Q4 2023 Casey's General Stores Inc. Earnings Call

June 7, 2023

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 one on your telephone you will didn't hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand the conference over to.

To your speaker today, Brian Johnson, Senior Vice President Investor Relations and business development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year ended April 32023.

Brian Johnson Senior Vice President Investor Relations and business developments with me today are Joe <unk>, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer.

Speaker 1: Good morning and thank you for standing by. Welcome to the fourth quarter, full year 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. Thank you.

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 1095.

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, our needs the company's supply chain business and integration strategies plan and synergy plans and synergies growth opportunities and performance center stores.

Speaker 1: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker 1: I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

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.

Speaker 2: Good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year ended April 30, 2023. I am Brian Johnson, Senior Vice President and Vest Relations and Business Development. With me today, our Jared Revelez, President and Chief Executive Officer and Steve Bramlett's Chief Financial Officer.

<unk>, but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from our 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 available on our website.

Speaker 2: Before we begin, I remind you that certain statements made by us during this administer call may constitute forward-looking statements within the meaning of the Private Security's Lification Reform Act of 1995. These forward-looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations.

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

Speaker 2: Financial conditions, liquidity and related sources or needs. The company's supply chain, business and integration strategies, plan and synergies, growth opportunities and performance center stores. There are a number of known and unknown risks on certainties and other factors that may cause our actual results.

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 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 fourth quarter and fiscal year results Darren.

Speaker 2: to defer materially from any future results, express or applied 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.

Thanks, Brian and good morning, everyone. We're looking forward to sharing our results in a moment, but I'd like to start by thanking our 43000 cases team members for their tireless efforts and contribution to our record fiscal year.

As I reflect on three year strategic plan that we set out in January of 2020.

Speaker 2: as well as other risks, uncertainties and factors which are described in our most recent annual report on Form 10K and quarterly reports on Form 10Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect or current views as of today with respect to future events?

Dreaming proud of what we've been able to accomplish.

Casey's is at the heart of the communities we serve.

Our teams give their all and this shows in the positive guest feedback we receive the delicious food, we make and the impact we have on our communities.

Speaker 2: and cases that describe any intention or obligation to update a revised for looking statements, whether it's a result of new information, future events or otherwise.

In fiscal year 'twenty, three cases, along with our generous guests and committed supplier partners enabled over $5 million of donations.

Speaker 2: 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.kc.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 and fiscal year results. Darren.

Provided meals school supplies, new playgrounds at equipment disaster recovery needs and services, helping veterans and their families.

I would like to offer a huge thank you to our team members, our guests and our nonprofit and supplier partners that make this all possible. We are proud to do so much good across so many communities.

Speaking of good in early May we launched an upgrade to our rewards program, that's bringing more good to our $6 5 million loyal members.

Hence casey's rewards experience includes refreshed app design that makes it easier than ever for Casey's rewards members to track their points redeemed for rewards and see how much money they have saved by shopping with Casey's rewards.

The program recently celebrated its three year anniversary of our guests love most about our loyalty program is the way they can choose to receive their rewards.

Whether it's casey's cash to help pay for Pizza night.

Extra sense, often filling the family vehicle members have the flexibility to decide what works best for them.

We look forward to continuing to grow membership and participation.

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

Fiscal 'twenty three was a record year for diluted EPS.

Finishing at $11 91, a share up 31% increase from the prior year.

The company also generated a record $447 million and net income and $952 million in EBITDA, an increase of 19% from the prior year.

Inside same store sales were up six 5% or 13, 6% on a two year stack basis with strong results in both prepared food and dispense beverage as well as grocery and general merchandise.

Same store sales up seven 1% and six 3% respectively.

Margins were virtually flat year over year, a tremendous accomplishment as we manage cost increases with our merchandise partners and commodities, while still holding our value proposition for our guests.

We saw tremendous results across the board.

Pizza slices in alcoholic beverages were very strong. We also had a lot of fun with innovative products like Bush light beer cheese breakfast pizza that made a positive impact on sales.

Fuel gross profit was up 16% with total fuel gallons sold up 4% and a fuel margin averaging 42 per gallon over the course of the year.

Our field team continues to do an excellent job maximizing gross profit dollars by balancing fuel volume and margin.

The macro environment was especially favorable for fuel margins with two significant wholesale fuel cost declines during the year.

We also had a great year in terms of managing costs.

Same store operating expenses, excluding credit card fees were up only two 8% impacted favorably by a reduction of same store labor hours of two 3%.

Guest satisfaction scores still improved which is a testament to our store simplification and store leadership teams.

We've been effective at freeing up unproductive and more expensive labor hours, which enables our team members to better serve our guests.

During the fiscal year, we also did a tremendous job with unit growth.

We built 34, new stores and acquired 47, more which demonstrates our ability to grow the business, both organically and via M&A.

We met our annual and our three year growth targets, despite challenges with permitting as well as delays in construction materials and equipment due to supply chain disruptions.

We're successfully integrating the 220 to 228 new units from fiscal 2022 and are meeting our synergy targets from those new stores.

All of this wouldn't be possible without our store development real estate and integration teams working seamlessly to grow our store base.

We're extremely confident in our ability to continue to build and buy new units.

We believe consolidation will continue to occur in the industry, while rising financing costs are reducing the number of potential buyers.

Our private label program continues to be popular with our guests and we ended the fiscal year above 9% penetration in the grocery and general merchandise category in both units and gross profit.

We currently offer over 300 Skus of private label products, which we believe has a tremendous value proposition for our guests.

These record breaking financial results are a strong reminder, that our business model is resilient and all parts of the economic cycle and the Casey's has a unique ability to provide value and quality to our guests.

