Q1 2023 Caseys General Stores Inc Earnings Call

September 8, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good day and thank you for standing by welcome to the first quarter 2023, 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 the session you will need a press star one on your telephone please be advised.

Today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Brian Johnson. Please go ahead Sir.

Thank you good morning, and thank you for joining us to discuss the results from our first quarter ended July 31 2022.

I'm, Brian Johnson Senior Vice President of Investor Relations and business development with me today are Darrin Rebalanced, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

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

And the potential effects of COVID-19, there are a number of known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward looking statements, including but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits.

From a strategic plan the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks uncertainties and factors, which are described in our most recent annual report on Form 10-K.

And quarterly reports on Form 10-Q as filed with the SEC and made 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 a result, whether as a result of new information future.

Events or otherwise a reconciliation of non-GAAP and GAAP financial measures referenced on this call as well as a detailed breakdown of the operating expense increase for the quarter can be found on our website at www Dot Casey'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 first quarter results Derrick.

Thanks, Brian and good morning, everyone. We're looking forward to sharing our results in a moment.

Like to start by thanking our 43000 team members for their commitment to our guests and our communities throughout the busy summer season.

Our team is performing exceptionally well and we certainly would not have delivered another strong quarter without their unwavering efforts.

Food innovation remains a top priority of the cases this summer we launched our newest specialty pizza the delicious Bbq brisket piece.

Although we plan to make it a limited time offering we're now keeping it on the menu because of positive guest feedback and strong demand thus far exceeded our expectations.

This fall our team is celebrating the 20 <unk> birthday of cases legendary breakfast pizza by Rolling out a new beer cheese breakfast pizza made with the Midwest staple pushed life.

The new product will be a lot of funds for our guests who will be available just in time for tailgating parties. This football season.

As our guests shifting to their fall routines and head back to work or school cases will be here ready to serve them.

<unk> is proud to support the communities, we call home and we aim to have a positive local impact by supporting fundamental needs.

In August case's cash for classrooms, giving campaign raised over $700000. Thanks to our generous guests and passionate team members.

These funds will support grants to local schools in our footprint.

The grant application process opens in October and we encourage schools teachers and parent led organizations to apply.

In July we published our second annual environmental social and governance or ESG report.

You will see other community, giving initiatives beyond our cash for classroom program highlighted in this report.

We are proud of the progress we've made not only in supporting our communities through charitable, giving but also through environmental initiatives.

We are confident that our ESG efforts are the right thing to do for cases business as well as for our team members guests communities and stakeholders.

Please visit our website under the Investor Relations sections read the report.

With respect to our board of directors, we're pleased to welcome two new members to the Casey's Board.

Street, Dorothy currently serves as executive Vice President and Chief Technology Officer at advance auto parts and his deep experience, leading teams to advanced technology integration and evolution of consumer focused businesses like cases.

We're confident that youll bring a valuable perspective to help cases continue to accelerate our information technology and digital transformation.

Mike Spinoffs brings significant leadership experience to the board most recently, serving as the president and CEO of six flags Entertainment.

Prior to six flags. He served approximately 25 years at Pepsico and a variety of senior executive roles.

Mike's expertise in both the entertainment and the consumer packaged goods industries, making him a tremendous fit with cases.

Youre welcome both <unk> and Mike to the board.

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

As you've seen in the press release, we had an outstanding first quarter for diluted EPS, finishing at $4 90, a share a 28% increase from the prior year and a record high for the first quarter.

The company generated $153 million and net income and $293 million in <unk>.

EBITDA, an increase of 20% from the prior year.

Inside sales remained strong despite the challenging economic environment driving inside gross profit up 9% to $504 million.

Our differentiated business model allows cases to succeed in a variety of economic conditions.

Through strong execution across grocery and general merchandize prepared food and dispense beverage and fuel with support from store operations.

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

Inside same store sales were up six 3% for the first quarter or 14, 9% on a two year stack basis with an average margin of 39, 8% down 70 basis points from the prior year we.

We saw strong performance in grab and go items like pizza slices and breakfast burritos, as well as alcoholic and non alcoholic beverages.

We were able to offset some inside margin pressure in the prepared food and dispense beverage category through strategic sourcing initiatives and the private label program within the grocery and general merchandise category.

Same store grocery and general merchandise sales were up five 5% with an average margin of 33, 9% compared to 33% for the same period a year ago.

This is a great start to the fiscal year as our guests navigated through accelerating inflation and high fuel prices are.

Our procurement team and self distribution network have allowed us to have better product availability and the prior year.

We continue to see great results by leveraging our approximately 500 stores with a liquor license, which has a unique competitive advantage within the convenience store space.

Same store prepared food and dispense beverage inside sales were up eight 4% or 21% on a two year stack basis with an average margin of 55, 6% versus 61% a year ago.

Sales were up due to strong performance at pizza slices and KOL dispense beverages.

Breakfast relaunched from the fall of 2021 has proven to be a success because we have taken market share in the breakfast day part within our geography.

Prepared food and dispense beverage margins were negatively impacted by higher ingredient costs, especially cheese.

For fuel same store gallons sold decreased two 3% with a fuel margin of $44 seven per gallon.

We did see fuel volumes and margins tightened when wholesale cost and retail prices at record highs and our margin benefited from the steady falling wholesale costs in the back half of the quarter.

Our field team did a great job optimizing fuel margin during this favorable environment.

Fuel margin was also positively impacted by the sale of $17 $7 million worth of brands during the quarter.

I would now like to turn the call over to Steve to discuss the financial results for the first quarter Steve.

Thank you Darren and good morning, before I jump into the financials I'd also like to take a minute to acknowledge the team for the incredibly strong performance throughout the entire business. The company executed really well during the quarter from operating the stores rolling out our new summer items, managing fuel and serving guests all the while continuing to collaborate.

With our business partners to manage the inflationary and the supply chain challenged environment.

Total revenue for the quarter was $4 $5 billion, an increase of $1 3 billion or 40% from the prior year.

Total inside sales for the quarter were $1 3 billion.

An increase of $123 million or 11% from the prior year.

For the quarter grocery and general merchandise sales increased by $88 million to $923 million, an increase of 10, 5% and prepared food and dispense beverage sales rose by $35 million to $344 million an increase of 11%.

Reported figures were favorably impacted by operating 3% more stores on a year over year basis, primarily due to the acquisitions.

