Q4 2022 Caseys General Stores Inc Earnings Call

Good day and thank you for standing by welcome to the Q4 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 will be a question and answer session to ask a question during this time.

You will need to press star one on your telephone please limit yourself to one question and a follow up if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mr. Chad Brian . Please go ahead.

Good morning, and thank you for joining us to discuss the results for our fourth quarter and fiscal year ended April 32022.

I'm, Chad, Brian <unk> senior analyst Investor Relations filling in for Brian Johnson, who is under the weather with me today are Darren <unk>, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

Before we begin I will 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 $19 95.

These forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial conditions liquidity unrelated sources or needs the.

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

<unk> is expressed or implied by those forward looking statements, including but not limited to the integration of the recent and pending acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks.

Certainties 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 intention or obligation to update or revise forward looking statements, whether as 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 fourth quarter can be found on our website at www Dot Kc's dot com under the Investor Relations link with that said I would now like to turn the call over to Darren to discuss our fourth quarter.

Results Darren Thanks.

Thanks, Chad and good morning, everyone I'm looking forward to sharing our results in a moment.

I'd like to start by thanking our 42000 Casey's team members for their tireless efforts and contribution to a fantastic fiscal year.

Our team members have done an outstanding job navigating through these challenging times and the team's ability to be nimble and perform at a high level under difficult circumstances to something I'm, especially proud of and grateful for and we certainly would not have delivered another record year without their efforts.

Our cases, our purpose is to make life better for our communities and guests every day.

As a road Midwestern operator, we play a significant role in the towns we operate in.

It's a privilege and responsibility we take to heart.

Throughout the fiscal year, we have truly been here for good.

Raise $1 million in funds for organizations, helping veterans and our families.

We raised $1 billion to help local schools through our cash for classrooms Grant program and we enable over 5 million meals for our neighbors in need.

We are here for our communities and we want to get back to those communities and guests that support us.

Now, let's discuss the results of the past fiscal year.

Fiscal 'twenty two was a record year for diluted EPS, finishing at $9 10 per share a 9% increase from the prior year.

The company also generated a record $340 million and net income and $801 million in EBITDA, an increase of 11% from the prior year.

Inside sales and gross profit.

Each up 14% versus the prior year as just returned to the store to buy pizza spices and items from our refreshed breakfast menu among other cases favorites.

Inside gross profit margins remained flat compared to the prior year, an impressive outcome given the merchandising cost pressures impacting the industry.

Inside gross profit grew more than fuel gross profit in fiscal 'twenty two.

And we expect to continue as we add kitchens to our recently acquired stores.

Total fuel gallons sold increased 18% in the fiscal year and fuel gross profit increased 22%, averaging <unk> 36 per gallon margin over the course of the year, despite rising fuel prices as consumer demand improved.

Free cash flow was an impressive $462 million proving that we can grow the business, while preserving the balance sheet.

We closed three large strategic acquisitions that were a significant part of the 228 new units opened this year.

Through these acquisitions, we have strengthened our presence in the Nebraska, and Illinois markets through the <unk> acquisition and acquired immediate scale in the Oklahoma City, and Knoxville, Tennessee markets with the circle K and pilot acquisitions, respectively.

These acquisitions also fits seamlessly into our existing distribution network with the addition of our third DC in Joplin, Missouri in May of 2021 and continued our expansion into the southwest portion of our footprint.

We're excited about the strong progress we've made integrating all three strategic acquisitions and realized approximately $15 million in run rate synergies on the <unk> acquisition this year.

Casey's rewards continues to grow and has become a significant part of our guest experience.

We recently exceeded 5 million members and are poised to leverage this platform to communicate with our guests more effectively than ever.

Our private brand program exited the quarter at 5% penetration of the grocery and general merchandise category.

We currently offer over 250 items and are confident in our ability to achieve 6% penetration next year and our long term goal of 10% over the next several years.

I would now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal 'twenty three Steve.

Thank you Darren and good morning, before I jump into the financials I would also like to take a minute to acknowledge the entire team given the strong performance both in the quarter and for the record breaking fiscal year.

Excellent financial results wouldn't have been possible without their hard work and dedication.

The fourth quarter was the first one where we are fully consolidating the results from all three of the significant acquisitions that we closed this year.

And it's easy to see the impact of a unit growth along with the strong mothership execution on our total results in the quarter.

Here are just a few examples to help contextualize the magnitude.

Total fuel gallons sold rose by almost 86 million gallons or 16% total.

Total inside sales revenue rose over $120 million or 14%.

Revenue for the quarter was approximately $3 $5 billion, which is an increase of $1 1 billion or 45% from the prior year. Now in addition to the increase in gallons sold and inside sales higher retail prices of fuel contributed to this increase as well.

Total gross profit rose $96 million or 17%.

This exceeded the rise in total operating expenses of $65 million or 15%.

And as a result, total EBITDA rose $31 million or 23%.

Diluted earnings per share for the fourth quarter were $1 60, which is up 43% from the prior year.

While the new units had a significant influence on our overall results. It is important to highlight the healthy performance of our existing fleet this quarter same.

Same store sales were strong for both inside sales and fuel as guest traffic continued to improve.

Inside same store sales were up five 2%, while fuel gallons increased one 5%.

Our inside margin decreased 50 basis points versus the prior year, primarily due to wholesale cost inflation.

And that was partially offset by retail price increases.

It was a very strong quarter by all accounts, but it didn't quite reach the level that we had anticipated at the time of our most recent business update.

The end of April proved to be quite volatile in terms of fuel cost and ultimately we finished several million dollars or about a penny a gallon below our expected fuel profitability level for the quarter.

Total inside sales rose 13, 6% from the prior year to $1 billion.

With an average margin of 39, 4%.

For the quarter total grocery and general merchandise sales increased by $94 million to $744 million, which is an increase of 14, 5% and total prepared food and dispensed beverage sales rose by $30 million to $293 million an increase of 11 three.

Percent.

Same store grocery and general merchandise sales were up four 3% and the average margin was 32, 5%, which is an increase of 70 basis points from the same period a year ago.

The merchandising team continues to do an excellent job staying ahead of inflation in the center of our stores.

Sales were particularly strong non alcoholic in alcoholic beverages, and we experienced a favorable mix shift in these categories.

Our single serve and smaller package sizes outperformed.

Non alcoholic beverages in total were up over 32% on a two year stack basis.

<unk> same store sales were up high single digits and up over 18% on a two year stack basis.

Same store prepared food and dispense beverage sales were up seven 6% for the quarter.

The average margin for the quarter was 56, 9%, which is down 320 basis points from a year ago.

Pizza slices continue to perform well up 21% for the quarter, while hot breakfast sandwiches were up close to 41% as part of the company's breakfast menu relaunch that began in September .

Margin has been adversely impacted by cost increases in our food ingredients, partially offset by menu price increases along with an uptick in waste as stores kept the warmers, all a grab and go items to keep up with the higher demand.

Cheese costs were meaningfully higher than the prior quarter up 33 per pound to $2.26.

The adverse impact of higher cheese to gross profit it was about $3 5 million.

Or 118 basis points on margin.

We took a further series of price increases in the middle of the quarter and another round at the start of fiscal 'twenty three to further offset these cost increases.

The team remains committed to maintaining profit margins at historical leverage levels over the long term inside the store.

During the fourth quarter same store fuel gallons sold were up one 5% with a fuel margin of $36 <unk> per gallon up approximately three two cents per gallon compared to the same period last year.

<unk> cost rose 74 cents, a gallon, causing an extremely challenging margin environment, especially in the last few weeks of the quarter.

Yet our fuel team did a remarkable job responding quickly and maintaining strong fuel margins, while preserving and balancing gallons growth.

Retail fuel sales were up $900 million in the fourth quarter, driven by 16% increase in total gallons sold to 621 million gallons as well as a 40% increase in the average retail price per gallon.

That average retail during this period was $3 77, a gallon compared to $2 70, a year ago.

As a reminder reported fuel results do not include the Buchanan energy wholesale business, which is included in the other revenue category and is responsible for the vast majority of the $57 million increase that we saw this quarter in this line item.

Total operating expenses, excluding credit card fees were up 13% to $438 million in the fourth quarter total operating expenses were up 15, 2% or $65 million, which was consistent with our expectations.

Approximately 9% of the operating expense increase is due to unit growth as we operated 209 more stores than the prior year.

Approximately 4% of the increase is due to same store employee expense and 2% of the increase was due to higher credit card fees from high fuel prices.

As an aside we have incurred approximately $55 million of additional credit card fees in fiscal 'twenty two.

EBITDA for the quarter was $165 8 million a 23% increase this represents a record high fourth quarter for the company.

Depreciation in the quarter was up 11, 4% driven primarily by the store growth along with the new distribution center that was placed in service at the start of fiscal year <unk>.

Net interest expense was $15 3 million in the quarter as compared to $11 2 million in the prior year.

The increase was due to the additional debt taken on to fund the Buchanan energy and pilot acquisitions as well as approximately $1 million and a non cash write off of <unk>.

Previously capitalized financing costs associated with the acceleration of the term loan prepayments.

The effective tax rate for the quarter was 17, 8% compared to 22, 2% in the prior year driven by one time benefit from adjusting the company's deferred tax liabilities for lower state income tax rates within our footprint that were enacted during the quarter.

Net income was up versus the prior year to $59 8 million an increase of 43%.

To Buchanan Energy Circle, K and pilot acquisitions were all accretive to EBITDA in the fourth quarter as we expected.

Our balance sheet remains strong at April 30, we have ample liquidity of $634 million. We were also able to prepay a $168 million in variable rate debt due to strong cash flow. Our total floating rate exposure is currently about 16% of our portfolio.

Which insulates us quite well in the current rising rate environment.

And Furthermore, we have no significant maturities coming due until fiscal 2026.

Our leverage ratio decreased to two one times and our balance sheet has plenty of capacity to make good strategic investments as they present themselves to us.

For the quarter net cash generated by operating activities of $252 million less purchases of property and equipment of 98 million resulted in a $154 million and free cash flow.

<unk> spending levels in the quarter were constrained by supply chain challenges.

At the June meeting the board of directors voted to increase the dividend <unk> 38 per share marking the 20 <unk> consecutive year that the dividend has been increased.

We'll continue to remain balanced in our capital allocation going forward, primarily leaning in to them any EBITDA and ROIC accretive investment opportunities that are in front of us we expect to naturally reach our target leverage ratio of two times debt to EBITDA during fiscal 'twenty three and therefore, we do not anticipate.

Further discretionary debt repayments at this time and.

And we will remain opportunistic related to our $400 million share repurchase authorization.

Although uncertainty remains given the all time high fuel costs and the potential impact of the current macroeconomic conditions may have on consumer behavior. The company is providing the following fiscal 2023 outlook.

Kc's expects same store inside sales to be up 4% to 6% with an insight margin of approximately 40%.

Same store fuel gallon sold are expected to be between flat to up 2%.

Total operating expenses are expected to increase 9% to 10% based on current fuel prices and approximately half of that increase is same store related.

Other half will be from unit growth.

Total opex will be up low teens in the first quarter of the year and should fall back to mid single digits in the second half once we cycle through the acquisition activity of FY 'twenty two.

We expect to add approximately 80 new units in fiscal 2023.

Interest expense is expected to be approximately $55 million.