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

Thank you Darren and good morning, before I jump into the financials I'd also like to acknowledge the entire casey's team to be excellent financial results for the quarter of the year and the three year strategic plan, our significant accomplishments for the entire organization and it would not have been possible without the hard work and dedication of all of our team member.

Yeah.

Total inside sales for the quarter rose eight 4% from the prior year to over $1 1 billion with an average margin of 39, 6%.

For the quarter total grocery and general merchandise sales increased by $66 million to $810 million, which is an increase of eight 8% and total prepared food and dispense beverage sales rose by $21 million to $314 million, an increase of seven 1%.

Same store grocery and general merchandise sales were up seven 1% and the average margin was 33% an increase of 50 basis points from the same period a year ago.

Sales were particularly strong in our <unk>.

Non alcoholic alcoholic beverages, and we experienced a favorable mix shift in these categories as single serve grab and go items outperformed.

Energy drink sold exceptionally well driving non alcoholic beverages up over 13% in the quarter.

Ongoing private label growth also assisted this category.

Same store prepared food and dispensed beverage sales were up four 9% for the quarter.

The average margin for the quarter was 56, 8% down 10 basis points from a year ago bakery as well as hot food performed well in the quarter.

Margin was adversely affected by a higher LIFO charge in prior year, which had an impact of roughly 50 basis points and while we did experience some cost pressure and bakery and proteins cheese costs were down six cents per pound from the prior year to $2 20. This had an approximately <unk> <unk>.

20 basis point benefit to margin.

During the fourth quarter same store fuel gallons sold were flat with a fuel margin of $34 six per gallon down approximately one six cents per gallon compared to the same period last year fueled.

Fuel margins vary widely in the quarter. For example, we experienced low thirties cents per gallon in both February and March but in April Cpg's were closer to 40 a gallon.

Our flat same store sales outperformed our relevant opus geographic data by over 200 basis points.

Retail fuel sales were down $207 million in the fourth quarter due primarily to an 11% decrease in the average retail price from 377 last year to $3 36, a gallon.

This was partially offset by a two 4% increase in total gallons sold $636 million.

Total operating expenses were up six 3% $31 million in the fourth quarter.

Proximately, one 5% of the increase is due to operating 69 more stores than a year ago.

Approximately 2% of the increase was related to same store operations.

Finally, approximately 1% of the change is related to an increase in crude costs for variable incentive compensation due to strong financial performance.

Same store employee expense was flat as the increase in employee wage rate was offset by a three 3% reduction in same store labor hours.

The company also benefited from a $2 million reduction in credit card fees due to lower retail prices for fuel tech.

Appreciation in the quarter was up modestly as we put a large number of stores into service late in the quarter net.

Net interest expense was $12 8 million in the quarter and Thats down $2 $5 million versus the prior year. This reduction was aided by rising interest rates on our cash balances and as a reminder, only 15% of our debt is floating rate.

The effective tax rate for the quarter was 22, 7% compared to 17, 8% in the prior year. The increase was primarily driven by a one time benefit in the prior year from adjusting our deferred tax liabilities for a corporate rate drop that was enacted by the state of Nebraska.

Net income was down slightly versus the prior year to $56 $1 million, a decrease of 6% and EBITDA for the quarter was $166 million and Thats essentially flat with the prior year.

During the quarter, we refinanced our credit facility with an unsecured $1 $1 billion facility that includes an $850 million revolving line of credit and a $250 million term loan each of which have a five year maturity.

An excellent outcome for us in what was a challenging banking environment during the quarter and that speaks to the quality of cases, as a credit risk and to the strength of our balance sheet.

At April 30, we had $379 million in cash and cash equivalents on hand, and with the recent refinancing we now have an additional $875 million in undrawn borrowing capacity on existing lines of credit.

US ample liquidity of $1 3 billion. Furthermore.

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

Our leverage ratio as calculated in accordance with our senior notes is one eight times EBITDA and we continue to have ample capacity to make good strategic investments as they present themselves.

For the quarter net cash generated by operating activities of $245 million less purchases of property and equipment of $175 million resulted in the company generating $70 million in free cash flow.

We continue to see delays in the delivery of vehicles and construction times remain elongated thus deferring some of our planned capital spend into fiscal 'twenty four.

At the June meeting the board of directors voted to increase the dividend of <unk> 43 per share per quarter, and that's a 13% increase marking the 24th consecutive year that the dividend has been increased.

We will continue to remain balanced in our capital allocation going forward, focusing on driving EBITDA growth with ROIC accretive investment opportunities in front of us.

The company is providing the following fiscal 2020 for outlook.

<unk> expects the following performance.

During fiscal 'twenty four.

We currently expect inside the same store sales to increase 3% to 5%.

We expect inside margin improvement to approximately 40% to 41%.

The company expects same store fuel gallons sold to be between negative 1% to positive 1%.

Total operating expenses are expected to increase approximately 5% to 7% and thats inclusive of adding 110 stores in fiscal 'twenty four.

As a reminder, this is inclusive.

Nonrecurring operating expense benefits from FY2023 regarding a legal settlement.

Net interest expense is expected to be approximately $55 million.

Depreciation and amortization is expected to be approximately $340 million and the purchase of property and equipment is expected to be approximately $500 million to $550 million.

The tax rate is expected to be approximately 24% to 26% for the year.

Consistent with our past practice, we're not guiding to a CPG figure nor.

Or are we providing EPS or EBITDA, but for model calibration purposes fuel margin in the mid thirties, along with flat retail prices as fuel compared to fiscal 'twenty. Three would result in a flat EBITDA year over year.

Our first quarter to date experience is as follows.

Inside same store sales are consistent with achieving the midpoint of our fiscal 'twenty guidance.

Same store gallons sold or near the low end of our fiscal 'twenty outlook.

Fuel CPG margin for May was in the low forties. However, we're currently in the low thirties.

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

Thanks, Steve.