Which closed over the course of the prior year first quarter.

Generally speaking our in stock levels improved during the quarter versus prior year and that also helps reported revenue.

Retail fuel sales were up $1 1 billion in the first quarter due to a three 3% increase in total gallons sold for $689 million as well as a 52% increase in the average retail price per gallon.

Average retail price of fuel during this period was $4 49, a gallon and it peaked on June 15th and $4 94 per gallon compared to $2 95, a year ago.

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

<unk> gross profit of $836 million in the first quarter, that's an increase of $112 million or 16% from the prior year. This marked a record high quarter and gross profit for the company.

This was driven by higher inside gross profit of $40 $7 million or nearly 9% as well as an increase of $73 7 million or 31% in fuel gross profit.

In fact gross profit margin was 39, 8% down 70 basis points from a year ago.

The grocery and general merchandise margin was up 90 basis points to 33, 9% from a year ago, which is an impressive feat given the inflationary environment and it's a testament to the merchandising team and our ability to manage margin through procurement product mix and retail adjustments.

Our growing private label program also offers our guests a lower retail price option that is margin accretive to the company as especially attractive to guests in the current economic environment.

Prepared food and dispense beverage margin was 55, 6% that's down 540 basis points from prior year. The decrease in margin was negatively impacted by commodity costs, specifically cheese, which were $2 49 per pound for the quarter compared to $1 90 per pound last year.

Here.

This negatively impacted the <unk> margin by approximately 190 basis points.

Category was also impacted by a LIFO charge, which had an adverse impact of approximately 80 basis points.

Finally, similar to the fourth quarter of the prior year. The company did incur an uptick in sales as our operations team made a concerted effort to keep the food warmer is full of product to take advantage of the trends of higher grab and go sales.

Fuel margin for the quarter was $44 seven per gallon thats up $9 six per gallon from the prior year rent.

Brands were not a significant incremental impact versus the prior year.

Other gross profit was down $2 $1 million, primarily due to a reduction lottery and car wash sales.

Other revenue was up from the prior year due to the higher priced fuel delivered into the dealer network margins from that business are fairly static regardless of the price of fuel for the direction wholesale fuel prices are going.

For the year, we expect other gross profit to finish flat to slightly positive.

Total operating expenses were up 13, 4% or $64 million, which is consistent with our expectations total operating expenses, excluding credit card fees were up 10, 8%.

<unk> $475 million in the first quarter.

Approximately 4% of the operating expense increase is due to unit growth as we operated 74 more stores than the prior year.

Same store credit card fees rose due to the higher retail fuel prices I mentioned earlier accounting for 3% of the operating expense increase in the quarter.

2% of the increase is due to higher performance based incentive compensation expense due to strong financial performance.

Increases in same store employee expenses have been partially offset by a reduction in store labor hours. Our store operations team has done a great job horizon. The challenge to operate our stores more efficiently without negatively impacting the guest experience, resulting in two 6% growth in same store operating expense.

<unk> credit card fees again in the face that inflationary pressure. This is a remarkable accomplishment by the team.

As a reminder, same store operating expenses do not include the new units that were acquired in the Buchanan energy or circle K transactions, because those acquisitions closed during the first quarter of fiscal 'twenty two.

These will be included in the second quarter same store results.

Depreciation in the quarter was up modestly as we're now lapping the new distribution center placed in service in fiscal 'twenty one.

Net interest expense was $13 8 million in the quarter compared to $13 7 million in the prior year. Please recall that only 16% of our debt is floating rate.

The tax rate for the quarter was 24, 6%.

Compared to 23, 3% in the prior year and that's up a bit due to the non repeat of some state tax rate benefits, we recognized in the prior year.

Net income was up versus the prior year to 152.

$9 million, which is an increase of 28% EBITDA for the quarter was $293 million compared to $245 million a year ago, an increase of 20%.

Our balance sheet remains strong at July 31, cash and cash equivalents were $312 million and we have the remaining capacity of $469 million in lines of credit.

US ample available liquidity of $781 million. Furthermore, we have no significant maturities coming due until fiscal 2006.

Our leverage ratio is now two times.

<unk> four turns from the prior year and in line with our preferred long term target.

Our balance sheet has plenty of capacity to make sound strategic investments as they present themselves.

Fourth quarter net cash generated by operating activities of $276 million less purchases of property and equipment of $82 million resulted in the company generating $194 million in free cash flow.

This compares to generating $197 million in the prior year.

At the August meeting the board of directors voted to maintain the dividend at <unk> 38 per share per quarter. We will continue to remain balanced in our capital allocation going forward leaning into the many EBITDA and ROIC accretive investment opportunities in front of us and we will remain opportunistic related to our 401.

$400 million share repurchase authorization. So we did not purchase any shares this quarter.

As for our second quarter experienced to date and expectations.

We expect same we expect second quarter same store inside volumes to be within our annual guidance of 4% to 6%.

Inside margins should improve modestly from the first quarter as cheese is currently less of a headwind than it was previously.

Same store fuel gallons currently are trending between our first quarter experience and the low end of our annual guidance.

Quarter to date CPG is in the mid Forty's.

But it's declining as it benefited from higher margins in the first two weeks of August .

More recently, we've experienced CPG back in the mid Thirty's.

Finally, total operating expense should improve sequentially versus the first quarter as expected and will likely be up approximately 10% versus the prior year.

I'd now like to turn the call back over to Derek Alright.

Alright, Thanks, Steve.

I'd like to again say, thank you and congratulations to the entire cases team for delivering an outstanding quarter.

Our three pronged business model gives us a unique ability to navigate the current inflationary environment affecting both food and labor, while also managing fuel volatility, allowing us to thrive in various economic climates.

We're committed to executing the strategic plan, we laid out in January of 2020.

As a reminder, the three pillars of our strategic plan are to 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 and supported by technology.

Inside the store, we've made great strides of joint business planning with our vendor partners, allowing us to manage product mix and strategically adjust retail prices, while maintaining our relative value position in the marketplace.

This is reflected in the grocery and general merchandise results with mid single digit same store sales and expanded margins.

Our private label program has great momentum exceeding 5% of the grocery and general merchandise penetration.

By the end of the first quarter, providing our guests a high quality and cost effective product.