While depreciation and amortization will be roughly $320 million.

We expect to purchase $450 million to $500 million in PP&E and that includes approximately $135 million.

Related to onetime investments for remodeling the recently acquired stores largely put in kitchens.

We expect a tax rate between 24 and 26%.

We also expect to realize $20 million to $25 million and run rate synergies in fiscal 'twenty three from our recent acquisitions as we complete the remodeling activities with more of a second half bias based on the current permitting timelines.

We also expect free cash flow of at least $250 million.

Given the unprecedented fuel cost volatility that we've seen in the past few months.

Guiding to a CPG figure at this point.

For model calibration purposes, only however at the midpoint of this guidance annual fuel profitability in the mid thirties, CPG would lead to EBITDA growth for the year of at least 5% to 6%.

Our first quarter experience to date is as follows CPG is slightly below prior year levels.

Same store gallon growth is at the low end of the annual range and same store inside volumes are at the midpoint of our annual expectations.

Cheese costs remain elevated on a year over year basis, and Theyre currently running approximately 30% higher than in the prior year.

With that I'll turn the call back over to Darren.

Thanks, Steve.

I'd like to again say, thank you and congratulations to the entire Casey's team for delivering another record year.

The hard work of the team and dedication to cases gives us confidence in our ability to execute on our three year strategic plan.

As you can see our business has performed exceptionally well in a challenging macroeconomic environment.

Pieces has shown tremendous resiliency.

Positioned, especially well to deliver future value to our shareholders through our chief our strategic plan.

Which is being enhanced with our commitment to technology.

As a reminder, the three pillars of our strategic plan, our reinvent the guest experience create capacity through efficiencies and be where the guest is the disciplined store growth.

All three pillars are supported by investing in and growing our talented team.

We're leveraging technology more now than ever before to reinvent the guest experience.

He built a well respected tech digital and data team will position us for the future as we embark on our Casey's modernization journey.

Our focus on technology is centered around three primary areas.

Drive guest engagement and experience improves.

Improving team member engagement and impact.

<unk>, our growth via supply chain merchandising and fuel capabilities.

The goal is to create a guest experience is best in class our mobile App now represents 65% of all digital revenue, which is currently driven by all times.

We recently added 700 stores that can now deliver beer in hard seltzer, along with their pizza orders. We also rolled out a carwash subscription program for our 200 plus car washes.

We plan to utilize technology to ease manual functions within our stores and enable our team members to spend more time on our highest priority our guests.

Merchandize ordering efficiency inventory management, along with more robust data analytics will create efficiencies in our stores, along with improving accuracy and communication between our stores and our supply chain.

Regarding creating capacity through efficiencies pillar artificially self distribution model has served us well through these trying times and is poised to help us navigate through the challenging near term inflationary and supply chain environments.

Our fuel pricing and procurement teams and navigated through the last two years of unprecedented fuel volatility tremendously well, we will continue to play a critical role in growing EBITDA as we look to fiscal 'twenty three.

Finally, our recently created central procurement team as well as the new asset protection Department are hitting their stride.

Obviously, our store growth pillar B, where the guest is via disciplined store growth was on full display in fiscal 'twenty two.

We more than doubled our previous record high unit growth the 228 newly constructed and acquired stores.

Our two pronged approach to growing the business by taking advantage of strategic acquisitions, when they're available alongside organic growth should give our shareholders peace of mind that we can ratably grow the business year after year.

For dedicated M&A team is still sourcing more stores, whether it be a single store owner or 100 store regional chain.

In the meantime, our real estate team is actively pursuing sites for new store construction.

This strategy enables us to remain disciplined we do not need to overpay or chase non strategic acquisitions to hit our growth targets.

With respect to our people we've filled out the leadership team with the right amount of legacy experience and fresh perspectives to drive the long term strategy in fact about 60% of our leadership team reflects diversity in ethnicity or gender.

The diverse background of our leadership team has made a positive impact and how we think through critical issues support and develop our people and reflect casey's values.

Our teams diversity also ensures we take into consideration a wide range of perspectives and experiences when we build a strategic plan and set goals lead our teams and navigate challenges.

Our shareholders can also look forward to our second annual ESG report to be issued in July with our annual report and proxy statement.

We received positive feedback from our shareholders. After our first ever report last year.

Shareholders should expect progress from last year, particularly with respect to more quantifiable metrics as well as the completion of our first ESG materiality assessment.

As we look ahead to fiscal 'twenty, three and beyond and remain confident in cases business model in the face of uncertain times.

People are still returning to work and that will continue to drive increased foot traffic to our stores.

In addition, if you look back to the last two recessionary periods of 2008 and 2014, our company performed very well.

And during those times, we did not have the value proposition of our private brand program like we do now nor did we have a loyalty platform like casey's rewards to effectively communicate meaningful promotions to our guests.

During inflationary times people tend to shift buying habits towards basic needs, such as food beverages and fuel.

Also our.

Our products are considered a relatively low cost intelligence is the very last thing that consumer is going to give up when looking to cut costs.

These are two significant capability improvements to offer a competitive advantage in favor of cases.

I can assure you that our leadership team is excited to take on fiscal 2023.

We'll now take your questions.

Yes.

And gentlemen, as it.

A reminder to ask a question you want me to press Star one on your telephone.

Your question. Please press the pound key.

Please limit yourself to one question and a follow up.

Our first question will come from Anthony <unk>.

Fargo. Your line is open.

Hey, good morning, Thanks, guys.

So first I just wanted to ask a bit about the guidance.

Looking at the Opex guide it looks like costs are running quite a bit higher than your guidance. I think you guys said something like 30% quarter to date.

I guess, what gives you confidence that that's going to decelerate so much and then.

Beyond that how are you thinking about the labor piece of that figure.

Yes, Anthony maybe I'll start.

Just the cadence in darrington can chime in obviously.

I think the primary influence on the way Opex will play out over the course of the four quarters next year is what we're lapping in fiscal 2022 so.

Half of our half of our increase will still be from new units and that includes the units that we lapped in the prior year and so we didn't close the Buchanan acquisition until the middle of May last year, we didn't close the circle K acquisition until the end of May So we will pick up at least a month as the case may be.

Incremental opex just from those two acquisitions and then we still have to lap pilot later in the year. So that's what drives most of it and then my mother ship business, we started to really face quite a bit of labor inflation in the middle of the first quarter in the prior year.

When we put into place a variety of referral.

Tension type of bonus structures in our field and so as we lap that puts a little bit more pressure on the first quarter.

And as it relates to the 30% just to be clear the 30% I was referencing to the cheese cost inflation cheese cost is not operating expense for us that sits in our.

Gross profit line in our prepared food.

Business, and so that would not be relevant to the to the operating expense number Darren you want to comment on just kind of what we're seeing in the labor market.

Yes, I think from the labor side things are somewhat sort of normalize we still have inflation on wages, but that has moderated a bit from what we were experiencing but still we have to lap over.

Some significant increases from prior year. The other thing I would add is that our credit card fees are a bit of a wildcard at this point in terms of.

The high fuel high retail price of fuel and what that impact can be and to put that in context for every 10 cents in retail price increase.

That equates to about $4 million in incremental credit card fees on an annualized basis. So.

As fuel prices are continuing to kind.

Kind of assortment of record high territory.

We still feel that impact on credit card fees and it's hard to predict at this point when when the top where the top is and when that may start to decline so far.

Factored in some of that into the Opex guidance for the year.

Got it that's really helpful color and then I also just wanted to touch on the fuel margin.

Clearly Q4 continued to be strong for you guys.

I know it trailed off a bit in the end it seems like industry data in may.

Got it.

Significant declines.

It sounds like you guys are seeing something better than that quarter to date, but just any color you can give us on how youre thinking about the path from here.

Yes.

It's a lot about how I wanted to talk about.

Fuel margin and how Thats looking.

This is an extremely volatile environment right now.

It was in the military we would call. This a luca environment, which is an acronym for volatile uncertain complex and ambiguous I think all of those words describe what we're experiencing in fuel right now.

As we mentioned we had seen an increase of about <unk> 70, <unk> and costs through the quarter. If you were to shift that from the beginning of the fiscal year to now its about 80.

And cost increase but on the path.

<unk> increase we've had a couple of periods where cost declined over 20.

The gallon so the volatility is pretty extreme.

And.

We're working hard to overcome that and so.

What I would tell you is we feel confident in our ability to manage through it.

We've spent a lot of time over the last couple of years building the fuel pricing team and building up their capabilities and I think they've proven themselves to be adept at managing through volatility certainly through COVID-19 and now we have different drivers of that volatility but.

We feel confident in our ability to do that now that being said, it's not going to always neatly lineup with quarter end or any other artificial timeline that we draw too. So I think over time over the course of the year, we will we will manage it well and we will.

Be able to navigate through it but.

As you saw in the fourth quarter, we gave some guidance and a business update and.

Margin changed pretty dramatically over the couple of weeks after that and so we missed it by about a penny or so but.

Overall, we think we'll be able to navigate through it it will just be how.

How that plays out quarter to quarter, but it's really the big wildcard here, yes, I may add Anthony to that I do think it's important to reiterate though the structural dynamics that kind of underpin his.

Historically high levels of CPG for the industry remain in place right.

The fact that the operating costs of the business for the industry for all the reasons, we talked about in the Opex discussion of just higher labor and higher compliance costs and higher credit card fees, those still exists and those exist whether CPG moves by a penny or two from a from a near term perspective, and so we don't see.

See any change as we sit here today from an industry perspective, though around what has really driven kind of the industry too to a different platform level of.

Fuel profitability, none of that is changing and for small operators all of those issues are even more acute than they are for the larger players.

Got it that's really helpful guys, Thanks, and good luck.

Thank you.

And our next question comes from Dan Binder.

Steven Your line is open.

Hey, Thanks, good morning, guys.

Good morning, Ben Good morning, Ben.

So I wanted to ask about the in store merchandise margins.

You pointed to 40% margins.

Which I think is notable given all the cost pressures.

You and your peers are seeing when we think between grocery and prepared food.

Think of the margin compression would reside in the prepared food business, maybe theres margin expansion in grocery.

But please correct me if I'm wrong and then if you could talk about.

What if anything you've done to afford by cheese and mitigate any.

<unk> cost volatility there that would be helpful.

Yes, Ben this is Darren I will go ahead and start.

Steve can kind of fill in the blanks.

I think with respect to the margin.

We certainly have the intent to stay ahead or trying to stay on pace with inflation throughout the year and maintain that margin in that 40% range.

The grocery and general merch side is going to be a little bit more manageable because as we've discussed before those those agreements with the major CPG manufacturers.

Our on a calendar year basis.

We took some of those cost increases kind of January one.

<unk> had planned retail price increases to mitigate those and so as you've seen.

Still been able to have margin expansion in grocery and GM in spite of the inflation. So we think we're pretty solid on that side of the ledger on the prepared foods. It is more commodity based.

And so that tends to be a little bit less ratable, but we've taken three retail price increases so far since October of last year.

One of them most recently in the last couple of weeks and we.

We think we have more pricing power there because it's a little less.

Commoditized at retail, meaning nobody really knows what the proper price for a slice of pizza should be or for a breakfast sandwich. So we.

We believe we have a little more pricing power there.

It'll be a matter of being able to keep ahead of it as we.

As we sit here today, we believe we are caught up to that we just need to.

