So we're just going to have to see how that progresses.

What's the.

The Delta virus.

Filter variant and.

And how we do that all that being said.

We expect to continue some momentum with the grocery category, but we will be cycling over.

The store resets here substantially in third and fourth quarter. So those comps will probably soften and then we will continue to pick up some momentum on prepared food and dispense beverages as those traffic patterns start to return to normal so I would.

Say grocery probably softening in the back half of prepared food, maybe accelerating a bit Steve any.

Okay.

But grocery grocery will be.

Below prepared food for the rest of the year and Thats, just a function of the math right with what we're lapping from prior.

Prior year.

Alright, Great and then just wanted to follow up about how you're positioning your business going forward now that we're more out and about getting vaccinated.

How do you plan on really holding onto some of the new customers that you have acquired how youre thinking about layering in the loyalty program potentially in a more personalized way and promotions to drive engagement and traffic back to the stores, even as people still continue to work from home.

Yes, we're definitely going to leverage our.

Our investment in the rewards program and our digital technology and if you think about.

<unk> been marketing so far from a digital standpoint, we look at it we have a kind of a blended strategy, we use a curation, which is where we market to one.

One message to a broad swath of people to the majority of guests.

And that's about 55% of what we do today about 30% of what we do is segmentation, where we get different cohorts of guests and we have a specific promotional message to those guests and then about 15% of it today is individualized, where we tailor the message to an IND.

Vigil consumer based on what we anticipate their behavior to be.

As we moved throughout this year, we're going to shift that mix. So by the end of the year, we expect about 60% of our digital activity will be individualized to each consumer.

And then about 20% will be the more segmented approach or duration. So we're going to fundamentally shift our approach to being more targeted to individual needs and what we anticipate those needs are based on the affinities and we've seen through their purchasing behavior and so we would expect that that would have a positive impact.

And make that experience.

More sticky and more attractive to the guests moving forward.

Great. Thank you very much.

Thank you. Our next question comes from Brian Mcnamara with Bamberg Capital. Your line is open.

Good morning. Thank you for squeezing me in here you exit that you exited the quarter with private label, representing about four 4% of your grocery and general merchandise sales, where do you see that penetration landing this fiscal year and over the medium term and our new stores and acquired stores, starting with with a higher private brand penetration relative to the rest of the fleet.

Thanks.

Yes, Brian you're right the private label exited.

August was four 4% penetration rate our goal for the year is 5.25%. So we expect to continue that migration and then over time, we expect to get to 10%, but that's going to be a multiyear exercise.

Already launched 209 private label products since we launched the program and we have another 60 products in the pipeline they will be launching.

Between now and the third quarter. So we feel confident in getting to that to that level of penetration on the new stores I am not sure that we're seeing any significant.

<unk> difference between new stores in existing stores.

The.

The acquisition stores, it's fair early stages will bring in those products as we convert those stores. The Casey So very early days on those but I would anticipate that they would reach the same mix as our more traditional stores.

Great and then just a quick follow up.

Fuel margins I mean, <unk> there is still pretty high do they continue to influence the M&A environment or our potential targets more willing to sell than they have been during this elevated fuel margin environment, given potential capital gains tax treatment changing thanks.

Yes, I think I think you hit it you hit the nail on the head I think it's less about fuel margins right now more about.

Just the underlying cost and complexity of operating the business today and particularly in this environment was with Covid and then compounding that is the potential of the capital gains tax changes and I know they are talking about that as we speak and so we are seeing increased level of deal flow and so we're.

Looking at other opportunities but.

We expect that that's going to be a catalyst in the near term for increased M&A activity.

Did we lose you Brian over the last time I think we're ready for that question.

Alright. Thank you guys appreciate it.

Thank you. Our next question comes from Karen short with Barclays. Your line is open.

Hey, Good morning, guys. This is actually Renato <unk> on for Karen.

Thanks, Ron.

Getting us into the call.

Just just one one quick one for me can you just talk a little bit more about the competitive landscape.

From a breakfast day part perspective, and then if you could just remind us what breakfast as a percent of prepared food sales that would be great. Thank you.

Yes.

In terms of the landscape I think.

What you saw a.

A year ago when.

Lots of businesses were shutting down offices were shut anything without people were sheltering in place you saw disproportionate impact on the breakfast day part and that that had everybody from Starbucks to the world to Mcdonald's to US antibody those in the morning day part was impacted by that and so now <unk>.

Forward a year later I think everybody is.

Optimistic about getting that business back to normal as more schools are in session in person.

More people are returning to work and then there was a year ago. So you've seen.

Mcdonald's come out with more promotional activity Wendy's has certainly been very active in this space Taco Bell just announced that they are bringing breakfast back after suspending it.

And so there's a lot of.

A lot of increased activity so.

Like I mentioned before we like our position we think we've actually got real innovation that the others don't have that are kind of recycling what they've been doing historically. So we think we have a niche there that we can capitalize on.

Breakfast is about a third of our prepared foods business.

A lot of that comes in our breakfast pizza, but a lot of other things like doughnuts, and baked goods and coffee and.

And sandwiches also play a big role and that's where we've we've innovated as on the coffee and breakfast.

The other breakfast lineup and so we'll always have that base of breakfast pizza to to lean on but we've got the innovation on top of it that we think will help us accelerate our breakfast growth.

Oh.

Perfect that's great color, thanks, and best of luck.

Thanks.

Thank you and Theres no other questions in the queue I'd like to turn the call back to Dan Rubella for closing remarks.

Alright, Thank you for taking the time today to join US on the call I'd also like to thank our team members one more time for their efforts this quarter, we're off to a great start to fiscal 'twenty. Two we will continue to be nimble as we navigate through the recent delta variant resurgence. Unfortunately, we've demonstrated our ability to deliver results on our long term strategic plan both normal time.

And during a global pandemic I am confident we will continue to drive shareholder value. So thank you and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.