Prepared food and dispense beverage continues to be an excellent value proposition alternative to <unk>.

Each of our day parts have items for our guests to get a great meal at a reasonable price, especially important in these inflationary times.

Specifically in the breakfast day part, we've rolled out a $4 breakfast value offer. Additionally.

Additionally, our whole pie the line pricing represent a great value for families versus other dining out alternatives.

On the digital side, our mobile App now represents 65% of all digital revenue, which is primarily driven by whole ties we've added more grocery and general merchandize items to the app as well.

We have also made great strides in delivery for beer and hard Seltzer, which are a great complement to our pizza orders.

Our summer of Freedom campaign wrapped up around cases rewards was successful in engaging our members and driving new guests to join I think approximately a 125000 more members in the same period last year and we sit at over $5 5 million members today.

The team did a great job this quarter managing a volatile environment.

Rising fuel prices and May put pressure on margin and in July the opposite took place.

<unk> team has allowed us to be able to react to market conditions quickly and effectively.

We do note however that fuel margins north of 40 per gallon are not likely to continue we expect margins to normalize in the second quarter.

We will remain prudent with operating expenses for continuous improvement initiative is top of mind for operations as evidenced by the reduction in same store hours.

We've also taken a cautious approach to hiring outside of the stores to stay nimble with the economic environment.

Labor availability at the store level is improving and wage rate increases are becoming more manageable.

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

In a difficult economic environment, we provide our guests with basic needs conveniently at a competitive price point.

They're centralized fuel and procurement teams were able to adapt and thrive in any economic environment.

And with our digital rewards, we're able to understand the needs of our guests better than ever before.

I can assure you our entire team is excited to finish our three year strategic plan on a high note.

And deliver on our commitments.

We will now take your questions.

Thank you can I ask a question you will need to press star one on your telephone we ask that you limit yourself to one question and one follow up please standby, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is open. Please go ahead.

Alright. Thank you good morning, everyone.

Hi, Bonnie.

I just had a couple of quick.

Prepared food.

First I think curious to hear how the pricing is implemented has been holding up.

Could you give us a sense of how much or the rate of pricing even commented so far this year and then second.

You mentioned that cheese costs have moderated a bit so prepared food margin, maybe won't be as pressure going forward, but.

Curious what your thoughts are about taking further price increase as David and mitigate them.

Margin pressures going forward.

Thanks.

Sure.

Yeah, Hi, Bonnie this is Darrin I'll go ahead and start.

With respect to the price increases really over the last year, we've had three different rounds of price increases in prepared foods in an attempt to kind of keep up with inflation. The reality of it is.

Right now we're facing about 14%.

Ingredient costs inflation in that category and that's a difficult one to keep up with it.

We're not inclined to chase cheese cost because because thats a commodity that has its ebbs and flows and what we don't want to do is get out of bed versus the marketplace. So we really try to manage that point, but we have taken pricing, we're going to continue to monitor situation, but obviously as you've seen in the results.

We've got good velocity as well so our units are hanging in there.

Flat to slightly up and and the pricing has been incremental so it has put a little bit of pressure on the margin in the short term but.

But we are growing the business, we are taking share in important day parts like the breakfast day part. So we feel good about where we sit right now and then we'll continue to monitor the situation for some additional opportunities to take price, if we need to and Steve you want to comment on the cheese itself I think Bonnie on cheese, specifically cheese was about a 30%.

Headwind for us in the first quarter.

Based on current trends right now I think it will be kind of low double digits percent increase so it's a significant.

Less of a headwind.

Then it was in the first quarter. We have also been able to lock in about a third of our cheese purchases for the rest of this fiscal year.

It's that or at least comparable to prior year. So I do think we will have a little bit less of a headwind into <unk> point on the pricing. We've taken we're in low double digit percentage terms and most of the prepared food line items from pricing standpoint, which will continue to flow through and the last point I would make around the margin is just and we have made some too.

<unk> our production schedules in the stores as we have a better a better sense of some of the new menu items and so I think we will right size a little bit some of the scale levels that we've been absorbing in the past couple of quarters.

Okay, and just maybe a quick follow up because that was helpful. So if I think about your your comp growth in prepared food in that.

Low double digit pricing should we assume has there been some.

Pull back in terms of volume.

In terms of the business.

How much is the pricing just wondering how the consumer has been responding to that.

Price increases.

No Bonnie it's been a little bit category by category, we're seeing still strong unit.

Movement in our breakfast day part.

<unk> really well pizza slices have been a great performer coal dispense beverages.

<unk>, well and actually does come.

Come back quite a bit and that was more supply chain related than anything else versus the prior year. So we are seeing good movement, our whole pies from a unit standpoint have been.

Little bit thoughtful closer to flat.

But the pricing of stock and sell.

We think we're in a good spot there and again, we'll continue to monitor this but.

It is absolutely a big priority of ours to continue to grow prepared foods business and accelerated rate and we're seeing that happen right now.

Alright, thank you.

And our next question comes from the line of Ben <unk> with.

Steven Your line is open. Please go ahead.

Hey, good morning, everybody.

Good morning.

So I want to ask about the guidance for full year same store fuel gallons.

Maintaining flat to up 2%.

Obviously prices ran up a lot to start the year they have since fallen off.

The outlay by quarter or year to date, how would you.

Describe what has happened relative to your initial expectations and when we think about kind of what's remaining to get to that guidance is it that as gasoline prices have fallen you've seen.

Volumes recover.

You need to feel comfortable on the flat to up 2%. If you could just talk about those dynamics that'd be helpful.

Yes sure Ben.

In terms of what we experienced in the first quarter clearly in the first half of the quarter wholesale cost ran up retail prices ran up and as we looked at our business. If we segment those price those price ranges by quartile, we certainly saw.

The largest.

Volume erosion occur at the highest quartile of pricing and then at the lowest quartile, we actually saw some gallon growth and when we compare ourselves versus the opus data, we see that we're outperforming the industry and our geography from a from a volume standpoint, so now that prices have come down.

Two a little closer to normal although there is still much higher than they were prior year, we're starting to see some of that volume recovery and so we think it's a little too early to call. The ball on our guidance for the full year, when we're only a quarter of it.

We are into the game as we saw in this first quarter a lot can happen in the quarter. We can hit record highs and we can come all the way back down in the span of a quarter. So.