I'd like to again say thank.

And congratulations to the entire casey's team for delivering another record year.

Our results speak for themselves and are a reflection of the hard work of the team and their dedication to executing our three year strategic plan.

In January of 2020, we laid out a plan to reinvent the guest experience create capacity through efficiencies.

B, where the guest is all while investing in our talent.

As this plant is now ready for renewable I'd like to share some of our accomplishments.

Our team had to navigate through a global pandemic and the effects, there and including restricted traffic labor shortages in an inflationary environment.

We adapted to the situation and thrived in it as you can see with our results.

We reinvented the guest experience in several ways, but we really shine with our Casey's rewards program we.

We made a commitment to enhance our brand and drive digital engagement engagement and we did just that with over $6 5 million members through may of 2023.

And this helped drive results as our same store inside sales towards the high end of our guidance.

We wanted to make sure that we create capacity to invest in the business by capturing efficiencies while we grew.

The team worked exceptionally hard to make the stores work harder for us, culminating in reducing same store labor hours in fiscal 'twenty three by over 2%.

Keeping team members engaged and guests satisfied.

As shown in the financial results too is our operating expense CAGR of 12% was lower than our EBITDA CAGR of 14%.

We also made a commitment to be where the guest is through accelerated unit growth.

We came into the plant with an expectation that we would build more than we bought but as the M&A environment changed we were able to remain flexible with our two pronged approach, where 70% of our new units from fiscal 'twenty, one to 'twenty three for via acquisition.

We made a bold commitment to accelerate our growth and we exceeded our own high standard of 345 new units.

Speaker 3: did just that with over 6.5 million members through May of 2023. And this helped drive results, with our same store inside sales, we're at the high end of our guidance. We wanted to make sure that we created capacity to invest in the business by capturing efficiencies while we grew..

The three year period with 354 new stores.

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

<unk> has shown tremendous resiliency, and we're positioned especially well to deliver future value to our shareholders through our strategic plan, which is being enhanced with our commitment to technology.

Speaker 3: The team worked exceptionally hard to make the stores work harder for us, culminating in reducing same store labor hours and fiscal 23 by over 2%, while keeping team members engaged and guests satisfied. It showed in the financial results too, as our operating expense CAGR of 12% was lower than our EBITDA CAGR of 14%.

This was all made possible by making investments in the talent of cases.

Our investment in a standalone M&A team drove record growth centralized procurement helped keep our shelves stocked at lower costs. Despite supply chain challenges centralized fuel operations allowed us to balance fuel volume and margin and countless other teams within the organization to help make these last three years some of the most successful in the history of the.

Speaker 3: We also made a commitment to be where the guest is through accelerated unit growth. We came into the plan with an expectation that we would build more than we bought, but as the M&A environment changed, we were able to remain flexible with our two-pronged approach. Over 70% of our new units from fiscal 21 to 23 were via acquisition.

<unk>.

We did all of this and generated cash flow from operations of approximately $2 5 billion.

Which was considerably higher than our capital expenditures of approximately $1 2 billion.

Speaker 3: We made a bold commitment to accelerate our growth, and we exceeded our own high standard of 345 new units, ending the three-year period with 354 new stores.

As we reflect on our last strategic plan in our fiscal 'twenty, three and beyond I'm thrilled and casey's ability to succeed in any macro economic condition.

Speaker 3: As you can see, our business has performed exceptionally well in a challenging macroeconomic environment. Casey's has shown tremendous resiliency, and we're positioned especially well to deliver future value to our shareholders through our strategic plan, which is being enhanced with our commitment to technology.

We're excited to share our next three year strategic plan on June 27, as we host our Investor Day in New York.

We will lay out our plans to continue to grow the business and deliver value to our shareholders.

Finally, I would also like to thank board directors, Diane Bridgewater, and Lynn Horak for their amazing contributions to the company over the last decade plus.

Speaker 3: This was all made possible by making investments in the talent at Casey's. Our investment in a standalone M&A team drove record growth. Centralized procurement helped keep our shelves stocked at lower costs despite supply chain challenges.

So our guidance helps fuel casey's growth and success during their tenures.

Glenn has been an invaluable resource to me as the board chair being a great mentor and advisers since I came on in the summer of 2019.

Speaker 3: Centralized fuel operations allowed us to balance fuel volume and margin, and countless other teams within the organization helped make these last three years some of the most successful in the history of the company. We did all of this and generated cash flow from operations of approximately 2.5 billion dollars.

I wish to lead and Diane all the best in their retirement from the Casey's Board in September .

We will now take your questions.

Okay.

As a reminder to ask a question. Please press star one on your telephone.

Speaker 3: which was considerably higher than our capital expenditures of approximately 1.2 billion.

<unk> for your name to be announced to withdraw your question. Please press star one again.

Speaker 3: As we reflect on our last strategic plan and our fiscal 23 and beyond, I'm thrilled in Casey's ability to succeed in any macro economic condition.

Please limit to one question and one follow up question. Please.

Speaker 3: We're excited to share our next three-year strategic plan on June 27th as we host our Investor Day in New York.

Please standby, while we compile the Q&A roster.

Speaker 3: We'll lay out our plans to continue to grow the business and deliver value to our shareholders.

The first question comes from Karen short with Credit Suisse. Your line is open.

Speaker 3: Finally, I'd also like to thank Board Directors Diane Bridgewater and Lynn Horak for their amazing contributions to the company over the last decade plus.

Hi, Hi, thanks, very much and congratulations on a good year.

I just wanted to and also.

I also look forward to seeing you in June I, just wanted to parse out on your guidance with respect to in store margins.

Speaker 3: Their guidance helps fuel KC's growth and success during their tenures.

Speaker 3: Lynn has been an invaluable resource to me as the board chair, being a great mentor and advisor since I came on in the summer of 2019. I wish Lynn and Diane all the best in their retirement from the KC's board in September .