To see how commodity prices impact and then we will have to manage through the pricing piece of it Steve any other clothing.

On the cheese, specifically, we have a little bit of cheese bought forward in the fourth quarter of fiscal 'twenty, three but we really don't have anything.

<unk> forward in the first three quarters.

I wish we were able to securities at a reasonable price and the forward market that is the company has a history obviously.

Going forward, where it makes sense for us we watch it like a hawk every single day. The last six months have proven to be very difficult to find forward pricing that really makes any sense and so we've not not been a big player in that space and so going into fiscal 'twenty three.

It's a de minimis level of locked in pricing as we sit here today.

Hopefully that changes then obviously, we will we will take advantage of it if we can do that on reasonable terms.

Okay, Great and then the perfect segue.

Darren you alluded to some of the pricing increases you've taken when we think about your 4% to 6%.

In store same store sales growth in 2023.

If you could disaggregate price versus volume in that that.

That would be helpful. As we think about the composition of growth next year.

Yes, I guess been tied to win look as if we took a look at the fourth quarter. What we saw is about four 5%.

The increase was from price and about half a percent was from unit velocity, which equated to the five little over 5% same store sales increase I would expect.

And equation similar to that we have.

We have a lot of different consumer dynamics going on right now.

With inflation the way it is.

We're seeing that.

Consumers are buying.

Less.

Home size packages of things and more single serve items, which.

Tends to accrue to our benefit on the margin side.

So.

We think that that will continue to to help us out.

And it helps out on the sales side with frequency. So I think people are making more frequent trips, but buying less per trip.

Now in inflation and price increases of kind of mitigated that average retail so the average retail is still up.

We think it's going to be mostly driven by price and flat to higher slightly higher traffic.

Okay, great. Thank you and best of luck.

Thanks.

And our next question comes from Irene <unk> of RBC capital. Your line is open.

Thanks, Good morning, everyone.

One point of clarification on your answer to the last question.

With respect to sort of the trade down and package size does that apply to tobacco as well as beverage.

Yes, it does.

Yes, it does actually.

Over the last couple of quarter, we've seen that that mix of cartons to packs really start to get back to closer to pre COVID-19 levels.

If you recall during COVID-19.

Things swung a little bit heavier on the carbon side less on the pack side as people spend fewer trips go into stores. That's all reversed and we're we're almost back to normal on that mix, which is about 85% single packs and about 15% cartons.

That's really helpful. So essentially what youre seeing is what you've seen previously when we've had consumer spending being challenged.

Is that a reasonable comment.

Yes, I think so.

When when cash is a little bit tight people.

By less per occasion than they normally do that doesn't mean, they really stopped they just don't pantry fill as much as they used to and so we're seeing some of that be able to begin.

Yeah. Thanks, that's really helpful.

I also wanted to come back to your question about gas margins and clearly we all recognize the challenge with casting.

But I was really intrigued by your comment around kind of if we use the mid 30 range then you get to five 6% growth.

Is it safe.

Should we infer from the way that you phrased that.

That is a result of all of them.

The initiatives you've put into place.

I think that on a longer term basis that mid 30 range could be sustainable.

Well Irene.

I've referred.

I'm talking about Crystal ball.

Fuel margins before.

No.

Yes.

It's a difficult one to say I do what I do believe to be true is what Steve referred to earlier.

Underlying cost of operating the business in this industry.

As high now and is going to continue to stay high and potentially increase when you look at the cost of labor cost.

Regulatory compliance.

And everything else is going on in the world. So.

I don't see those margins retreating anytime soon.

There is there is a bit of a wildcard in there and thats, what the retail price of fuel because I think.

Margins tend to expand a bit to compensate for the credit card fees associated with higher retail prices. So.

I would anticipate that those can maybe go up in the short term as we see these really high fuel prices and then they could come back down a little bit to offset that so net net you end up at the same place, but from a cents per gallon. It may look a little bit higher to overcome those inflated credit card fees.

Yes.

Very helpful and just one final question.

On the volume guidance.

Yes, sure. So if we take that flat to plus 2%.

Our next question comes from Bonnie Herzog with Goldman Sachs.

<unk>.

Hi, Hello, everyone.

So I kind of wanted to go back and just kind of ask a little bit differently on the fuel margins I just wanted to understand that what you laid out in terms of the mid 30, CPG margins and you noted this implies a 5% to 6% EBITDA growth, but Darren how are you guys thinking about your medium.

The term EBITDA growth targeted.

10%.

Is that something that you see is still doable and I guess I'm.

Also asking in the context of that.

This target assumed I believe opex growth of 7% or lower suggest.

Given your guidance this year next fiscal year for high single digit Opex growth.

How at risk is that EBITDA growth target of 8% to 10%.

Yes by the.

<unk> percent to 10% was a CAGR over a three year period and as we sit here today, Steve keep me honest I think we're 11%, 12% somewhere in that range over the first two years of that plan so far.

So we're cycling over I think it was a 12 and 11 on top of a 12 and now will put a five or six on top of an 11. So the math will work out very favorably for a three year CAGR of 8% to 10%. So we feel very confident in our ability to do that and look there's there's just.

A lot going on in this environment right now that makes it volatile so we think we've.

We've taken the right approach in terms of giving the guidance, where we think we can land it.

It will still help us to land on our commitments.

From Investor day over that three year, CAGR and see if you could talk about the opex.

I'd, just remind you right, where we're not giving EBITDA guidance for next year.

The modeling exercise to calibrate folks' Darrin points are all 100% valid right over the medium term. Our algorithm holds we feel very confident about our ability to do that that algorithm includes growing opex at a slightly lower clip.

And then we would grow EBITDA, we feel very good about doing that some of thats going to come from same store some of that will come from from new units as it relates to fiscal 'twenty three.

So happens because we're still lapping non same store acquired units from fiscal 'twenty two.

You get a little bit of extra new unit pressure.

<unk> associated with that and obviously, it's a super high credit card environment, but our confidence in that medium term algorithm.

This is unchanged from where I sit for sure.

Okay. That's helpful and then wanted to ask about.

Prices at the pump, which continued to go up quite a bit and curious to hear whats your expectation of where prices could had this Jim I guess I'm asking because I'm trying to understand what would be implied are assumed.

Based on the guidance you laid out.

Where do you see prices going I mean, do you think that could go up.

$6, a gallon and thinking about when we made it.

True demand destruction.

Do you guys have a level that you think that will occur. Thank you.

Yes Bonnie.

<unk>.

It's really hard to predict.

We're going to see those prices ultimately peak out at and I would say it's very.

Geography specific we have a pretty wide range from the most expensive areas.

And our geography to the least expensive and so if you were to take a look at the.

The greater Chicago suburbs, where we just acquired some lucky stores as those retail prices are.

Well north of $5 and approaching that $6 range as you referenced.

At the end of the spectrum, we have some areas that are just slightly over $4 a gallon.

It's a pretty wide range.

Terms of demand destruction, we've kind of <unk>.

Model this out based on our core title so.

On retail prices. So we're we look at our top quartile of retail prices, which is well north of $5 a gallon at this point, we are starting to see some erosion in volume.

The low single digits.

The middle two core titles were kind of flat ish to maybe slightly down and then in the bottom quartile, we're still seeing gallon growth. So it's really all of that together, we feel like that flat to 2% is a is a solid number for guidance, but again, we'll have to see how this plays out.

$6, a gallon is unchartered waters for everybody. So I'm not sure what to expect at that but I would imagine there is some demand destruction at that point.

Okay.

And our next question comes from Scott Searle.

Research.

Good morning, everyone great quarter.

Talk about please if you if you can how the.

The customer who is pumping gas and then stepping in for prepared foods out there.

Maybe trimming down what they buy and is that reflected in your comment before with pizza Pizza pizza slices being up so much.

Are they are they giving up other purchases that may be going with the pizza or beverages or any other items that are available.

Yes Chuck.

I haven't seen any reduction in what people are buying for the frequency of people coming into the store, where we have started to see some trading around within the stores. So certainly our private brand products.

It resonated well and we.

We exited the quarter at 5%.

Penetration as we sit here today were five 2%. So we've increased 20 basis points.

A months.

With that shift towards private brands and just some more affordable options. So we haven't seen that behavior shifts there what we have seen on the fuel side is.

A few things in terms of change of behavior people arent initially just pulling back on buying fuel what they are doing is changing their fuel buying behavior. So.

The average fill up is down about a gallon versus where it was the same time last year. So people are purchasing just a little bit less fuel than they had historically per visit but they'll end up having to make more visits to the store over time, which we believe gives us a better opportunity to get <unk>.

Inside the store to buy more stuff on the second thing. They are doing is shifting over to higher blends of ethanol because the.

<unk> economics are actually working out pretty favorably right now from a consumer perspective, so they'll shift over to an <unk> type of product versus what most of the fuel is blended at Eaton.

So we've seen.

200 basis point shift in mix on <unk> and then the last thing is youll see some some customers trade down from premium into regular fuel to save money.

That way, but.

But overall those are some of the behaviors, we're starting to see right now.

And I don't wanted to I was going to ask about that fuel.

Sales mix so when the.

Rather occurs that hurt your margins.

<unk> purchases for.

Richard ethanol mix helps your margin correct.

Yes, that's correct.

Alright. Thank you good luck for the new year.

Thanks Chuck.

And our next question will come from Bobby Griffin of Raymond James Your line is open.

Good morning body, taking my questions.

First one is on fuel I apologize I know, we've asked a lot about it but just curious.

It's been a nice look flexible Casey from pre pandemic versus post our pre pandemic into the pandemic, where you guys have.

Outperform the opus average for the Midwest.

As investors and analysts there too.

Hold that outperformance.

Going forward is that like a goal or should we think about that you guys can continue to outperform you now understand you're predicting the actual margins a lot harder but.

Can we keep the outperformance.

On a lot of the structural changes you guys made to your fuel practice is that something you can comment on or talk a little bit about.

Yes, sure Bob I would say that we expect to outperform our competitors on every category that we compete in.

Fuel fuel certainly is one of those we've made significant investment in.

And we have had some good success over the last couple of years I don't I don't see that changing I think we've really stood up some strong capabilities in a very very talented team.

That can that has proven that they can execute in an environment I think these more volatile environments.

Are really where you.

You see the talents of that team start to shine and so.

Yes, I would certainly expect that we would outperform.

Outperform our competitors in our geography.

Okay, and then Dan Youre quartile data, which was very interesting and I don't know.

Prices match up on correctly is my question is going to go from a location standpoint, but in that quartile did you see the higher gas prices and you have more rule based stores are you seeing.

Higher trips to your kind of grocery stores.

Largely grocery stores, probably further way for that customer. So they are shopping more frequently with you given that they can.

Sure.

Given that it's a much farther trip to the Walmart or whatnot in those small markets.

Yes, Bob I don't have any data in front of me that.

You would tell me that.

We would expect that.

As retail prices get higher I think where we've really seen the extreme retail prices like I said are in more of those Chicago suburbs, Thats, probably not the dynamic youre referring to.

The rural areas, particularly outside of Illinois, we haven't seen those extreme prices like we're seeing in Illinois.

We'd have to get back to you on that data point, but don't have that in front of us right now.

And our next question comes from opening.

Adobe and company your line is open.

Yes, good morning, and thank you for taking the question. So I just wanted to switch gears a little bit here. So you talked about private label or doing well.