We think we're just maintaining guidance for now and then we'll update that after the second quarter, when we have a little bit more visibility.

Okay that makes sense.

Shifting gears, a little bit to operating expenses.

The quarter didn't really capture much of the fuel price decline that we've seen but for the balance of the year that that's a tailwind for you guys with respect to that guidance line item what is the at what price level fuel price level.

<unk> reflect for the balance of the year and just how should we be thinking about.

Credit card fees as we move through the year.

Yes, Ben this is Steve I'll answer that.

Guidance reflects current current pricing levels. So we're obviously off of where we were in the first quarter for sure quite a bit and so we're making a static assumption on what happens with retail prices. We don't try to we don't try to follow that bouncing ball, but it implicitly.

If retail stay where they are we would have less incremental credit card expense headwind, obviously than we had.

In the first quarter.

Okay. So if I could follow up on that Steve.

Given that when you initially offered guidance for the year.

Fuel prices were quite a bit higher and they've come off quite a bit are you seeing underlying inflation around wages still in your business in excess of what you originally thought.

You noted taking some of the hours down could you just talk about kind of the underlying core opex growth absent fuel prices relative to how they looked at the start of the year.

Yes.

It's generally consistent from from kind of a rate pressure perspective, I think it's consistent with what.

What we thought it's still hard to.

Hard to find people attract people and retain people and we're working very hard to do that it's a little bit less acute.

Then it was maybe six months six months ago, but we definitely are still continuing to need to pay people more this year than we were paying them last year I think our average hourly rate. If you exclude our store manager population is almost $14 an hour now across our our footprint which is.

Up a couple percent from what it was last year. The thing that is helping us in that comparison as last year.

We were kind of reopening from from Covid, We had a lot of special retention related initiatives in place on hiring and referral in summer time bonuses et cetera, we have not had to keep those are reinstitute those and so the absence of the prior year specials.

It's flattering a little bit the amount of rate inflation that we're actually.

We're actually experiencing now, but it's it's.

Still a couple of hundred basis points year over year of incremental rate inflation, which is consistent with what we thought it would be when we gave the guidance.

Hereof incremental rate inflation, which is consistent with what we thought it would be when we gave the guidance.

Thank you and our next question comes from the line of Anthony Bernardino with Wells Fargo. Your line is open. Please go ahead and please go ahead.

Hey, good morning, guys congrats on the beat.

About the grocery and general merch gross margin pretty.

Pretty impressive performance, there and it looks like that 33, 9%.

Is the highest we've seen at least going back to 2015 can you just talk about.

The sustainability of that level is that the right way to think about modeling that segment going forward.

Yes, Anthony this is Darren.

Yes, there is a couple of things going on there.

Firstly I do get a lot of credit to our merchandising team along with our supplier partners. They really engaged in joint business planning last year and came up with some great plans to execute this this year and I think to certain extent youre seeing the benefit of that planning and the actions taken.

And those margin results and so.

That would be point number one point number two is our private label performance has really been outstanding and as you saw during the quarter that mix shifted from about 5% at the end of the fourth quarter last year to about five 4% as we sit here today.

In this quarter and so.

But what I would point out in there as well that's a sales penetration number on private label. If you look at units our unit share is up over 9% and our gross profit dollar contribution.

Private label is up over 9% as well and so the private label is national brands get more expensive more people shift over to those private brand products and those are all margin accretive for us. So we're seeing both of those things happened. So from a sustainability standpoint, I would say, we should still be in <unk>.

Good shape to be able to maintain those those kind of margins.

Yes.

The team has also done a really nice job of balancing taking retail price, where we've had cost increases, but also keeping a relative gap to competition. So we're able to take share at the same time.

Got it that's super helpful and then just.

Oh up on labor hours I, just wanted to ask about the decision to reduce.

Can you just walk us through what drove that to what extent that was driven by efficiency gains in your operations.

And just how we should think about the sustainability of their queue.

Anthony.

With respect to the labor hours, our operations team has really done a fantastic job.

More effective at managing labor.

Ryan.

And while we're talking about that I, just mentioned that we have stood up a continuous improvement team who is.

Clearly focused on driving efficiencies in our store operations and removing non value added work from the operations team. So I think it was.

Two pronged benefit one was simply greater focus on managing the labor and being effective with a reducing overtime, reducing non productive hours and then the continuous improvement improvement team identifying things that we don't need to do in stores that can be done more efficiently elsewhere or just eliminate it altogether and that's <unk>.

Reduced hours in the stores and so the combination of those two really lead to some efficiencies and frankly, we're in the early stages of that so we fully expect to find further opportunities to be more efficient in our stores.

And our next question comes from the line of Irene Mattel with RBC capital markets. Your line is open. Please go ahead.

Thanks, and good morning, everyone.

Thank you.

Can you talk through a little bit around what youre seeing from a consumer behavior standpoint.

Traffic Scatt your last quarter, when we talking about trading down and package sizes. We're hearing a lot about trading down from premium to value products.

Any sort of detail you could provide would be great.

Yeah.

Yes Irene.

Well first let me let me start off.

Telling you a little bit about our consumer overall and some of the demographics around our consumers because I think this is important to understand.

First thing I'd say is our geography.

As works to our advantage in this respect and the 16 states we operate in.

Our states are in the lower end of cost of living as you rank all 50 states. So it's the most expensive state we operate in is ranked <unk>.

From a cost of living perspective in <unk>.

Seven of our states are in the bottom 10.

Cost of living so we live in a very affordable geography operating at very affordable geography to begin with and then if you look at our guest income 72% of our guests make over $50000 a year. So the combination of our guests, making over $50000 a year and living.

Very affordable geography, really works to our benefit.

And so as that as a backdrop from a consumer behavior standpoint, certainly.

Record high fuel prices impacted consumer behavior. So on the fuel side of the business what we saw was.

A reduction in average gallons purchase per fill up about 8% reduction in the average fill up.

But the average number of transactions went up about 8%. So people were just buying less fuel, but coming more frequently to do that which in a lot of ways. We're sorry benefit because it gives us more opportunities to convert that guests to an inside guests as well. We also saw some shifting around among.

Among the fuel slate itself. So you saw people shifting down from premium and mid grade into.

Regular unleaded oriented higher ethanol blends and our higher ethanol blends 15, 85% were up high <unk> low 30 percents.

Versus prior year, so you definitely saw that behavior.