You can parse out a little bit more on.

Grocery side versus the prepared foods side, obviously prepared food continues to be pressured and then I guess within.

Speaker 1: We'll now take your questions. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit to one question and one follow-up question.

Both of those components.

Talk a little bit about.

Price increases <unk>.

Branded.

Pass through on.

Grocery and then what youre kind of thinking through on the actual prepared food commodity cost pressures and then I had one more quick question.

Yeah, Karen this is Darren.

Thank you, yes, I'll go ahead and start and I'll, let Steve fill in some of the detail, yes, we expect to see a bit of a recovery in overall inside margin and we would see that primarily in <unk>.

Prepared foods and we think that's for a couple of reasons, where we're expecting the.

Speaker 4: I just wanted to, and I also look forward to seeing you in June , I just wanted to parse out on your guidance with respect to in-store margins. Maybe you could parse out a little bit more on the grocery side versus the prepared food side.

The inflationary pressure that we've experienced over the last year and a half to settle down a bit. We're currently experiencing some favorability on cheese costs. As an example, which as you know is a big input to our prepared food and dispense beverage margin. So that that we expect to continue to improve throughout.

The year.

On the on the grocery and general merch side.

We started to see some of that inflation subside there are still some categories like.

Chips, and candy, where we're experiencing some inflation, but outside of that there's been some moderation there and so we're.

It will still remain diligent in terms of passing on pricing that's appropriate and on the prepared food side will be a little more cautious on that on that effort on the commodity side, because we don't want to whipsaw the guests and we want to make sure we maintain our relative value proposition CV.

Okay.

And for modeling purposes, I think I would.

We advise that you.

Grocery and GMP, Aaron's point, probably flattish margin wise year over year for all those reasons.

The preponderance of the inside improvement will come from prepared food and that's both on the cheese side were about 43% hedged right now for our fiscal 'twenty four requirements and at the current cheese prices were kind of looking at least for the first quarter.

Down about 10% or so year over year, So we'll get some tailwind there will.

We will also be lapping some significant price increases we've had this year for example, donut inflation this year is 40% and the.

Bakery category, and we will lap that during the first part of fiscal 'twenty four so most of that most of the improvement mechanically is going to be prepared food.

Okay and then my second question is yes.

Obviously, you're managing opex growth extremely well.

One of your more rural I guess, I'll say comparison since hi, Todd.

Significant number of hours to the stores.

From a labor perspective, and I'm wondering how you think about that in terms of where you're at.

In terms of being able to actually meet the guest needs and whether or not you need to add more labor to the stores because that seems to be more of a theme even rural operators.

Yes, Karen.

I think.

Whether you add labor takeaway labor depends.

It depends largely on where you are starting and and for us.

We felt like we were always staffing our stores appropriately to meet guest needs and we continue to believe that but what we were able to identify is that we have.

Add some unproductive hours in the stores and we add some some labor.

Our activities rather than we were doing in the stores. It just didn't need to occur in the store anymore, we could pull that activity out of the stores and move it upstream where we can do it more efficiently.

And so we've been on a concerted effort over the last year to do exactly that we've been able to.

Reduce the number of unproductive hours as we would call it.

And take those out and in fact, our overall satisfaction scores as we measure them through a third party has actually improved while we've done that because we've not only freed up those hours and taken some of that to the bank, but we've also given some of those hours back to the store. So they can focus more on the guest experience. So we feel.

Very comfortable with where we're at now and and again for this next fiscal year, we still have our continuous improvement team in place we're going to continue to pursue finding more opportunities to operate our stores more efficiently.

Yeah.

Please standby for our next question.

Yes.

The next question comes from Anthony <unk>.

With Wells Fargo. Your line is open.

Yeah, Hey, good morning, guys. So I just wanted to ask about the gallon guidance.

Guiding to flattish same store gallon growth.

Optically it looks like a pretty easy compare.

And you're lapping what I would assume some level of demand elasticity last year on higher gas prices plus you've got the loyalty program can you just talk about.

Your assumptions, there and maybe why you're not more constructive.

Well Anthony.

The gallon guidance I mean, theres a lot going on right now in the World and you are right.

If you just look at the first quarter last year when gas prices spiked over $5. A gallon there was a bit of demand destruction, there, but then things fell off in and.

<unk> got a little bit more normalized it's been a little bit choppy as we go into this year.

Obviously, there is a lot of.

Macroeconomic headwinds going on that.

Could have an impact on gallons to the negative.

At the same time, we do that we do think that.

Because we've outperformed relevant benchmarks in our geography, we think we have some potential to grow gallons as well so.

We're trying to be appropriately conservative we've given ourselves some room to grow gallons in the guidance and also.

Or being somewhat pragmatic about the fact that if we go into recession.

And the economy changes that we could see some softness that's just a little bit too early to tell so that's how we landed on the guidance that we did.

Okay.

Got it and then on that 3% to 5% inside same store sales guidance.

As we continue to see disinflation and deflation in some categories.

Can you just stay in a little more on the underlying components of that growth and specifically, how youre thinking about contributions from price and unit growth within that forecast.

Yes.

For the inside of the store.

We're expecting to see.

Still good growth on the grocery and general merchandise side, probably a little bit softer on the prepared food and defense cyber simply because of what we're cycling.

Been up over 13% on two year comps and so this will be the third year in a row that were cycling.

Really aggressive comps were not expecting a lot on the pricing side from inflation, particularly in prepared foods, we took a lot of price last year to cover commodity cost.

And so we're trying to maintain more of a relevant value proposition for our guests, especially as the economy starts to tighten on the grocery and general merch side, we're still going to see some inflationary impact from tobacco and Thats just kind of normal course.