Exiting the year with 5% penetration. So if you look forward here, which product categories are you.

Mostly focusing on as you look to expand deposit global portfolio.

Anthony we're.

We're working on a lot of different categories right now in private brand, we're actually participate in 26 different categories.

Private brands and.

Some of those are under penetrating some of those are more franchise, but I can tell you where we've seen some some successes.

So far in the last quarter, we launched a line of Casey's candy bars, which.

Something we had never played in before.

And.

They have become the number one standard sized bar in dollars units and margin within the category and when I say that I mean, thats outperforming receipts knickers all of those national brands and so I think it really illustrates the.

Quality and the value that.

Those those products provide.

The other thing that I'd tell you about we've had this this longer term goal of getting 10% penetration over time.

<unk>.

Within the grocery general merchant category and that is it doesn't sound as big an order.

As it is.

But when you factor in the fact that tobacco plays a pretty significant role in that grocery and general merch category in that decade.

The tobacco category gets for cost increases per year, so that that math becomes more challenging on a mix perspective, but the point I'd like to make is.

On the 26 categories.

We play in today with private brands, we are already at a 10% penetration in 14 of those categories.

When you kind of take the tobacco equation out and you look category by category, we're having some really good success in there.

We launched 23, new items in the fourth quarter, we have another 20 items.

Coming out in this quarter, so we're very bullish on our own.

On private brands and now in this inflationary environment, we think.

That's a little bit of a tailwind for us as we continue to expand on those products.

Thanks for that and then.

Just going back to the labor commentary, so you talked about labor cost before but as far as labor availability can you give us some comments as to what youre seeing there.

Yes.

Labor Labor still remains tight although I think our operations and HR teams have done a really good job of managing that we haven't had any issues, where we're closing stores or limiting hours because of of team members and we are as we sit here today, we've actually seen an uptick in.

<unk> and we are just below one person per store openings. So.

In a historical context, I would say that's about average.

That's kind of normal so.

Feel really good about where we're sitting from a staffing standpoint at this stage of the game.

And our next question comes from Kelly Bania of BMO capital. Your line is open.

Hi, Good morning, Kelly Bania here, Thanks for taking my question.

Wanted to see if you could shed some light on your total merchandise.

Sales growth outlook, obviously, the 4% to 6% comp but.

From a non comp perspective, given the still some M&A.

And some of the kitchen Remodels just to help us understand kind of what.

You are expecting on the total merchandise growth outlook.

Yes.

Yes, Hi, Kelly. Good morning. This is Steve I'll start with that I mean, it's certainly going to be higher.

And the same store number I mean, if you just think of the way we lap.

So the 80 ish new units those will come in on the first quarter like like a lot of them came in last year, but you'll get a benefit associated with those and you are correct in that the remodeling benefit that we get in these new stores.

Today, we close the store.

Depending on the permitting timeline, it's not in our same store number.

When we opened that kitchen, you kind of get a step up.

As we start to sell a lot more prepared food from a base usually are close to zero and so we haven't quantified it.

I don't think we will disclose the <unk>.

Specific number associated with that but clearly.

Your instinct is correct in that.

<unk> merch sale number should be.

Should be noticeably better than what that inside run rate turns out to be.

Okay. That's helpful.

And also just wanted to ask about the prepared food you talked about I think March price increases it sounds like another in April .

Just one.

In terms of elasticity it sounded like you thought you had more pricing power what is in your plan as you look at that.

Comp guidance and what have the recent price increases done to help offset some of the pressure on the prepared food gross margin line.

Yes. This is Steve I'll start and let Derek chime in in terms of just kind of what's in what's in our expectation.

If I do the two categories separately, because we have behaved a little bit differently in the grocery versus prepared food most of our grocery price increases excluding tobacco I think were put into put into action at the beginning of this calendar year, just based on the contractual nature of that business and so we know.

What the inflation is across most of the center of the store through our joint business planning exercise and most of those price increases were put in place in January so let's call that.

Low to mid single digits, depending on what the particular category is those will run through the end of the calendar year.

Which is reflected in.

Our expectation, we will have to renegotiate all of that.

As we get into the latter half of this calendar year, but I would expect we will.

We'll continue to price in the grocery business consistent with maintaining margins as we enter the next calendar year and so I don't think.

We would take a lot of pressure on margin no matter, how those negotiations turn out prepared foods, a little more complicated so to Darren but we have mid single digit type of price increases on average rolling through the prepared food category they've started at different points in time.

Some of them started later last calendar year and the more significant ones.

Started either in the middle of the third middle of the fourth quarter for us or literally at the beginning of this fiscal year, but it's a mid single digit kind of price increase it is rolling through.

Over the course of the year, we will get the benefit of most of that the entire year. We do think once you.

Lap the cost increases we've covered the dollars of inflation that we know about right now.

To the extent cheese.

It gets better or worse as an example or proteins.

Would expect we will we will need to continue to kind of turn those dials on prepared food over the course.

Year, but ultimately we have enough pricing in the system now based on the inflation that we know about to.

To give us confidence that kind of 40% ish number for the year inside the store as sustainable and doable as we sit here today.

Yes, Kelly the only thing.

To add to that from an elasticity standpoint is that I think.

We're not the only ones experiencing commodity inflation everybody. That's in the restaurant business, our fast casual, but what have you is experiencing the same thing and so when you put us into that spectrum, we can even with the recent retail prices. We've taken we tend to be more.

Affordable option for most people then that <unk> certainly than our fast casual restaurants. So we would expect that over time, we will benefit from that and we will see some switching some channel shifting from from Kyocera fast casual into our channel, which should help us on the volume side.

And our next question comes from John Rajala of Jpmorgan. Your line is open.

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

So.

In the stores on the store addition guidance just looking at the 80 stores that it's a relatively big program.

If you plan to do it mostly organically and then just comparing to prior years the capex at the low end.

Pretty similar to fiscal 2020, one on a much smaller build program. So.

Backing out the Remodels for the new stores so.

I'm just trying to square why the Capex appears still low relative to the 80 store programs I don't know if there is an assumption that some of that 80 comes from acquisitions or if there's something else I am missing there maybe.

Yes, John Good morning, this is Steve.

The the answer is yes on your assumptions. So I would expect the 80 units will be a mix.

New units that we built as well as units that we ended up purchasing if we purchased something it wont go through PMA. Obviously, it will go through a different line item on the cash flow statement as we sit here today, it's probably directionally going to be half and half I think we we slowed down new builds and <unk>.

Fiscal 'twenty two mainly because we were we were digesting. So many acquired units and that's the beauty of our model is we can kind of hold on the land bank and so.

Youre going to have in the first part of this year. Some units that we frankly could have opened last year and chose not to.

But as we sit here today, probably it's half and half and that's the biggest contributor to why the.

Why the run rate of total Capex is kind of that $450 million to $500 million I will say, one offsetting factor to that as well.

We actually Couldnt spend everything we wanted to spend at the end of fiscal 'twenty, two because of supply chain issues. We just couldnt get things and so I don't know if thats going to get better frankly in fiscal 'twenty, three or not we're kind of assuming that it does and that we're able to catch up on some things like vehicles.

Equipment for certain aspects of the store, but time will tell as to how successful we're going to be in kind of spending what we what we want to spend on things like that.

Great. Thanks, that's really helpful and then.

Steve you talked a little bit about deferred taxes in the prepared remarks, but just wanted to dig in on that a little because.

It looks like for the full year your cash taxes were quite low.

After adjusting for the deferred add back which was relatively large so I'm just looking for a little more detail on what was driving that on the on the Wolfcamp.

Yes, I think from if I, if I think of how it impacted the tax rates.

First.

There were three states in our footprint.

During the year that lowered their state income tax rates or they've announced that they're going to have lower income tax rates in the future.

We immediately have to make a deferred tax entry when they announced that even if it's not.

Active yet just to revalue deferred tax liabilities in Nebraska, Arkansas, and Oklahoma for Us.

Paul will have lower state tax rates in the future and we have a tax liability and so that provides an immediate benefit.

In the quarter that was the big driver of why the rate was so low in the fourth quarter was actually Nebraska.

I announced.

Our state tax reduction I would tell you from a cash tax standpoint.

We actually probably overpaid taxes, a little bit relative to what I think will end up going in fiscal 'twenty. Two it's part of the reason we have a.

A tax receivable on the balance sheet and I think that will it will allow us to have a smaller estimated payment here at the beginning of the year and it will be a cash flow positive item for us in fiscal 'twenty three.

And our next question comes from Karen short with Barclays. Your line is open.

Hey, thanks, very much sorry for the background noise.

I wanted to ask a quick question with respect to gas margins. So I know you gave.

Indication in terms of warehouse margins are trending into the current quarter to date.

You haven't really given much of an outlook and any concrete way for the year.

I wanted to get your perspective on.

Where you think the actual run rate should be on gas margins and then I wanted to find out if you could talk a little bit more about if there is any other changes tier inventory management process because.

Yes.

With five to seven days of inventory on the ground you benefit from days old inventory when gas prices are rising, but youre, obviously going to get hurt.

Yes.

I wanted to talk a little bit about how you're managing that.

And thinking about managing that inventory back.

Yes.

Darren I guess with respect to the first part of your question.

Historically not given.

Fuel margin guidance for the year. So we're kind of staying consistent with our practice of not doing that at this point in terms of inventory management in the ground yes.

In the very short term win.

Fuel costs are rising you have lower cost inventory in the ground that does help but then the.

The retail prices tend to lag moving up on that cost to so that.

Typically your margin doesn't expand.

When their cost curve is going up in terms of contract and then the opposite is true on the way down.

Yes, you do have higher cost inventory in the ground.

Falling, but the retail prices tend to fall slower then they rise on the upside so the margins actually expand on the way down so.

We have more upside on the way down than we do downside.

On the way up as the way, we like to think about it.

And is there any evolution in terms of how youre thinking about managing inventories to be leaner and more I guess mark to market like <unk>.

Back to retail.

And then the second question I had is.

Talk to and I'm sure you'll talk about this next week about upstream capabilities in terms of gas margin.

The actual contract on pipeline. So is there any update on that.

Yes.

In terms of.

How we manage the fuel in the ground, we're not as <unk>.

Concerned about the mark to market, where we are concerned about what is the competitive landscape.

This is going on so we want to make sure that we're saying.

Our relevant pricing range and consistent with our strategy for our retail pricing on the street and then the cost is going to be the cost and we'll manage that over time.

In terms of the upstream fuel procurement.

We implemented some systems this past year.

Would allow us to do.

You get more sophisticated in the fuel procurement process.

Well.

On the on the risk management side as well as the accounting side and dispatching side. So that we are we.

We have those foundational capabilities, we just wrap that up.

This past quarter and so this year, we're going to begin the process of building out that capability to go further upstream in our procurement processes. We don't expect to actually launch any of that in this fiscal year, we intend to launch that in next fiscal year, but this year will be one of really.

Making sure that we've got all those systems and processes in place. So we can.

Execute on that further upstream procurement effectively.

Sure.

And.

I would now like to turn the conference back to Darin Labella for closing remarks.

Alright, Thank you very much.

Thanks for taking time to join US today I'd also like to thank our team members once again for their contributions in delivering another all time record year and for those of you who will be able to come out too.

Ankeny next week for our analyst day, we look forward to seeing you then.

Thank you.