On the inside of the store like I was just talking about we saw that shift from some of the more expensive national brands into our private brand product, which again is margin accretive for US. We are also seeing some trade down in pack sizes from larger pack sizes are smaller, particularly in the beer category where people aren't switched.

Out of Super premium and imports and the cheaper.

Severe theyre just trading down from larger pack sizes into smaller pack sizes within the beer category, which is also margin accretive for us so.

So far things have been working out pretty well from a consumer behavior standpoint.

That's great. Thank you.

Yes.

We'd like to hear your updated thoughts on.

So sustainable are sustainable levels of gas market I think has a question.

A lot of Opex conversations.

But those two elements work in tandem so.

It's a really.

Into what the outlook is for earnings so.

Can you share your thoughts with us please.

Yes sure.

You know predicting fuel margins, there's a little bit of a crystal ball type exercise.

But.

Consistent with what we said in our prepared remarks, we don't expect fuel margins to remain in the 40 range that was a unique situation cost ran up to an all time high.

And then costs fell back down a little closer to normal and when you get through a cycle like that and you have you have.

Long way to fall margins typically widen out on the backside of that cost curve and so we certainly experienced that our fuel team did a great job managing through that volatility and it worked to our benefit.

Or from a planning standpoint for us we're looking at margins more normalizing over the for the balance of the year end.

I'll have to see how that goes there is a lot of things going on in the world right now that could cause <unk> cost to run up again, but.

Consistent what we've seen throughout history, when they run up like that they eventually hit a peak and then they have to come back down again, and we'll manage it similarly to the way we did this past time.

Thank you and our next question comes from the line of Kelly Bania with BMO capital markets. Your line is open. Please go ahead.

Hi, good morning, Thanks for taking our questions.

Good morning, good morning follow up.

Wanted to follow up on the Opex and just clarify is there something that is coming in or has the potential to come in higher than your original expectation because it just seems like with where the gas prices are now.

And the math that you gave last quarter. It seems like it should translate into about $40 million.

Lower credit card fees on an annual basis so.

Maybe within with still within the range, but can you just clarify that Carl.

Sure Kelly Good morning. This is Steve I'll give that a shot.

As Darin said foremost first in front of US we're trying to wait until the end of the second quarter to.

We will reassess all of the guidance here.

By the time, we get second quarter, because we will have seven months of experience by the time, we have that call I think thats.

Overarching thought on not changing anything but.

We certainly incurred more credit card fees to your point in the first quarter than we had thought.

Credit card fees will still be quite a bit higher than the prior year based on current pricing for sure. The other pieces. We've done we've definitely incurred higher incentive compensation expense on the long term.

Components of the comp program those multiyear kind of performance share pieces, and we will continue to have higher expense associated with those for the next couple of quarters that would be higher than we had expected at the time and so I still feel like the annual guide is reasonable.

Just on everything that we know right now we were right, we're kind of right, where we thought we would be albeit with a different combination of things.

Things to get us there and so we'll reassess.

Here at the end of the second quarter.

Okay.

Makes sense.

One follow up.

A couple of comments on just the value that you were.

Inside prepared food options spring relative to.

Maybe other.

Other options in the market and just maybe if you could just give us an update on what are.

The ranges in terms of price.

Those have trended what you're targeting.

And what has been happening.

Gas prices have moderated in recent weeks here between traffic and ticket and these dynamics.

Yes.

With respect to the <unk>.

<unk> foods.

Rising in value proposition when we look at.

What's going on in the marketplace.

There's been a lot of inflation that's happened in the <unk> and restaurant industry.

You'd think about.

Most restaurants in the U S are either independent operators or franchised operated and so they're really small businesses, even if they fly a big flag and so.

So theyre, taking price at a pretty aggressive rate and when we look.

Look at our pricing if you think about our whole pie business as an example.

$16 99 is the most expensive specialty large pizza that we sell in.

That was the order of bread sticks for five Bucks.

Feed a family of four it's pretty tough.

To feed a family of four in any <unk> and certainly any casual dining environment for under $25. So that.

That value proposition is really strong then on the single serve side, we just rolled out our breakfast value offer at $4.

A tough proposition most <unk> are at $5 now for us for any sort of breakfast value offering so.

We think we've got a really good value proposition for consumers and like I said, when we look at the share data. It looks like we're taking share. So I think that's resonating with the guests from a traffic standpoint.

Traffic has certainly gotten better as fuel prices have dropped we didn't.

In the first quarter, our traffic was only down about half a percent. So we were we were almost flat even with record high fuel prices. So we.

We started to see a little bit of recovery, there and we think that only continues to get better as time goes on.

And our next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is open. Please go ahead.

Good morning, everyone, great quarter could you talk about.

Store openings the rest of the year, you got optical looks like a slow start in getting the stores open.

Are you seeing permitting problems still in certain difficulty and the builders getting.

Components, especially for refrigeration.

Yes Chuck.

We did have a little bit of a slow start but historically, that's not all that unusual for us.

To have a slower start in the first quarter and do you think about it kind of makes sense, given our geography and the Midwest typically don't start construction projects in January and February because of weather and so if youre going to open in May June timeframe, you got to you got to start that project in kind of January February .

We're going to make that happen and so.

First quarter tends to be a slower quarter for us anyway.

That's never gotten the way of us getting our full year number and we've got over 20 stores under construction as we speak we got another 30 that will that will start construction between now and the end of the calendar year and then our acquisition pipeline is looking really strong right now so.

We are full of confidence we're going to get our full year number it's just a little bit of a timing issue.

Regarding acquisitions could you talk about the environment for acquisitions versus last year, where you got quite a few close.

Please.

Yes.

Last year was a great year for acquisitions and.

Really both we had some of those larger acquisitions that got a lot of headlines, but we did a lot of smaller deals as well and we're seeing that same dynamic play out right now we have a.

A really robust pipeline of smaller deals that you'll never hear about other than on a call like this but.

But that's looking really good and then we've had some more larger deals that are.

That have come our way and we're actively engaged in those processes and as you know those are competitive so we have to see how that all shakes out but.

We like what we're seeing right now from a deal flow perspective, and we think Thats just a reflection of the more complex and difficult operating environment that the whole industry is in right now and smaller players are looking to us.

To get out of the industry.

Okay.

And our next question comes from the line of.