Like I said, we're seeing some inflation in some categories, but we're also seeing that moderate and in fact.

When we look at alcohol in the beer category in particular, we're expecting that to be a little more price competitive this summer with some temporary price reductions from the manufacturers.

So that could be actually a little bit deflationary.

Please standby for next question.

The next question comes from Ben Bienvenu with Stephens. Your line is now open.

Hey, Thanks, very much good morning, everybody.

Good morning, I wanted to ask.

First on the unit growth of 110 units that youre, citing for the year is that all organic within the inorganic fee.

Augmenting agent to that assumption.

And then I guess, along those lines could you talk a little bit about kind of the phasing of the unit growth in the pipeline visibility, but you have there.

Yes, Ben with unit growth of 110 units for this year as we model it out at the beginning of the year.

Kind of think Thats, an even split between organic and M&A.

Now, having said that a lot can happen in 12 months in the M&A world. So.

So.

Leave myself, a little bit of wiggle room based on potential transactions that could occur.

Mix could change, but we feel very confident of the 110 units regardless of of.

Of how we do that and from an organic standpoint, we feel very good about our pipeline and we've got the sites identified and it's just a matter of building them right now we're on a better cadence. This year I would say than we were last year, we're feeling better about the supply chain the permitting.

Component of that equation is starting to get a little bit more ratable. So so we feel a little a little better about the cadence of growth throughout the year on the organic side on on the M&A side, we feel really good about our pipeline and we're having a lot of good discussions.

With potential sellers.

The timing of those tends to be lumpy as you all know so it's hard to pigeon hole those into any type of quarterly cadence, but.

We definitely feel good about the pipeline on both organic and inorganic and we're confident we'll be able to easily get to that 110 number.

Okay great.

Revisiting operating expense growth.

The 7% range with much better than you guys have delivered over the last several years.

Understanding that there have been a number of external challenges.

Getting back to the kind of more normalized growth when.

When you think about the factors that contribute to either of the 5% or the 7% what are the variables that are the swing agents in that guidance range.

Yes.

I guess the first thing I'd tell you is.

We have made an organization wide commitment to controlling operating expenses and being very disciplined about that.

So that is.

That's an organization wide effort and I think you saw the results of that effort in this past fiscal year. So you can expect that kind of effort from us moving forward.

Having said that I think in terms of the components.

When we look at our G&A, we're essentially keeping G&A flat for the year.

And so.

That's a that's a big step.

In the right direction, and then from a store standpoint, we have our continuous improvement team like I've mentioned before there is doing a lot of great work and so we expect to continue to see a reduction in same store labor hours. This year as we did in.

In the previous year and on the rest of the equation, we expect to.

Be able to continue to pursue opportunities to leverage our scale and our purchasing power to drive more efficiencies in.

And the business, Steve anything else you want to add.

The other piece around employee wage rates, we will.

We're going to continue to obviously pay people competitively and beyond market and so are our average wage rate right now in our stores, excluding our managers is a little over $14 or so an hour.

We feel like Thats on market broadly across our.

Our footprint, but we're certainly going to we'll remain very competitive in that space and to Dan's point is.

That's not to source, we're going to we're going to control necessarily around store right.

It's more the efficiency side.

Yes, Ben I'll, just add one other thing.

We've mentioned it before on previous calls.

We've also made a concerted effort around controlling our turnover and reducing our turnover and we've had really good success in that over the year.

This past quarter was no different.

During the quarter, we saw a 20% reduction in overtime hours, 20% reduction in training hours and so we expect to continue to work that turnover down and as a result of that will lower some of those training costs and overtime hours as well.

And for our next question.

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

Alright, Thank you good morning.

I had a quick follow up question on fuel gallons, which trended negative in May you guys called that out.

For I guess, a little more color on what Youre seeing from the consumer in terms of I guess traffic fill ups et cetera, and I guess.

Really what the key drivers of the recent recent pressured volume growth has been and how does how does that compare to the industry and the broader Midwest are you taking share for instance.

Yeah Bonnie.

On gallons.

Yes, I can start with the fourth quarter.

Our gallons were flat in the quarter by the.

The mid continent Opus data that we saw gallons were down about two 5% for that same three month period. So from that perspective, I would say that even though we're flat, we're probably taking share versus some others in our geography.

One of the dynamics that we're seeing that's impacting gallon volume is.

As a softness in diesel fuel volume and Thats really a result of what we've seen happen in the economy over the last few months with softening retail sales construction starts kind of slowing down.

So.

You are just seeing less trucks on the road. So we saw.

We saw a reduction in our diesel volume low single digits and now thats only about 14% of our fuel mix, but.

When it's down it does have an impact on the on the gasoline.

Aline side, we are seeing a bit of an increase so when you mix all that out it.

It came out flat in the quarter, but thats whats really driving some of the softness right now that we're seeing.

Okay. That's helpful color and then I wanted to ask a little bit on your private label business. You highlighted that you now have over 9%.

Of your gross profits in units is private label, which is great. So congratulations just and then hoping you could maybe frame for us how that is or your position there relative to the industry average.

You may be ultimately, what the real opportunity opportunity could be.

And how youre thinking about private label in the context of your guidance. This year and then maybe touch on any key category callouts, where the consumers trading down Laura Thank you Johan.

You highlighted beverages, but any other areas and then in the context of that I'm, just curious to hear from your perspective about the snap benefit changes and what impact that may have had.

On your business or the consumer in your story. Thanks.

Yes.

The private brand growth has been phenomenal really.

We're still very bullish on that over the course of the year, we saw about 31% growth actually in the quarter.

31% growth in private label over last year and as you mentioned our unit share is.

Just under 10% and our gross profit dollar share is just over 10%. So we're really.

Really feel good about the contribution that thats fat and that mix has grown about 100 basis points from the same period last year, so everything kind of working in the right direction on on private label.