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

Okay.

Yes.

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Good day and thank you for standing by welcome to the Q4 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 will be a question and <unk>.

Answer session to ask a question. During this session you will need to press star one on your telephone please limit yourself to one question and a follow up if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mr. Chad Brian . Please go ahead.

Good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year ended April 32022, I'm Chadron senior analyst Investor Relations filling in for Brian Johnson, who is under the weather with me today are Darrin Rubella is president and Chief Executive Officer, and Steve Bramlage Chief Finance.

Officer.

Before we begin I will 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 $19 95.

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.

The company's supply chain business and integration strategies plans and synergies growth 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 <unk>.

It's expressed or implied by those forward looking statements, including but not limited to the integration of the recent and pending acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks.

Certainties 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 intention or obligation to update or revise forward looking statements, whether as 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 fourth quarter can be found on our website at www Dot <unk> dot com under the Investor Relations link with that said I would now like to turn the call over to Darren to discuss our fourth quarter.

Results Darren Thanks.

Thanks, Chad and good morning, everyone I'm looking forward to sharing our results in a moment.

I'd like to start by thanking our 42000 Casey's team members for their tireless efforts and contribution to a fantastic fiscal year.

Our team members have done an outstanding job navigating through these challenging times and the team's ability to be nimble and perform at a high level under difficult circumstances to something I'm, especially proud of and grateful for and we certainly would not have delivered another record year without their efforts.

Our cases, our purpose is to make life better for our communities and guests every day.

As a road Midwestern operator, we play a significant role in the towns we operate in.

It's a privilege and responsibility we take to heart.

Throughout the fiscal year, we have truly been here for good.

Raise $1 million in funds for organizations, helping veterans and our families.

We raised $1 billion to help local schools through our cash for classrooms Grant program and we enable over 5 million meals for our neighbors in need.

We are here for our communities and we want to get back to those communities and guests that support us.

Now, let's discuss the results of the past fiscal year.

Fiscal 'twenty two was a record year for diluted EPS, finishing at $9 10 per share a 9% increase from the prior year.

The company also generated a record $340 million and net income and $801 million in EBITDA, an increase of 11% from the prior year.

Inside sales and gross profit.

Each up 14% versus the prior year as guests return to the store to buy pizza slices and items from our refreshed breakfast menu among other cases favorites.

Inside gross profit margins remained flat compared to the prior year, an impressive outcome given the merchandising cost pressures impacting the industry.

Inside gross profit grew more than fuel gross profit in fiscal 'twenty two.

And we expect to continue as we add kitchens to our recently acquired stores.

Total fuel gallons sold increased 18% in the fiscal year and fuel gross profit increased 22%, averaging <unk> 36 per gallon margin over the course of the year, despite rising fuel prices as consumer demand improved.

Free cash flow was an impressive $462 million.

Proving that we can grow the business, while preserving the balance sheet.

We closed three large strategic acquisitions that were a significant part of the 228 new units opened this year.

Through these acquisitions, we have strengthened our presence in the Nebraska, and Illinois markets through the <unk> acquisition and acquired immediate scale in the Oklahoma City, and Knoxville, Tennessee markets with the circle K and pilot acquisitions, respectively.

These acquisitions also fit seamlessly into our existing distribution network with the addition of our third DC in Joplin, Missouri in May of 2021 and continued our expansion into the southwest portion of our footprint.

We're excited about the strong progress we've made integrating all three strategic acquisitions and realized approximately $15 million in run rate synergies on the <unk> acquisition this year.

Casey's rewards continues to grow and has become a significant part of our guest experience.

We recently exceeded 5 million members and are poised to leverage this platform to communicate with our guests more effectively than ever.

Our private brand program exited the quarter at 5% penetration of the grocery and general merchandise category.

We currently offer over 250 items and are confident in our ability to achieve 6% penetration next year and our long term goal of 10% over the next several years.

I would now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal 'twenty three Steve.

Thank you Darren and good morning, before I jump into the financials I would also like to take a minute to acknowledge the entire team given the strong performance both in the quarter and for the record breaking fiscal year.

Excellent financial results wouldn't have been possible without their hard work and dedication.

The fourth quarter was the first one where we are fully consolidating the results from all three of the significant acquisitions that we closed this year and it's easy to see the impact of the unit growth along with the strong mothership execution on our total results in the quarter.

Here are just a few examples to help contextualize the magnitude.

Total fuel gallons sold rose by almost 86 million gallons or 16% total.

Total inside sales revenue rose over $120 million or 14%.

Revenue for the quarter was approximately $3 5 billion, which is an increase of $1 1 billion or 45% from the prior year. Now in addition to the increase in gallons sold and inside sales higher retail prices of fuel contributed to this increase as well.

Total gross profit rose $96 million or 17%.

This exceeded the rise in total operating expenses of $65 million or 15%.

And as a result, total EBITDA rose $31 million or 23%.

Diluted earnings per share for the fourth quarter were $1 60, which is up 43% from the prior year.

While the new units had a significant influence on our overall results. It is important to highlight the healthy performance of our existing fleet. This quarter same store sales were strong for both inside sales and fuel as guest traffic continued to improve.

Inside same store sales were up five 2%, while fuel gallons increased one 5%.

Our inside margin decreased 50 basis points versus the prior year, primarily due to wholesale cost inflation.

And that was partially offset by retail price increases.

It was a very strong quarter by all accounts, but it didn't quite reach the level that we had anticipated at the time of our most recent business update.

The end of April proved to be quite volatile in terms of fuel cost and ultimately we finished several million or about a penny a gallon below our expected fuel profitability level through the quarter.

Total inside sales rose 13, 6% from the prior year to a $1 billion.

With an average margin of 39, 4%.

For the quarter total grocery and general merchandise sales increased by $94 million to $744 million, which is an increase of 14, 5% and total prepared food and dispensed beverage sales rose by $30 million to $293 million.

An increase of 11, 3%.

Same store grocery and general merchandise sales were up four 3% and the average margin was 32, 5%, which is an increase of 70 basis points from the same period a year ago.

The merchandising team continues to do an excellent job staying ahead of inflation in the center of our stores.

Sales were particularly strong non alcoholic and alcoholic beverages, and we experienced a favorable mix shift in these categories.

Single serve and smaller package sizes outperformed.

Non alcoholic beverages in total were up over 32% on a two year stack basis.

Alcohol same store sales were up high single digits and up over 18% on a two year stack basis.

Same store prepared food and dispense beverage sales were up seven 6% for the quarter.

The average margin for the quarter was 56, 9%, which is down 320 basis points from a year ago.

Pizza slices continued to perform well up 21% for the quarter, while hot breakfast sandwiches were up close to 41% as part of the company's breakfast menu relaunch that began in September .

Margin has been adversely impacted by cost increases in our food ingredients, partially offset by menu price increases along with an uptick in waste as stores kept the warmers all of grab and go items to keep up with the higher demand.

Cheese costs were meaningfully higher than the prior quarter up 33 per pound to $2 26.

The adverse impact of higher cheese to gross profit it was about $3 5 million.

Or 118 basis points on margin.

We took a further series of price increases in the middle of the quarter and another round at the start of fiscal 'twenty three to further offset these cost increases.

The team remains committed to maintaining profit margins at historical levers levels over the long term inside the store.

During the fourth quarter same store fuel gallons sold were up one 5% with a fuel margin of $36 two per gallon up approximately three two cents per gallon compared to the same period last year.

Wholesale cost rose 74 cents, a gallon, causing an extremely challenging margin environment, especially in the last few weeks of the quarter.

Yet our fuel team did a remarkable job responding quickly and maintaining strong fuel margins, while preserving and balancing gallons growth.

Retail fuel sales were up $900 million in the fourth quarter, driven by 16% increase in total gallons sold to 621 million gallons as well as a 40% increase in the average retail price per gallon.

That average retail during this period was $3 77.

When compared to $2 70, a year ago.

As a reminder reported fuel results do not include the Buchanan energy wholesale business, which is included in the other revenue category and is responsible for the vast majority of the $57 million increase that we saw this quarter in this line item.

Total operating expenses, excluding credit card fees were up 13% to $438 million in the fourth quarter total operating expenses were up 15, 2% or $65 million, which was consistent with our expectations.

Approximately 9% of the operating expense increase is due to unit growth as we operated 209 more stores than the prior year.

Approximately 4% of the increase is due to same store employee expense and 2% of the increase was due to higher credit card fees from high fuel prices.

As an aside we have incurred approximately $55 million of additional credit card fees in fiscal 'twenty two.

EBITDA for the quarter was $165 8 million a 23% increase this represents a record high fourth quarter for the company.

Depreciation in the quarter was up 11, 4% driven primarily by the store growth along with a new distribution center that was placed in service at the start of fiscal year.

Net interest expense was $15 3 million in the quarter as compared to $11 2 million in the prior year. The increase was due to the additional debt taken on to fund the Buchanan energy and pilot acquisitions as well as approximately $1 million and a noncash write off of previously capitalized financing costs.

With the acceleration of the term loan prepayments.

The effective tax rate for the quarter was 17, 8% compared to 22, 2% in the prior year driven by one time benefit from adjusting the company's deferred tax liabilities for lower state income tax rates within our footprint that were enacted during the quarter.

Net income was up versus the prior year to $59 8 million an increase of 43%.

The Buchanan energy Circle, K and pilot acquisitions were all accretive to EBITDA in the fourth quarter as we expected.

Our balance sheet remains strong at April 30, we have ample liquidity of $634 million.

Also able to prepay $168 million in variable rate debt due to strong cash flow. Our total floating rate exposure is currently about 16% of our portfolio, which insulates us quite well in the current rising rate environment.

And Furthermore, we have no significant maturities coming due until fiscal 2026.

Our leverage ratio decreased to two one times and our balance sheet has plenty of capacity to make good strategic investments as they present themselves to us.

For the quarter net cash generated by operating activities of $252 million less purchases of property and equipment of $98 million resulted in a $154 million in free cash flow.

<unk> spending levels in the quarter were constrained by supply chain challenges.

At the June meeting the board of directors voted to increase the dividend to <unk> 38 per share marking the 20 <unk> consecutive year that the dividend has been increased we.

We will continue to remain balanced in our capital allocation going forward, primarily leaning in to them any EBITDA and ROIC accretive investment opportunities that are in front of us we expect to naturally reach our target leverage ratio of two times debt to EBITDA during fiscal 'twenty three and therefore, we do not anticipate.

<unk> further discretionary debt repayments at this time.

And we will remain opportunistic related to our $400 million share repurchase authorization.

Although uncertainty remains given the all time high fuel costs and the potential impact of the current macroeconomic conditions may have on consumer behavior. The company is providing the following fiscal 2023 outlook.

Kc's expects same store inside sales to be up 4% to 6% with an inside margin of approximately 40%.

Same store fuel gallon sold are expected to be between flat to up 2%.

Total operating expenses are expected to increase 9% to 10% based on current fuel prices and approximately half of that increase is same store related and the <unk>.

Other half will be from unit growth.

Total opex will be up low teens in the first quarter of the year and should fall back to mid single digits in the second half once we cycle through the acquisition activity of FY 'twenty two.

We expect to add approximately 80 new units in fiscal 2023.

Interest expense is expected to be approximately $55 million.

While depreciation and amortization will be roughly $320 million.