Greg <unk> with Wolfe Research. Your line is open. Please go ahead.

Good morning. This is Spencer hanus on for Greg.

So have you guys seen any acceleration in trade down quarter to date, and then private label penetration picks up are you seeing national brands start to take a less aggressive stance on raising prices as their units could be impacted.

No Spencer, we haven't really seen any acceleration in trade down.

I said before with the private label, we've seen that shifting over to private label.

A lot of that a lot of that velocity in private label is coming from the national brands as people shift over to more affordable and high quality options.

We have not seen the national brands look at that data and make different decisions regarding their their.

Cost posture, and so we still see national brands, passing on cost increases and we continue to float most of that through to the consumer and that just says.

A bigger gap between the national brands, and private brands, which works to our benefit.

So we continue to do that.

Got it that's helpful. And then just taking a step back can you walk us through how your overall unit sales trended in <unk> versus <unk> and then I don't know if you mentioned this but have you talked about what the what the product inflation was.

During the first quarter.

Yes unit velocity. So the overall it was really about flat and it's very very different category to category.

But let's call it flat overall in terms of inflation, we saw about six 5% inflation in the grocery and general merch category and like I said before about 14%.

Prepared foods.

Okay, great. Thank you.

Thank you and our next question comes from the line of.

Bobby Griffin with Raymond James Your line is open. Please go ahead.

Good morning, Bobby Thanks for taking my question and good morning.

And congrats on the beat.

Just a quick clarification question.

On the on the gross margin headwind in prepared foods I believe you referenced 190 bps was from cheese and then there was like 80 bps from LIFO is the.

The remaining 270, all the higher waste from grab and go or were there other parts of that.

Hundred 70 basis points to get to the $5 40.

No it's more than just.

It's more than just waste waste is the single biggest remaining item in that Delta. We continue to have an inflation pressure across other parts of that category and we got a lot of coffee inflation on a year over year basis quite a bit of Donna input cost inflation on a year over year basis, So broad based inflation across everything except <unk>.

<unk> plus higher waste levels, what would account for the difference.

Okay. That's helpful. Just to clarify that and then I guess lastly, more higher level.

Comments about the uptick in market share around the breakfast category. So can you maybe put in context, where kcg's market share is today in that category versus historical levels is at an all time high or is there opportunity to get back to maybe where it was I don't know a few years ago or something like that.

Yes.

We've actually grown the market share of about 200 basis points.

From our most recent analysis and as best we can identify that's coming largely from <unk>.

In our geography and so.

I don't have a good historical reference point, Bobby to know whether our our breakfast market share is at an all time high or not but it has certainly grown over the last year end.

And I think because we see that coming from <unk>, we feel really good about the proposition that we're.

Offering to our guests right now.

Okay. That's helpful. I appreciate the details best of luck going forward.

Thanks Katrina.

Yes.

And our next question comes from the line of Cristina <unk> with Deutsche Bank. Your line is open. Please go ahead.

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

Thanks.

Hey, why.

Why don't you talk about customer acquisition and your loyalty program I believe you referenced that it now consists of slides on half million members. What do you see from repeat behavior from these customers and what are some of the ways. Maybe you could give us examples of what you're working on to make sure that there is going to be continued stickiness that even higher.

Keith levels. So maybe just update us where you are in our personalization efforts.

Yes Kristina.

With respect to our rewards members.

We see the day they visit our stores about 15% more frequently on an annual basis than our non rewards members and they spend about $12 or 12%.

More per transaction. So there are far more profitable guests and our non rewards members.

And they are far more active as well when we measure this we measure activity from our rewards member on a 30 day basis, where most of the industry does that on a 90 day basis, and we see about 52% active.

Active participation on a monthly basis 30 days and so that's a really high about 64% on a 90 day basis and you can compare that to just about any rewards program in the <unk> space and that is far in excess of what you would see there. So we are very active members one of the things we do too.

Try to engage them more frequently as we are shifting our emphasis to more individualized.

Activation so.

We started off with what we call a curation, which was the majority of our.

Messaging to rewards guests was kind of a message to everybody on the platform or are most of the people on the platform.

We've migrated over to segmentation, where we look at cohorts of guests and we will.

With like behavior, and then we send the message specifically to them then individualized is where we set a specific message to an individual guest.

Right now between the segmented in the individualized guests were about 80% of our messaging is going to those two groups.

We're seeing much higher response rates from those groups as we target those messages more towards.

Individual behavior.

Sure.

That's great. Thank you for that color and maybe if I could just follow up on the trends and the trust that you are seeing especially.

In the end of the first quarter what are you seeing.

From a consumer behavior perspective, how has that been changing.

If at all since the first quarter, because I think you said youre still rate was down 8%, but it was offset by increased trips. So I'm just curious what is happening with trips and celebrate.

Sit here sort of the middle of September .

Yes, just to be clear the 8% was a reduction in the average fill up per guest wasn't that wasn't a number for overall volume going down because remember on the flip side of that equation you had an 8% increase in fuel trips. So that was really kind of offsetting it. So what we're seeing is.

Overall volumes are getting better.

They have gotten consistently better as we hit those peak retail prices and we've come down and we've seen pretty consistently.

Once we get down into the upper $3 low $4 range.

Fuel pricing price points.

Our volumes start to recover and actually become a little bit positive.

And so it's just a matter of where we are on that.

Evolution back down to more normalized retail pricing that draw.

<unk>.

Volume activity.

Thank you and our next question comes from the line of John Lawrence with the Benchmark Company. Your line is open. Please go ahead, great. Thanks, guys good quarter congrats.

Good morning, Joe.

Could you comment just a little bit have you seen any.

Comment on performance in some of the newer markets in Knoxville.

Difference in those markets and secondly.

Remind us when the remodel schedule and we will see some of those.

That's getting remodeled.

And getting in.

Fully with the kitchens et cetera. Thanks.

Yes, John so far things are working according to plan.

As you can imagine it takes a while to permit for remodels, particularly when we're putting kitchens in stores.

So in Knoxville in particular, we've only got two stores have been remodeled at this point, but we've got a full plan.

To get those done and most likely by the end of the fiscal year.

To get a lot of those remodels done so.

Early results are really only a reflection of us sort of doing some basic re merchandising and cleaning up the stores and changing some signage, but really the real benefit will come when we get the full remodels and the kitchens and.