The categories has probably been the best are.

Our chips.

In fact, we saw over 80% growth in chips and took about 500 basis points of share in the.

Most recent quarter chip.

Chip category and.

And we're also seeing a lot of good success in bottled water, but what I would tell you is is that I think the the <unk>.

Price increases that we've taken from the national brands over the past year have really put us a spotlight on the value proposition for private brands is really widened that price delta between the two and so as consumers get a little more penny pinched theyre starting to look for those private <unk>.

And so that's why you saw the mix increase.

We expect to add another 40 items.

The assortment over the course of the next calendar year, and we will continue to grow that business.

Steve I don't know if you have any breakdown of private label contribution.

Yes, I mean listen we consistently.

Obviously see private label contribution of.

Many multiples of improvement from a margin standpoint, I think we're.

Running if our category nationally is running in the low <unk>.

Percent private label will be closer to 50% contribution on a lot of those items varies by overall category profitability, but it certainly is quite accretive category in general for us to continue to push.

Yeah.

Please standby for the next question.

The next question comes from Bobby Griffin with Raymond James Your line is open.

Good morning, everybody. Thanks for taking my questions.

Guess first guys. It's more of a high level question, but you know over the last couple of years has clearly been a lot of changes that's happened in the industry you've had a period of rising wholesale prices period of big falls in wholesale Covid et cetera.

So when you and the team look is there is there a fiscal year or a period of operations that you feel is kind of close to what a normal EBITDA. This business should be or where we could benchmark of where you guys benchmark. The next two or three or four years of EBITDA CAGR is author.

Yeah.

Well Bob Vanessa.

That's a tricky question.

I'm not sure what normal looks like anymore, if you will.

Put it in the context of the last four years.

I don't know.

To a certain extent.

I would just fall back on.

<unk>.

What we've done historically.

<unk>.

We've grown EBITDA at.

At 8% to 10% CAGR.

Pretty consistently over a long period of time and that's been through a lot of <unk>.

Economic cycles, so if I were going to anchor on anything I would say.

Yes, I think Thats, a long track record of performance, where we've been able to stay in that type of range.

Really regardless of how the economy is performing now quarter to quarter or year to year that may fluctuate a bit but over a longer period of time, I think thats, a pretty safe place to anchor yourself on and so I don't see anything on the horizon that would prevent us from continuing to do that.

I'll talk about this more on our Investor day, but no we feel very good about the future and so.

I guess that's the.

The best answer I think I can come up with Bobby does that is that what you're kind of looking for.

Yes, I mean, that's fair yes.

Great that's very tough to predict normal.

Maybe maybe we look at it on a rolling three years and kind of kind of have that historical performance. There because there has been such big swings in the fuel side of the business No that's fair.

I guess my second question is back to private label just the performance there has been pretty impressive it's getting to a point now where it's a meaningful part of the business. Just curious as we've maybe seen some modest breaks and inflation here how are the national brands now responding or you're seeing them come back to the table given the success you guys are adding private.

<unk> won't come back with more compelling offerings from a price or a promo basis or are they are they kind of just accepting the shift that's taking place and in fact your grocery business.

Well.

<unk>.

First I think they've started to moderate on the price increases that we're passing on to us and so.

I think some of that is a reflection of just inflation overall starting to subside. Some of it is a reflection of the fact that our private private brand mix has grown.

Continuously.

We have really good relationships with our major suppliers and we have great conversations with them about this subject in some cases, they make some of the private label for us in other cases, they probably wish we didn't have it but.

But yes, I think as we continue to have success with it.

We continue to challenge each other to find ways to grow the entire pie our goal with private label isn't to reduced sales of national brands and private label is to meet the needs of consumers that are looking for more affordable high quality options and so we seek to offer that to those guests and at the <unk>.

Same time, we do a lot of great work with our national brand suppliers to make sure we're satisfying the needs of those guests as well and so.

So yes, we have good discussions thats all part of our joint business planning process that we've been implementing for the last few years and.

As you can see with our inside.

Inside sales numbers, it's been pretty successful.

Please standby for the next question.

The next question comes from Kelly Bania with BMO capital markets. Your line is open.

Good morning, Thanks, Alright, taking our question.

And sorry, if I missed this but I was wondering if you could just comment on traffic.

First the ticket within the in store comps and just any color on.

Units versus in place in the mix within the two in store category.

Okay.

Yes, Kelly if you look at.

If you look at the composition of our same store sales last quarter.

We were up six 5%.

<unk> same store about 6% of that was from price.

And about half a percent of that was from traffic and so.

We feel really good about the fact that we are generating positive traffic, albeit just a little bit.

But it is positive and we're also seeing that dynamic play out in the first quarter as well with positive traffic. So.

Is the pricing.

Kind of moderates as we cycle over some of that inflationary pressure, we shifted our focus.

More towards driving traffic and we're starting to see the benefit of that.

Okay.

Okay. That's helpful.

And I think there was a comment about an expectation to continue seeing a reduction in same store.

Labor hours, but I was wondering if you could be more specific in terms of the magnitude of further labor hour reductions that are embedded into your 5% to 7% Opex outlook for.

For this coming fiscal year.

Sure Kelly Good morning, this is Steve.

Our five to seven is our plans at the moment for another 1%.

Year over year reduction in same store labor hours, so that would be on top of it through something.

We realize this year.

And then obviously, we'd have wage wage offsetting that but a 1% same store labor hour reduction is baked into that.

7% Opex guidance. Please standby for our next question.

The next question comes from Irene <unk> with RBC capital markets. Your line is open.

Thanks, and good morning, gentlemen.

So you're correct.

Morning listen to your commentary it sounds as though you are.

Sure marginally more cautious.

On consumer spending trends and marginally more bullish on the M&A side.