We expect to purchase $450 million to $500 million in PP&E and that includes approximately $135 million related to onetime investments for remodeling. The recently acquired stores largely put in kitchens.

We expect a tax rate between 24 and 26%.

We also expect to realize $20 million to $25 million and run rate synergies in fiscal 'twenty three from our recent acquisitions as we complete the remodeling activities with more of a second half bias based on the current permitting timelines.

We also expect free cash flow of at least $250 million.

Given the unprecedented fuel cost volatility that we've seen in the past few months, we're not guiding to a CPG figure at this point.

For model calibration purposes, only however at the midpoint of this guidance annual fuel profitability in the mid 30, CPG would lead to EBITDA growth for the year of at least 5% to 6%.

Our first quarter experience to date is as follows CPG is slightly below prior year levels.

<unk> store gallon growth is at the low end of the annual range in same store inside volumes are at the midpoint of our annual expectations.

<unk> costs remain elevated on a year over year basis, and Theyre currently running approximately 30% higher than in the prior year.

With that I'll turn the call back over to Darren.

Thanks, Steve.

I'd like to again say, thank you and congratulations to the entire Casey's team for delivering another record year.

The hard work of the team and dedication to cases gives us confidence in our ability to execute on our three year strategic plan.

As you can see our business has performed exceptionally well in a challenging macroeconomic environment.

Tcs has shown tremendous resiliency, and we're positioned especially well to deliver future value to our shareholders through our chief our strategic plan.

Which is being enhanced with our commitment to technology.

As a reminder, the three pillars of our strategic plan, our reinvent the guest experience create capacity through efficiencies and be where the guest is via disciplined store growth.

All three pillars are supported by investing in and growing our talented team.

We're leveraging technology more now than ever before to reinvent the guest experience.

Built a well respected tech digital and data team will position us for the future as we embark on our Casey's modernization journey.

Our focus on technology is centered around three primary areas.

Drive guest engagement and experience improves.

Improving team member engagement and impact.

<unk>, our growth via supply chain merchandising and fuel capabilities.

The goal is to create a guest experience is best in class.

Our mobile App now represents 65% of all digital revenue, which is currently driven by whole ties with.

We recently added 700 stores that can now deliver beer in hard seltzer, along with their pizza orders. We also rolled out a carwash subscription program for our 200 plus car washes.

We plan to utilize technology to ease manual functions within our stores and enable our team members to spend more time on our highest priority our guests.

Merchandize ordering efficiency inventory management, along with more robust data analytics will create efficiencies in our stores, along with improving accuracy and communication between our stores and our supply chain.

Regarding creating capacity through efficiencies pillar, our efficient self distribution model has served us well through these trying times and is poised to help us navigate through the challenging near term inflationary and supply chain environments.

Our fuel pricing and procurement teams and navigated through the last two years of unprecedented fuel volatility tremendously well, we will continue to play a critical role in growing EBITDA as we look to fiscal 'twenty three.

Finally, our recently created central procurement team as well as the new asset protection Department are hitting their stride.

Obviously, our store growth pillar B, where the guest is via disciplined store growth was on full display in fiscal 'twenty two.

We more than doubled our previous record high unit growth the 228 newly constructed and acquired stores.

Our two pronged approach to growing the business by taking advantage of strategic acquisitions, when they're available alongside organic growth should give our shareholders peace of mind that we can ratably grow the business year after year.

For dedicated M&A team is still sourcing more stores, whether it be a single store owner or 100 store regional chain.

In the meantime, our real estate team is actively pursuing sites for new store construction.

This strategy enables cases to remain disciplined we do not need to overpay or chase non strategic acquisitions to hit our growth targets.

With respect to our people we have filled out the leadership team with the right amount of legacy experience and fresh perspective to drive the long term strategy in fact about 60% of our leadership team reflects diversity in ethnicity or gender.

The diverse background of our leadership team has made a positive impact and how we think through critical issues support and develop our people and reflect casey's values.

Our teams diversity also ensures we take into consideration a wide range of perspectives and experiences when we build a strategic plan and set goals lead our teams and navigate challenges.

Our shareholders can also look forward to our second annual ESG report to be issued in July with our annual report and proxy statement.

We received positive feedback from our shareholders. After our first ever report last year.

Shareholders should expect progress from last year, particularly with respect to more quantifiable metrics as well as the completion of our first ESG materiality assessment.

As we look ahead to fiscal 'twenty, three and beyond and remain confident in Casey's business model in the face of uncertain times.

People are still returning to work and that will continue to drive increased foot traffic to our stores.

In addition, if you look back to the last two recessionary periods of 2008 and 2014, our company performed very well.

And during those times, we did not have the value proposition of our private brand program like we do now nor did we have a loyalty platform like casey's rewards to effectively communicate meaningful promotions to our guests.

Turning inflationary times people tend to shift buying habits towards basic needs, such as food beverages and fuel.

Also our.

Our products are considered a relatively low cost intelligence and the very last thing that consumer is going to give up when looking to cut costs.

These are two significant capability improvements to offer a competitive advantage in favor of cases.

I can assure you that our leadership team is excited to take on fiscal 2023.

We'll now take your questions.

Ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone.

Your question. Please press the pound key.

Please limit yourself to one question and a follow up.

Our first question will come from Anthony <unk> of Wells Fargo. Your line is open.

Hey, good morning, Thanks, guys.

So first I just wanted to ask a bit about the guidance.

Looking at the Opex guide it looks like costs are running quite a bit higher than your guidance. I think you guys said something like 30% quarter to date.

I guess, what gives you confidence that that's going to decelerate so much and then.

Beyond that how are you thinking about the labor piece of that figure.

Yes, Anthony maybe I'll start.

Just the cadence in darrington can chime in obviously.

I think the primary influence on the way Opex will play out over the course of the four quarters next year is what we're lapping in fiscal 2022 so.

Half of our half of our increase will still be from new units and that includes the units that we lapped in the prior year and so we didn't close the Buchanan acquisition until the middle of May last year, we didn't close the circle K acquisition until the end of May So we will pick up at least a month as the case may be.

Incremental opex just from those two acquisitions and then we still have to lap pilot later in the year. So that's what drives most of it and then my mother ship business, we started to really face quite a bit of labor inflation in the middle of the first quarter in the prior year.

We've put into place a variety of referral.

Tension type of bonus structures in our field and so as we lap that puts a little bit more pressure on the first quarter.

And as it relates to the 30% just to be clear the 30% I was referencing to the cheese cost inflation cheese cost is not operating expense for us that sits in our.

Gross profit line in our prepared food.

Business, and so that would not be relevant to the up to the operating expense number Dan do you want to comment on just kind of what we're seeing in the labor market.

Yes, I think from the labor side things are somewhat sort of normalize we still have inflation on wages, but that has moderated a bit from what we're experiencing but still we have to lap over.

Some significant increases from prior year. The other thing I would add is that our credit card fees are a bit of a wildcard at this point in terms of.

The high fuel high retail price of fuel and what that impact can be and to put that in context for every 10 cents in retail price increase.

That equates to about $4 million in incremental credit card fees on an annualized basis. So.

As fuel prices are continuing to kind.

And a sore and a record high territory.

We still feel that impact on credit card fees and it's hard to predict at this point when when the top where the top is and when that may start to decline so far.

Factored in some of that into the Opex guidance for the year.

Got it that's really helpful color and then I also just wanted to touch on fuel margins.

Clearly Q4 continued to be strong for you guys.

I know it trailed off a bit at the end and it seems like industry data in may.

Pretty significant declines.

It sounds like you guys are seeing something better than that quarter to date, but is there any color you can give us on how youre thinking about the path from here.

Yes.

I thought a lot about how I wanted to talk about.

Fuel margin and how that's looking.

This is an extremely volatile environment right now.

It was in the military we would call. This a luca environment, which is an acronym for volatile uncertain complex and ambiguous I think all of those words describe what we're experiencing in fuel right now.

As we mentioned.

<unk> seen an increase of about 74 and costs through the quarter. If you were to shift that from the beginning of the fiscal year to now its about 80.

And cost increase but on the path to a 80% increase.

Had a couple of periods where cost declined over 20 <unk>.

The gallon so the volatility is pretty extreme and <unk>.

We're working hard to overcome that and so.

What I would tell you is we feel confident in our ability to manage through it.

We've spent a lot of time over the last couple of years building the fuel pricing team and building up their capabilities and I think they've proven themselves to be adept at managing through volatility certainly through COVID-19 and now we have different drivers of that volatility, but we.

We feel confident in our ability to do that now that being said, it's not going to always neatly lineup with quarter end or any other artificial timeline that we draw too. So I think over time over the course of the year, we will we will manage it well and we will.

Being able to navigate through it but.

As you saw in the fourth quarter, we gave some guidance and a business update and <unk>.

Margin change pretty dramatically over the couple of weeks after that and so we missed it by about a penny or so but <unk>.

Overall, we think we'll be able to navigate through it it will just be.

How that plays out quarter to quarter Thats really the big wildcard here, Yes, I may add Anthony to that I do think it's important to reiterate though the structural dynamics that kind of underpin.

Historically high levels of CPG for the industry remain in place right.

The fact that the operating costs of the business for the industry for all the reasons, we talked about in the Opex discussion of just higher labor and higher compliance costs and higher credit card fees, those still exists and those exist whether CPG moves by a penny or two from a from a near term perspective, and so we don't.

Don't see any change as we sit here today from an industry perspective, though around what has really driven kind of the industry too to a different platform level of.

Fuel profitability, none of that is changing and for small operators all of those issues are even more acute than they are for the larger players.

Got it that's really helpful guys, Thanks, and good luck.

Thank you.

And our next question comes from Ben Bienvenu.

Your line is open.

Hey, Thanks, good morning, guys.

Good morning, Ben Good morning, Ben.

So I wanted to ask about the in store merchandise margins.

You pointed to 40% margins.

Which I think is notable given all the cost pressures.

You and your peers are seeing when we think between grocery and prepared food.

I would think of the margin compression would reside in the prepared food business, maybe theres margin expansion in grocery.

But please correct me if I'm wrong and then if you could talk about.

What if anything you've done to forward buy cheese and mitigate any.

<unk> cost volatility there that would be helpful.

Yes, Ben this is Darren I will go ahead and start.

Steve can kind of fill in the blanks.

I think with respect to the margin.

We certainly have the intent to stay ahead or trying to stay on pace with inflation throughout the year and maintain that margin in that 40% range.

The grocery and general merchant side is going to be a little bit more manageable because as we've discussed before those those agreements with the major CPG manufacturers.

Our on a calendar year basis.

We took some of those cost increases kind of January one.

<unk> had planned retail price increases to mitigate those and so as you've seen.

Still been able to have margin expansion in grocery and GM in spite of the inflation. So we think we're pretty solid on that side of the ledger on the prepared foods. It is more commodity based.

And so that tends to be a little bit less ratable, but we've taken three retail price increases so far since October of last year.

One of them most recently in the last couple of weeks and we.

We think we have more pricing power there because it's a little less.

Commoditized in retail, meaning nobody really knows what the proper price for a slice of pizza should be or for a breakfast sandwich. So we.

We believe we have a little more pricing power there.

It'll be a matter of being able to keep ahead of it as we.

As we sit here today, we believe we're caught up to that we just need to.

To see how commodity prices impact and then we will have to manage through the pricing piece of it Steve any other color you want to add on.