Oklahoma City, we're kind of in the middle of that process right now we've got about half of the stores that we intended to remodels done and we're starting to see the benefits of those remodels in those stores. The other half are in varying stages.

Either under construction or being started so.

Quite a bit of noise in those numbers overall, when we have store shutdown for Remodels. So I would say that we're pleased with what we're seeing so far when we come out post remodel the prepared food is accelerating as we expected and so we're confident that that trend will continue in those other markets. We just.

You have to let the process play out and get through those remodels.

Alright, Thanks, a lot and good luck.

Thank you.

Thank you and I'm showing no further questions and I would like to turn the conference back over to Darren with Delaware for any further remarks.

Alright, well thanks for taking the time today to join US on the call and again, we're off to a strong start this year and I would also like to thank our team members. Once again for all their hard work and contributions and everybody have a great day.

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

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

[music].

Yes.

[music].

Okay.

[music].

Hum.

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Sure.

[music].

Yes.

[music].

Yes.

[music].

Okay.

Yes.

[music].

Yes.

[music].

Okay.

Sure.

[music].

Sure.

Okay.

[music].

Yes.

Sure.

Thank you.

Yes.

[music].

Good day and thank you for standing by welcome to the first quarter 2023, 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 session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Brian Johnson. Please go ahead Sir.

Thank you good morning, and thank you for joining us to discuss the results from our first quarter ended July 31, 2022, I'm, Brian Johnson Senior Vice President of Investor Relations and business development with me today are Darrin rebellious President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

Before we begin I'll remind you that certain statements made by us during this investor call may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These forward looking statements include any statements relating to expectations for future periods possible or assumed future results of operations financial conditions.

Liquidity and related sources or needs the company supply chain business and integration strategies plans and synergies growth opportunities performance center stores, I mean pets and the potential effects of COVID-19.

There are a number of known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward looking statements, including but not limited to the integration of the recent acquisitions.

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 uncertainties and factors, which are described in our most recent annual report on Form 10-K and.

And quarterly reports on Form 10-Q as filed with the SEC and made 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 whether as a result of new information future events or otherwise a reconciliation of non-GAAP and GAAP financial measures referenced on this call as well the <unk>.

Retail breakdown of the operating expense increase for the quarter can be found on our website at www Dot Casey Dot com under the Investor Relations link.

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

Thanks, Brian and good morning, everyone. We're looking forward to sharing our results in a moment.

I'd like to start by thanking our 43000 team members for their commitment to our guests and our communities throughout the busy summer season.

Our team is performing exceptionally well and we certainly would not have delivered another strong quarter without their unwavering efforts.

Food innovation remains a top priority of cases this summer we launched our newest specialty pizza the delicious Bbq brisket pizza.

Although we plan to make it a limited time offering we're now keeping it on the menu because of positive guest feedback and strong demand that far exceeded our expectations.

This fall our team is celebrating the 20 <unk> birthday of cases legendary breakfast pizza by Rolling out a new beer cheese breakfast pizza made with the Midwest staple Bush light.

The new product will be a lot of funds for our guests who will be available just in time for tailgating parties as football season.

As our guests shifts into their fall routines and head back to work or school cases will be here ready to serve them.

<unk> is proud to support the communities, we call home and we aim to have a positive local impact by supporting fundamental needs.

In August Casey's cash for classrooms, giving campaign raised over $700000. Thanks to our generous guests and passionate team members. Please.

These funds will support grants to local schools in our footprint.

The grant application process opens in October and we encourage schools teachers and parents led organizations to apply.

In July we published our second annual environmental social and governance or ESG report Youll.

Youll see other community, giving initiatives beyond our cash for classroom program highlighted in this report.

We're proud of the progress we've made not only in supporting our communities through charitable, giving but also through environmental initiatives.

We are confident that our ESG efforts are the right thing to do for Casey's business as well as for our team members guests communities and stakeholders.

Please visit our website under the Investor Relations section to read the report.

With respect to our board of directors, we're pleased to welcome two new members to the Casey's Board.

Street, Dorothy currently serves as executive Vice President and Chief Technology Officer at advance auto parts.

His deep experience, leading teams to advanced technology integration and evolution of consumer focused businesses like cases.

We're confident that he'll bring a valuable perspective to help cases continue to accelerate our information technology and digital transformations.

Mike Spinoffs brings significant leadership experience to the board most recently, serving as the president and CEO of six flags Entertainment.

Prior to six flags. He served approximately 25 years at Pepsico and a variety of senior executive roles.

Mike's expertise in both the entertainment and the consumer packaged goods industries make him a tremendous fit with cases, we're excited to welcome both <unk> and Mike to the board.

Now, let's discuss results from the quarter.

As you've seen in the press release, we had an outstanding first quarter for diluted EPS, finishing at $4 nine a share a 28% increase from the prior year and a record high for the first quarter.

The company generated $153 million and net income and $293 million.

EBITDA, an increase of 20% from the prior year.

Inside sales remained strong despite the challenging economic environment driving inside gross profit up 9% to $504 million.

Our differentiated business model allows cases to succeed in a variety of economic conditions through strong execution across grocery and general merchandize prepared food and dispense beverage and fuel with support from store operations.

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

Inside same store sales were up six 3% for the first quarter or 14, 9% on a two year stack basis with an average margin of 39, 8% down 70 basis points from the prior year.

Saw a strong performance and grab and go items like pizza slices in breakfast burritos, as well as alcoholic and non alcoholic beverages.

We're able to offset some inside margin pressure in the prepared food and dispense beverage category through strategic sourcing initiatives and the private label program within the grocery and general merchandise category.

Same store grocery and general merchandise sales were up five 5% with an average margin of 33, 9% compared to 33% from the same period a year ago.

This is a great start to the fiscal year, because our guests navigated through accelerating inflation and high fuel prices.

Procurement team and self distribution network have allowed us to have better product availability than the prior year.

We continue to see great results by leveraging our approximately 500 stores with a liquor license, which has a unique competitive advantage within the convenience store space.

Same store prepared food and dispense beverage inside sales were up eight 4% or 21% on a two year stack basis with an average margin of 55, 6% versus 61% a year ago.

Sales were up due to strong performance at pizza slices and KOL dispense beverages.

Breakfast relaunch from the fall of 2021 has proven to be a success because we've taken market share in the breakfast day part within our geography.