I'm wondering if you could just talk a little bit in both those categories about what youre seeing in the stores a little bit more around trade down behavior other than private label and the initiatives that you have underway for providing value and then on the other side just on the M&A, what you're seeing in terms of valuation.

Expectations, and and I guess your volume in the pipeline.

Yes, sure I mean, I'll go ahead and start with the consumer I'll, let Steve talk to M&A.

With the consumer I think we all recognize that the economy starting to soften a bit.

And so we started to see some some consumer behavior from a more macro perspective.

When you look at it our consumer base I'll, just remind everybody that.

Couple of things one it was about three quarters of our consumers earn over $50000 a year.

And that's significant and the fact that of the geography that we operate in.

The most expensive state we operate in is ranked <unk> in terms of cost of living and seven of the bottom 10.

States.

Our in our geographies so $50000 goes a lot further in our geography, then and many others around the country, so with that as a backdrop.

What we're seeing from the consumer in our stores is is pretty consistent behavior for that group that three quarters of the group that are.

Earning $50000 or more not that any real significant shifts in buying behavior with the group thats that other 25% call it that.

Earning less than $50000 a year, we are seeing seeing some shifts certainly shifting more towards private label.

Reducing some of discretionary purchases.

Lottery.

Some ice cream novelty that sort of thing.

But there are also shifting those purchases over to more affordable indulgence like like candy.

We're also starting to see some behavior, where they're leaning a little more into our freezer section and buying individual meals.

And that may be in lieu of going to a <unk> occasion as well. So we are seeing a bit of that shifting around the store.

But again, our traffic has been positive. So we haven't seen any sort of behavior that would suggest that consumers not shopping and this is one of the beauties of our business model, we sell basic needs for people and so these are things that people have to have and so theyre going to continue to come there just may behave a little bit differently, but at this point it's really.

<unk> been in the low income consumer and that's been most impacted.

And I read on the on the M&A side.

Question on the pipeline I think remains quite robust as we sit here today in terms of the things that we're looking at we feel good about that in just a couple of <unk>.

Things that are in that mixing bowl.

Listen there is a higher cost of financing for sure associated with anybody who does a deal and I think thats generally a good thing for us I think potentially marginal buyers are sidelined quicker certainly.

Non strategic buyers have largely been sidelined for many of.

The potential processes that we're looking at where.

There is no longer a kind of a cost of financing advantage in that and I just don't have any synergies to bring to bear and so I think it's a <unk>.

Smaller pool of potential buyers in general the operating environment for potential sellers still remains tough its tough tough sledding for a lot of these small smaller operators, which is rising costs and the need to reinvest in the business and labor dynamics et cetera that that remains definitely.

Tailwind for us and generally in.

The industry is still working through valuation expectations. There is no doubt for sellers.

One potential sellers they want to start with you know all time high.

Fuel margins and LTM numbers.

Zero percent financing driven historical multiples and that's not the world that we're in.

And so you have a little bit of standoff at least initially with that I think thats starting to break a little bit, but theres no doubt theres still.

Some valuation disconnects at the beginning of a lot of our processes. We are involved with.

That's really helpful. Thank you and then just one other question. Please around around cheese pricing you said that you have 43% of this year's.

Need locked in a can.

Can you tell us at what price and can you also give us an idea of whether sort of that 43% is.

Time based or sort of pro rated across the year and what are your plans in terms of locking in pricing given where we are today versus where we were three months ago.

On pricing.

When we watch we watch the prices every day. So that this is a big deal to us obviously and so if we felt like we can.

Lock in year over year deflation as a general matter, that's a pretty attractive entry point for us to be able to do that the 43%.

It is across the whole fiscal year, it's a little bit higher in the first quarter were kind of two thirds or so locked in in the third quarter or in the first quarter I'm, sorry, and then it progressively.

It goes down it goes down from there.

Again, I think I've said, we're about low low double digits, 10% to 15% <unk>.

<unk> in the first quarter based on the amount that we've we've locked in.

It probably.

Probably would be consistent as you go into the later quarters too, but where the strip ultimately settles is still remains to be seen and so that number can change, but we're certainly in a much better spot coming out of the gate on cheese than we were entering fiscal 'twenty three.

Yeah.

Please standby for the next question.

The next question comes from Chuck Cerankosky with Northcoast Research Your line is open.

Good morning, everyone.

Darrin and Steve could you address shrink in the quarter and the year and whether Thats a component of <unk>.

Concern in operating the stores.

Yes Chuck.

<unk> is always a concern in our stores and our business I would say that.

So far.

We have not seen any real shift in shrink.

Versus where we've been historically.

And I know Theres a lot of.

A lot of talk out in the industry about about shrink, but we just we just have not experienced that yet in our stores at this point.

Okay, that's great.

Banco category as we look out for fiscal 2024 that continues.

To shrink in volume.

What is that what effect is that having on the grocery gross profit margin.

Well.

Chuck.

Well, we've experienced is essentially kind of flat sales.

From a dollar perspective and kind of.

Mid single digit erosion in unit volume.

And so the pricing that we've been able to pass on is essentially covered the cost increases.

Plus maybe a penny or two a pack.

So from a dollar standpoint.

It's holding steady but from a margin rate.

Perspective it does.

It does put a little bit of pressure on the grocery and general merchandise.

Don't know exactly what that impact is <unk>.

No we've done the math on that.

But.

But you know Chuck what we've also seen overall in the grocery and general merch categories of margin expansion and so I think thats.

We've been able to offset any pressure from tobacco by.

Accelerating our private label and working closer with our.

Supplier partners on an.

More margin accretive activities that just overcome that that drag from tobacco.

Please standby for the next question.

The next question comes from John Royall with Jpmorgan. Your line is open.

Hi, good morning, Thanks for taking my question.