On the cheese, specifically, we have a little bit of cheese bought forward in the fourth quarter of fiscal 'twenty, three but we really don't have anything.

<unk> forward in the first three quarters.

I wish we were able to securities at a reasonable price.

Forward market that is the company has a history obviously.

Going forward, where it makes sense for us we watch it like a hawk every single day. The last six months have proven to be very difficult to find forward pricing that really makes any sense and so we've not not been a big player in that space and so going into fiscal 'twenty three.

It's a de minimis level of locked in pricing as we sit here today.

Hopefully that changes and obviously, we will we will take advantage of it if we can do that on on reasonable terms.

Okay, great that makes perfect sense.

Darren you alluded to some of the pricing increases you've taken when we think about your 4% to 6%.

In store same store sales growth in 2023.

If you could disaggregate price versus volume in that that.

That would be helpful. As we think about the composition of growth next year.

Yes, I guess been tied the way I'd look at is if we took a look at the fourth quarter. What we saw is about four 5%.

The increase was from price and about half a percent was from unit velocity, which equated to the five little over 5% same store sales increase I would expect.

And equation similar to that we have.

We have a lot of different consumer dynamics going on right now.

With inflation the way it is.

We're seeing that.

Consumers are buying.

Les take.

Home size packages of things and more single serve items, which.

Tends to accrue to our benefit on the margin side.

And so.

We think that that will continue to to help us out.

And it helps out on the sales side with frequency. So I think people are making more frequent trips, but buying less per trip.

Now in inflation and price increases of kind of mitigated that average retail so the average retail is still up but.

We think it's going to be mostly driven by price and.

Flat to higher slightly higher traffic.

Okay, great. Thank you and best of luck.

Thanks.

And our next question comes from Irene <unk> of RBC capital. Your line is open.

Thanks, Good morning, everyone. Just one point of clarification on your answer to the last question.

With respect to sort of the trade down in package size does that apply to tobacco as well as beverage.

Yes.

Yes, it does actually.

Over the last couple of quarter, we've seen that that mix of cartons to packs really start to get back to closer to pre COVID-19 levels and if.

If you recall during COVID-19.

Things swung a little bit heavier on the carbon side less on the pack side people spent fewer trips go into stores. That's all reversed and we're we're almost back to normal on that mix, which is about 85% single packs and about 15% cartons.

That's really helpful. So essentially what youre, saying is what you've seen previously when we've had consumer spending being challenged.

Is that a reasonable comment.

Yes, I think so.

When when cash is a little bit tight people.

By less per occasion than they normally do that doesn't mean, they really stopped they just don't pantry fill as much as they used to and so we're seeing some of that be able to begin.

Yeah. Thanks, that's really helpful.

I also wanted to come back to the question about gas margins and clearly we all recognize the challenge with Wichita and casting.

But I was really intrigued by your comment around kind of if we use the mid 30 range then you get to five 6% growth.

Is it safe.

Should we infer from the way that you phrased that.

As a result of all of the initiatives you've put into place.

I think that on a longer term basis that mid 30 range could be sustainable.

Well Irene.

I've referred.

Talking about Crystal ball.

Fuel margins before.

No.

Yes.

It's a difficult one to say I do what I do believe to be true is what Steve referred to earlier.

Underlying cost of operating the business in this industry.

Is as high now and is going to continue to stay high and potentially increase when you look at the cost of labor cost.

Regulatory compliance.

And everything else is going on in the world. So.

I don't see those margins retreating anytime soon.

There is a there's a bit of a wildcard in there and thats, what the retail price of fuel because I think.

Margins tend to expand a bit to compensate for the credit card fees associated with higher retail prices. So.

I would anticipate that those can maybe go up in the short term as we see these really high fuel prices and then they could come back down a little bit to offset that so net net you end up at the same place, but on a cents per gallon. It may look a little bit higher to overcome those inflated credit card fees.

Yes.

Very helpful and just one final question.

On the gas volume guidance.

Sure.

Take that flat to plus 2%.

Our next question comes from Bonnie Herzog with Goldman Sachs.

Sure.

Oh, Hi, Hello, everyone.

So I kind of wanted to go back on and just kind of ask a little bit differently on the fuel margin I just wanted to understand that what you laid out in terms of the mid 30, CPG margins and you noted this implies a 5% to 6% EBITDA growth, but Darren how are you guys.

Thank you about your medium term EBITDA growth target of 10% is that something that you see is still doable and I guess I'm.

Also asking in the context of that.

This target assumed I believe opex growth of 7% or lower suggest.

Given your guidance this year or next fiscal year for high single digit Opex growth.

How at risk is that EBITDA growth target of 8% to 10%.

Yes by the.

<unk> percent to 10% was a CAGR over a three year period and as we sit here today, Steve keep me honest I think we're 11% to 12% somewhere in that range over the first two years of that plan so far.

So we're cycling over I think it was a 12 and 11 on top of a 12 and now put a five or six on top of an 11. So the math will work out very favorably for a three year CAGR of 8% to 10%. So we feel very confident in our ability to do that and look there is theirs.

A lot going on in this environment right now that makes it volatile so we think we've.

We've taken the right approach in terms of giving the guidance, where we think we can land it and that it will still help us to land on our commitments.

From Investor day over that three year, CAGR and see if you could talk about the Opex just might just remind you're right, we're not giving EBITDA guidance for next year.

Modeling exercise to calibrate folks' Darrin points are all 100% valid right over the medium term. Our algorithm holds we feel very confident about our ability to do that that algorithm includes growing opex at a slightly lower clip.

And then we would grow EBITDA, we feel very good about doing that and some of thats going to come from same store some of that will come from from new units as it relates to fiscal 'twenty three.

So happens because we're still lapping non same store acquired units from fiscal 'twenty two.

You get a little bit of extra new unit pressure associated associated with that and obviously, it's super high credit card environment, but our confidence in that medium term algorithm.

This is unchanged from from where I sit for sure.

Okay. That's helpful and then wanted to ask about.

Prices at the pump, which continue to go up quite a bit and curious to hear whats your expectation of where prices could had this year and I guess I'm asking because I'm trying to understand what would be implied are assumed.

Based on the guidance you laid out.

Where do you see prices going I mean, do you think that could go up.

$6, a gallon and thinking about when we may hit true.

True demand destruction.

Do you guys have a level that you think that will occur. Thank you.

Yes Bonnie.

It's really hard to predict.

Where we're going to see those prices ultimately peak out at and I would say.

It's very <unk>.

Geography specific we have a pretty wide range from the most expensive areas.

And our geography to the least expensive and so if you were to take a look at the.

The greater Chicago suburbs, where we just acquired some bulky stores as those retail prices are.

Are well north of $5 and approaching that $6 range as you referenced.

At the other end of the spectrum, we have some areas that are just slightly over $4 a gallon.

Pretty wide range in terms of demand destruction.

<unk> modeled this out based on our core Tyler so on.

Retail prices. So we're we look at our top quartile of retail prices, which is well north of $5 a gallon at this point.

We are starting to see some erosion in volume in the low single digits in the middle two core titles were kind of flat ish to maybe slightly down and then in the bottom quartile, we're still seeing gallon growth. So it's really all of that together, we feel like that flat to 2% is a is a solid number.

For guidance, but.

Again, we'll have to see how this plays out.

$6, a gallon is unchartered waters for everybody, so I'm not sure what to expect it to happen.

I imagine there is some demand destruction at that point.

Okay.

And our next question comes from Sir.

Rob.

Research.

Good morning, everyone great quarter.

Talk about exclusive to you if you can how the.

The customer who is pumping gas and then stepping in for prepared foods out there.

Maybe trimming down what they buy and is that reflected in your comment before with pizza Pizza pizza slices being up so much.

Are they are they are giving up other purchases that may be going with the piece or beverages or any other items that are available.

Yes Chuck.

Haven't seen any reduction in what people are buying or the frequency of people coming into the store, where we have started to see some trading around within the store. So certainly our private brand products.

Resonated well and <unk>.

We exited the quarter at 5%.

Penetration as we sit here today were five 2%. So we've increased 20 basis points.

A months.

With that shift towards private brands and just some more affordable options. So we haven't seen that behavior shifts there what we have seen on the fuel side.

<unk>.

A few things in terms of change of behavior people arent initially just pulling back on buying fuel what they are doing is changing their fuel buying behavior. So.

The average fill up is down about a gallon versus where it was the same time last year. So people are purchasing just a little bit less fuel than they had historically per visit but they'll end up having to make more visits to the store over time, which we believe gives us a better opportunity to get <unk>.

Inside the store to buy more stuff. So the second thing. They are doing is shifting over to higher blends of ethanol because the.

It's an all economics are actually working out pretty favorably right now from a consumer perspective, so they'll shift over to an <unk> type of product versus what most of the fuel is blended at Eaton.

And so we've seen.

200 basis point shift in mix on <unk> and.

Then last thing is youll see some some customers trade down from premium into regular fuel to save money.

That way, but.

But overall those are some of the behaviors, we're starting to see right now.

And I don't want to I was going to ask about that fuel.

Sales mix, so when the <unk>.

Brad or occurs then hurt your margins, but incur.

Increased purchases of <unk>.

Richard ethanol mix helps your margin correct.

Yes, that's correct.

Alright. Thank you good luck for the new year.

Thanks Chuck.

And our next question comes from Bobby Griffin of Raymond James Your line is open.

Good morning, Thanks for taking my questions.

First one is on fuel I apologize I know, we've asked a lot about it but I'm just curious.

It's been a nice look flexible and Casey from pre pandemic versus post our pre pandemic into the pandemic, where you guys have.

Outperform the opus average for the Midwest.

As investors and analysts there too.

Hold that outperformance.

Going forward is that like a goal or should we think about that you guys can continue to outperform you now understand you're predicting the actual margins a lot harder but.

When we keep the outperformance.

Just on a lot of the structural changes you guys made to your fuel practice is that something you can comment on or talk a little bit about.

Yes, sure Bob I would say that we expect to outperform our competitors on every category that we compete in.

Fuel fuel certainly is one of those we've made significant investment in.

And we have had some good success over the last couple of years I don't I don't see that changing I think we've really stood up some strong capabilities in a very very talented team.

They can that has proven that they can execute in an environment I think these more volatile environments.

Are really where you.

You see the talents of the that team start to shine and so.

Yes, I would certainly expect that we would outperform.

Outperform our competitors in our geography.

Okay, and then Dan Youre quartile data, which was very interesting and I don't know.

Prices match up on directly if my question is going to go from a location standpoint, but in that quartile did you see the higher gas prices and you have more rule based stores are higher.

Higher trips to your kind of grocery stores.

Larger grocery stores, probably further way for that customer. So they are shopping more frequently with you given that they can.

Given that it's a much farther trip to the Walmart or whatnot in those small markets.

Yes, Bob I don't have any data in front of me that.

You would tell me that I, certainly would expect that.

As retail prices get higher I think where we've really seen the extreme retail prices like I said are in more of those Chicago suburbs, Thats, probably not the dynamic youre referring to.

In the rural areas, particularly outside of Illinois, we haven't seen those extreme prices like we're seeing in Illinois. So it's.

Wed have to get back to you on that data point, but don't have that in front of us right now.

And our next question comes from Global Liberty.

Adobe <unk> company your line is open.

Yes, good morning, and thank you for taking the question. So I just wanted to switch gears a little bit here. So you talked about private label are doing well.