Prepared food and dispense beverage margins were negatively impacted by higher ingredient costs, especially cheese.

For fuel same store gallons sold decreased two 3% with a fuel margin of $44 seven per gallon.

We did see fuel volumes and margins tightened when wholesale costs in retail prices hit record highs and our margin benefited from the steady falling wholesale costs in the back half of the quarter.

Our field team did a great job optimizing fuel margin during this favorable environment.

Fuel margin was also positively impacted by the sale of $17 $7 million worth of rent during the quarter.

I would now like to turn the call over to Steve to discuss the financial results from the first quarter Steve.

Thank you Darin and good morning, before I jump into the financials I'd also like to take a minute to acknowledge the team for the incredibly strong performance throughout the entire business. The company executed really well during the quarter from operating the stores rolling out our new summer items, managing fuel and serving guests all the while continuing to collaborate.

Aberrate with our business partners to manage the inflationary and the supply chain challenged environment.

Total revenue for the quarter was $4 5 billion, an increase of $1 3 billion or 40% from the prior year.

Total inside sales for the quarter were $1 3 billion.

An increase of $123 million or 11% from the prior year.

For the quarter grocery and general merchandise sales increased by $88 million to $923 million, an increase of 10, 5% and prepared food and defense beverage sales rose by 35 million to $344 million an increase of 11%.

Reported figures were favorably impacted by operating 3% more stores on a year over year basis, primarily due to the acquisitions, which closed.

<unk> over the course of the prior year first quarter.

Generally speaking our in stock levels improved during the quarter versus prior year and that also helped reported revenue.

Retail fuel sales were up $1 $1 billion in the first quarter due to a three 3% increase in total gallons sold $689 million as well as a 52% increase in the average retail price per gallon.

Average retail price of fuel during this period was $4 49, a gallon and it peaked on June 15th at $4 94 per gallon compared to $2 95, a year ago.

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

Casey had gross profit of $836 million in the first quarter, that's an increase of $112 million or 16% from the prior year. This marked a record high quarter and gross profit for the company.

This was driven by higher inside gross profit of $40 7 million or nearly 9% as well as an increase of $73 $7 million or 31% in fuel gross profit.

In fact gross profit margin was 39, 8% down 70 basis points from a year ago.

The grocery and general merchandise margin was up 90 basis points to 33, 9% from a year ago, which is an impressive feat given the inflationary environment and it's a testament to the merchandising team their ability to manage margin through procurement product mix and retail adjustments our growing private label.

Program also offers our guests a lower retail price option that is margin accretive to the company as especially attractive to guests in the current economic environment.

This negatively impacted the <unk> margin by approximately 190 basis points for.

The category was also impacted by a LIFO charge, which had an adverse impact of approximately 80 basis points.

Finally, similar to the fourth quarter of the prior year. The company did incur an uptick in sales as our operations team made a concerted effort to keep the food warmer is full of product.

Take advantage of the trends of higher grabbing gross sales.

Fuel margin for the quarter was $44 seven per gallon.

Up $9 six per gallon from the prior year.

Brands were not a significant incremental impact versus the prior year.

Other gross profit was down $2 $1 million, primarily due to a reduction in lottery and car wash sales while other revenue was up from the prior year due to the higher prices fuel delivered into the dealer network margins from that business are fairly static regardless of the price of fuel for the direction wholesale fuel price.

They are going.

For the year, we expect other gross profit to finished flat to slightly positive.

Total operating expenses were up 13, 4% for $64 million, which is consistent with our expectations total operating expenses, excluding credit card fees were up 10, 8%.

<unk> $475 million in the first quarter.

Approximately 4% of the operating expense increase is due to unit growth as we operated 74 more stores than the prior year.

Same store credit card fees rose due to the higher retail fuel prices I mentioned earlier accounting for 3% of the operating expense increase in the quarter.

2% of the increase is due to higher performance based incentive compensation expense due to strong financial performance.

Increases in same store employee expenses have been partially offset by a reduction in store labor hours.

Our store operations team has done a great job horizon, the challenge to operate our stores more efficiently without negatively impacting the guest experience, resulting in two 6% growth in same store operating expense, excluding credit card fees again in the face of that inflationary pressure. This is a remarkable accomplishment by the team.

These will be included in the second quarter same store results.

Depreciation in the quarter was up modestly as we're now lapping the new distribution center placed in service in fiscal 'twenty one.

Net interest expense was $13 8 million in the quarter compared to $13 7 million in the prior year. Please recall that only 16% of our debt is floating rate.

<unk> tax rate for the quarter was 24, 6% compared to 23, 3% in the prior year and that's up a bit due to the non repeat of some state tax rate benefits, we recognized in the prior year.

Net income was up versus the prior year to $152.

$9 million, which is an increase of 28% EBITDA for the quarter was $293 million compared to $245 million a year ago, an increase of 20%.

Our balance sheet remains strong at July 31, cash and cash equivalents were $312 million and we have the remaining capacity of $469 million in lines of credit.

US ample available liquidity of $781 million. Furthermore, we have no significant maturities coming due until fiscal 2006.

Our leverage ratio is now two times down <unk> four turns from the prior year and in line with our preferred long term target and our balance sheet has plenty of capacity to make sound strategic investments as they present themselves.

Fourth quarter net cash generated by operating activities of $276 million less purchases of property and equipment of $82 million resulted in the company generating $194 million in free cash flow.

This compares to generating $197 million in the prior year.

$400 million share repurchase authorization. So we did not purchase any shares this quarter.

As for our second quarter experienced to date and expectations.

We expect same we expect second quarter same store inside volumes to be within our annual guidance of 4% to 6%.

Inside margins should improve modestly from the first quarter as cheese is currently less of a headwind than it was previously.

Same store fuel gallons currently are trending between our first quarter experience and the low end of our annual guidance.

Quarter to date CPG is in the mid Forty's.

But it's declining as it benefited from higher margins in the first two weeks of August .

More recently, we've experienced CPG back in the mid Thirty's.

Finally, total operating expense should improve sequentially versus the first quarter as expected and will likely be up approximately 10% versus the prior year.

I would now like to turn the call back over to Derek Alright.

Alright, Thanks, Steve.

I would like to again say, thank you and congratulations to the entire cases team for delivering an outstanding quarter.