So can you talk about the recent volatility on the fuel margin side going from the mid <unk> and <unk> and I think Steve said it jumped to the low 40% in May and then.

Snap back to the low <unk> can you talk about the drivers of that volatility it doesn't feel like price has been quite volatile since the end of April so any color there would be helpful. Thanks.

Yes, just <unk>.

John that we just have had some wholesale costing increases.

The increases and decreases.

It has been volatile and then of course, we're not alone in this theres a theres a competitive set and so we have to stay competitive with others in the market and sometimes that that overall dynamic between cost increases and competitive pricing posture allows us to make more.

Margin in some situations and less margin than others.

So we've we've had.

It's probably been a little bit more extreme months to months, then that we would see historically.

<unk> point, you to the last four months or three months in our.

Last fiscal quarter, and then May two of those months were in the low 32 of those months are afforded.

So typically.

Typically the spread is not that much but I'd say, there's nothing unusual.

In the world that's driving that just.

Just continued competitive activity in the wholesale cost fluctuations.

Okay. That's helpful. Thanks, Darren and then.

I noticed you had a pretty sizable working capital draw in <unk>.

Color around that and any portion of that that might be reversible and <unk> or to.

Later on in the year.

Yeah, Hey, John This is Steve I think from a from a working capital perspective relative to where we were in the prior year. So a lot of our.

Working capital changes is just going to be driven by the price of fuel so right as the as the.

Wholesale value of fuel.

It was up in particular.

Period, that's going to show up right as an increase in inventories for us and it's going to show up as an increase in.

Payables and then it's going to go the opposite direction and so the single biggest impact on our working capital change both in the prior year 12 month period.

<unk> was a big change in the wholesale cost of fuel and it was the same this year. It just happened to be going in the other direction there was nothing.

Substantially different happening in the business, we generally as we add units are working capital positive just just based on the timing with which we.

Procure fuel would have to pay for fuel and received credit card payments and so adding a bunch of units at the very end of the period of this year, we'll have a different differentiating impact on working capital if we add units at a different pace than the prior year as well.

Please standby for the next question.

The next question comes from Kristine that could tie with Deutsche Bank. Your line is open.

Good morning. This is Jessica Taylor on for Christina Thanks for taking our question.

I just wanted to go back to vendors and pricing.

And just get your thoughts on what Youre seeing competitively for pricing or your competitors looking or doing taking more pricing actions.

And then from the vendor perspective, and if you saw any.

You are in negotiations.

Thank you.

Indication that your vendors are looking to drive more yes.

To price accordingly.

Yes, Jessica.

From a competitive standpoint.

We do see some competitors still continuing to take price.

And I would say, particularly among the smaller operators that that dynamic is not all that different than fuel.

Sure.

Where they don't have a lot of levers to pull so theyre pulling the price lever to try to offset higher costs across the board. So we are seeing some of that from from a supplier perspective, it really depends on the type of supplier in the.

And the industry in the categories that they're in I think.

We're seeing an interesting mix of some suppliers that still believe they have the ability to pass on more price.

So we are seeing a little bit of that that is certainly moderated from where it was a year ago.

We see others like I mentioned before in the beer category who are.

Looking to be a little more aggressive this year end.

We expect them to be battling over share and so we're expecting some price on on that category. So.

A little bit of a mixed bag from that perspective.

Thank you and then as a follow up I think on the last call, we talked a little bit about it.

Pizza.

And a little bit of and I'm, just wondering if youre seeing any softness in spices alright.

And how the promotional environment is there you're still for a lot of promotions from your competitors.

Yeah.

And in <unk>.

Pizza, we've done pretty well are slices.

The units are have actually been growing whole pies had been a little bit soft from a unit perspective, but we've we've.

We've taken up.

Pretty significant pricing in that category, but overall, we're just kind of flat to maybe a little bit negative.

In that category so.

And that compares pretty favorably to what we see.

And our piece of competitive set we are starting to see some more promotional activities from the major pizza competitors.

As they all try to do.

Get some unit velocity back.

We're taking a fairly conservative approach on that we are we are doing some promotional activity but.

We feel like we're lying priced pretty competitively in the base case, and we don't have to.

Discount too aggressively.

Have more of an everyday low price approach and that seems to work pretty well for us.

Yeah.

I show no further questions at this time I would now like to turn the call back to Darrin for closing remark.

Alright, Thank you and thanks for taking the time today to join US on the call I'd also like to thank our team members once again for their contributions in delivering another record year and we look forward to seeing everybody on Investor day on June 27.

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

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

Fiscal 'twenty three was a record year for diluted EPS.

Finishing at $11 91, a share a 31% increase from the prior year.

The company also generated a record $447 million and net income and $952 million in EBITDA, an increase of 19% from the prior year.

Inside same store sales were up six 5% or 13, 6% on a two year stack basis with strong results in both prepared food and dispense beverage as well as grocery and general merchandise.

Same store sales up seven 1% and six 3% respectively.

We saw tremendous results across the board.

Pizza slices in alcoholic beverages were very strong. We also had a lot of fun with innovative products like Bush light beer cheese breakfast pizza that made a positive impact on sales.

Fuel gross profit was up 16% with total fuel gallons sold up 4% and a fuel margin averaging 42 per gallon over the course of the year.

Our field team continues to do an excellent job maximizing gross profit dollars by balancing fuel volume and margin.

The macro environment was especially favorable for fuel margins with two significant wholesale fuel cost declines during the year.

We also had a great year in terms of managing costs.

Same store operating expenses, excluding credit card fees were up only two 8% impacted favorably by a reduction of same store labor hours of two 3%.

Guest satisfaction scores still improved which is a testament to our store simplification and store leadership teams.

<unk> been effective at freeing up unproductive or more expensive labor hours, which enables our team members to better serve our guests.