Exiting the year with 5% penetration. So if you look forward here.

Which product categories are you.

Mostly focusing on as you look to expand the private label portfolio.

Anthony we are.

We're working on a lot of different categories right now in private brand, we're actually participate in 26 different categories.

<unk> brands and.

Some of those are under penetrated some of those are more franchise, but.

I can tell you where we've seen some some successes.

So far in the last quarter, we launched a line of Casey's candy bars, which.

We had never played in before.

And.

They have become the number one standard sized bar in dollars units and margin within the category.

Say that I mean, thats outperforming receipts knickers all of those national brands and so I think it really illustrates.

The quality and the value that.

Those those products provide.

The other thing that I'd tell you about we've had this this longer term goal of getting 10% penetration over time.

<unk>.

Within the grocery general merch category and that is it doesn't sound as big an order.

As it is.

But when you factor in the fact that tobacco plays a pretty significant role in that grocery and general merch category in that decade.

The tobacco category gets for cost increases per year, so that that math becomes more challenging on a mix perspective, but the point I'd like to make is.

On the 26 categories.

We play in today with private brands, we are already at a 10% penetration in 14 of those categories. So I think when you kind of take the tobacco equation out and you look category by category, we're having some really good success there.

We launched 23, new items in the fourth quarter, we have another 20 items.

Coming out in this quarter. So we're very bullish on our.

On private brands and now in this inflationary environment, we think.

That's a little bit of a tailwind for us as we continue to expand on those products.

Thanks for that and then.

Just going back to the labor commentary, so you talked about labor cost before but as far as labor availability can you give us some comments as to what youre seeing there.

Yes.

Labor Labor still remains tight although I think our operations and HR teams have done a really good job of managing that we haven't had any issues, where we're closing stores or limiting hours because of of team members and we are as we sit here today, we've actually seen an uptick in.

<unk>.

And we are just below one person per store openings. So I.

In a historical context, I would say that's about average.

That's kind of normal so.

Feel really good about where we're sitting from a staffing standpoint at this stage of the game.

And our next question comes from Kelly Bania of BMO capital. Your line is open.

Hi, Good morning, Kelly Bania here, Thanks for taking my question.

Wanted to see if you could shed some light on your total merchandise.

Sales growth outlook, obviously, the 4% to 6% comp but.

From a non comp perspective, given the still some M&A and some of the kitchen Remodels just help us understand kind of what you.

You are expecting on the total merchandise growth outlook.

Yes.

Yes, Hi, Kelly. Good morning. This is Steve I'll start with that I mean, it's certainly going to be higher than.

Then the same store number I mean, if you just think of the way we lap.

So the 80 ish new units those those are all come in on the first quarter like like a lot of them came in last year, but you'll get a benefit associated with those and you are correct in that the remodeling benefit that we get in these new stores.

Today, we close the store.

Depending on the permitting timeline, it's not in our same store number.

And when we open that kitchen, you kind of get a step up.

As we start to sell a lot more prepared food from a base usually are close to zero and so we haven't quantified it.

I don't think we will disclose the specific number associated with that but clearly.

Your instinct is correct in that.

<unk> merged sale number should be.

Should be noticeably better than what that inside run rate turns out to be.

Okay. That's helpful.

And also just wanted to ask about the prepared food you talked about I think the March price increases it sounds like another in April .

Just one.

In terms of elasticity it sounded like you thought you had more pricing power what is in your plan as you look at that.

Comp guidance and what have the recent price increases done to help offset some of the pressure on the prepared food gross margin line.

Yes. This is Steve I'll start and let Derek chime in in terms of just kind of what's in what's in our expectation.

If I do the two categories separately, because we've behaved a little bit differently in the grocery versus prepared food most of our grocery price increases excluding tobacco I think were put into put into action at the beginning of this calendar year, just based on the contractual nature of that business and so we know.

What the inflation is across most of the center of the store through our joint business planning exercise and most of those price increases were put in place in January so let's call that.

Low to mid single digits, depending on what the particular category is those will run through the end of the calendar year.

Which is reflected.

Our expectation, we will have to renegotiate all of that.

As we get into the latter half of this calendar year, but I would expect we will.

We'll continue to price in the grocery business consistent with maintaining margins as we enter the next calendar year and so I don't think we.

We would take a lot of pressure on margin no matter, how those negotiations turn out prepared foods, a little more complicated so to Dan's point, we have mid single digit type of price increases on average rolling through the prepared food category they've started at different points in time.

Some of them started later last calendar year and the more significant ones.

Started either in the middle of the third middle of the fourth quarter for us or literally at the beginning of this fiscal year, but it's a mid single digit kind of price increase it is rolling through.

Over the course of the year, we will get the benefit of most of that the entire year. We do think once you.

Lap the cost increases we've covered the $1 of inflation that we know about right now.

But to the extent cheese.

It gets better or worse as an example or proteins.

Would expect we will we will need to continue to kind of turn those dials on prepared food over the course of the.

Year, but ultimately we have enough pricing in the system now based on the inflation that we know about to.

To give us confidence that kind of 40% ish number for the year inside the store as sustainable and doable as we sit here today.

Yes, Kelly the only thing.

Add to that from an elasticity standpoint is that I think.

We're not the only ones experiencing commodity inflation everybody that's in the restaurant business.

Fast casual, but what have you is experiencing the same thing and so when you put us into that spectrum, we can even with the recent retail prices. We've taken we tend to be a more affordable option for most people then that <unk> certainly than our fast casual restaurants.

We would expect that over time, we will benefit from that and we will see some switching some channel shifting from from Kyocera fast casual into our channel, which should help us on the volume side.

Okay.

And our next question comes from Jon Liao of Jpmorgan. Your line is open.

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

So Brian the stores on the store addition guidance just looking at the 80 stores.

Big program.

If you plan to do it mostly organically and then.

Comparing to prior years, the capex at the low end.

Pretty similar to fiscal 2020, one on a much smaller build program. So.

And that's before backing out the remodels for the new stores. So.

I'm just trying to square why the Capex appears still low relative to the 80 store programs I don't know if there is an assumption that some of that comes from acquisitions or if there's something else I am missing there maybe.

Yes, John Good morning, this is Steve.

The answer is yes on your assumptions. So I would expect the 80 units will be a mix.

New units that we build as well as the units that we ended up purchasing if we purchased something it wont go through <unk>. Obviously, it will go through a different line item on the cash flow statement as we sit here today, it's probably directionally going to be half and half I think we we slowed down new builds.

Fiscal 'twenty two mainly because we were we were digesting. So many acquired units and that's the beauty of our model is we can kind of hold on the land bank and so.

Youre going to have in the first part of this year. Some units that we frankly could have opened last year and chose not to.

But as we sit here today, probably it's half and half and that's the biggest contributor to why the.

Why the run rate of total Capex is kind of that $450 million to $500 million I will say, one offsetting factor to that as.

We actually Couldnt spend everything we wanted to spend at the end of fiscal 'twenty, two because of supply chain issues. We just couldnt get things and so I don't know if thats going to get better frankly in fiscal 'twenty, three or not we're kind of assuming that it does and that we're able to catch up on some things like vehicles.

And the equipment for certain aspects of the store, but time will tell as to how successful we're going to be in <unk>.

Spending what we what we want to spend on things like that.

Great. Thanks.

Really helpful and then.

Steve you talked a little bit about deferred taxes in the prepared remarks, but I just wanted to dig in on that a little because it.

It looks like for the full year your cash taxes were quite low.

After adjusting for the deferred add back which was relatively large so I'm just looking for a little more detail on what was driving that on the on the Wolfcamp.

Yes, I think from if I, if I think of how it impacted the tax rates.

There were three states in our footprint during the year that lowered their state income tax rates or they've announced that they're going to have lower income tax rates in the future.

We immediately have to make a deferred tax entry when they announced that even if it's not.

Active yet just to revalue deferred tax liabilities in Nebraska, Arkansas, and Oklahoma for US all will have lower state tax rates in the future and we have a tax liability and so that provides an immediate benefit.

In the quarter that was the big driver of why the rate was so low in the fourth quarter was actually Nebraska.

They announced.

Our state tax reduction I would tell you from a cash tax standpoint.

We actually probably overpaid taxes, a little bit relative to what I think will end up going in fiscal 'twenty. Two it's part of the reason we have a.

A tax receivable on the balance sheet and I think that will it will allow us to have a smaller estimated payment here at the beginning of the year and it will be a cash flow positive item for us in fiscal 'twenty three.

And our next question comes from Karen short with Barclays. Your line is open.

Hi, Thanks, very much sorry for the background noise.

Quick question, just with respect to gas margins. So I know you gave.

<unk> indication in terms of where gas margins are trending into the current quarter to date, but you haven't really given much of an outlook and any concrete way for the year. So I wanted to get your perspective on.

Where you think the actual run rate should be on gas margins and then I wanted to find out if you could talk a little bit more about if theres any other changes tier inventory management process because.

With five to seven days of inventory on the ground you benefit from days old inventory when gas prices are rising.

Are we going to get hurt as cap rates fall.

I wanted to talk a little bit about how you're managing that.

And thinking about managing that inventory back.

Yes.

Aaron I guess with respect to the first part of your question.

Historically not given.

Fuel margin guidance for the year. So we're kind of staying consistent with our practice of not doing that at this point in terms of inventory management in the ground.

In the very short term win.

Fuel costs are rising you have lower cost inventory in the ground that does help but then the.

The retail prices tend to lag moving up on that cost to so that.

Typically your margin doesn't expand.

When the cost curve is going up in terms of contract and then the opposite is true on the way down.

Yes, you do have higher cost inventory in the ground.

It's falling but the retail prices tend to fall slower then they rise on the upside so the margins actually expand on the way down so.

We have more upside on the way down than we do downside.

On the way up.

We like to think about it.

And is there any evolution in terms of how youre thinking about managing inventories to be leaner and more mark to market like <unk>.

Back to retail.

And then the second question I had is.

<unk> talked and I'm sure you'll talk about this next week about upstream capabilities in terms of gas margins.

The backlog contract on pipeline. So is there any update on that.

Yes.

In terms of.

How we manage the fuel in the ground, we're not us.

<unk> about the Mark to market, what we are concerned about what is the competitive landscape.

What's going on so we want to make sure that we're saying.

And our relevant pricing range and consistent with our strategy for our retail pricing on the street and then the cost is going to be the cost and we'll manage that over time.

In terms of the upstream fuel procurement.

We implemented some systems this past year that would allow us to.

If you get more sophisticated in the fuel procurement process.

Well.

On the risk management side, as well as the accounting side and dispatching side so that.

We have those foundational capabilities, we just wrap that up.

This past quarter and so this year, we're going to begin the process of building out that capability to go further upstream in our procurement processes. We don't expect to actually launch any of that in this fiscal year, we intend to launch that in next fiscal year, but this year will be.

One of really making sure that we've got all those systems and processes in place. So we can.

Execute on that further upstream procurement.

<unk>.

Sure.

And then.

I would now like to turn the conference back to Darin Rubella for closing remarks.

Alright, Thank you very much.

Thanks for taking time to join US today I'd also like to thank our team members once again for their contributions in delivering another all time record year and for those of you who will be able to come out too.

Ankeny next week for our analyst day, we look forward to seeing you then.

Thank you.

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