Q2 2024 Casey's General Stores Inc Earnings Call
[music].
First Speaker: Okay.
Good day, and thank you for standing by. Welcome to Casey's General Storage Second Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by welcome to Casey's General stores second quarter fiscal year 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode. After.
After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.
First Speaker: After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising your hands right.
First Speaker: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to Brian Johnson Senior Vice President of Investor Relations and business development. Please go ahead.
Good morning, and thank you for joining us to discuss the results from our second quarter ended October 31, 2023. I am Brian Johnson, senior vice president, best relations and business development with me today are Dan rebellious board chair, president and chief executive officer and Steve branch chief financial officer.
Brian Johnson: Good morning, and thank you for joining us to discuss the results from our second quarter ended October 31, 2023, I'm, Brian Johnson Senior Vice President of Investor Relations and business development with me today are Dan on the balance Board Chair, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer before we begin I'll remind 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 1995.
Brian Johnson: 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.
Brian Johnson: 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, and performance at our stores.
Brian Johnson: Hospital 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 and performance at our stores. There are a number of known and unknown risks uncertainties and other factors that may cause our actual results.
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.
Brian Johnson: 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 the strategic plan
Brian Johnson: 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 that are described in our most recent annual report on Form 10-K and quarterly reports.
the impact and duration of the conflict in Ukraine and related governmental actions.
as well as other risks, uncertainties and factors that are described in our most recent annual report on Form 10-K and quarterly reports of Form 10-Q as filed with the FCC and available on our website.
Brian Johnson: Our Form 10-Q as filed with the SEC and available on our website any forward looking statements made during this call reflect our current views as of today with respect to future events and cases disclaims any intention or obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.
A reconciliation of non-GAAP-to-GAAP financial measures referenced in this call, as well as a detailed breakdown of the operating expense increase for the second quarter, can be found on our website at www.caseys.com under the Investor Relations link.
Brian Johnson: A reconciliation of non-GAAP to GAAP financial measures measures referenced on this call as well as the detailed breakdown of the operating expense increase for the second quarter can be found on our website at www Dot Casey's dot com under the Investor Relations link.
With that said, I'd now like to turn the call over to Darren to discuss our second quarter results.
Darren: With that said I'd now like to turn the call over to Darren to discuss our second quarter results.
Thanks, Brian , and good morning, everyone. We'll discuss the excellent second quarter results in a moment. First, I want to thank our team, including the new team members in our 17th state of Texas for their dedication and hard work. We're excited to welcome the great state of Texas to Casey's community.
Darren: Thanks, Brian and good morning, everyone I will discuss the excellent second quarter results in a moment.
Darren: I want to thank our team, including the new team members and our 17th state of Texas.
Darren: Your dedication and hard work, we're excited to welcome the great State of Texas to the Casey's Canadian.
I know I speak for our entire team when I say we're extremely humbled by the response from our caring guests and dedicated team members to our annual Veterans Giving Campaign in November .
Darren: I know I speak for our entire team when I say, we're extremely humbled by the response from our current guests and dedicated team members to our annual veterans, giving campaign in November.
This year's campaign resulted in over $1.2 million, just an outstanding outcome and for two great causes, hope for the warriors and children of fallen patriots.
Darren: This year's campaign resulted in over $1 2 million just an outstanding outcome for two great causes.
Darren: For the warriors and children are fallen Patriots.
We are so grateful to our communities and guests for their generous acts of rounding up their purchase. As a veteran myself, I know the great sacrifices these families have made and the challenges they face.
Speaker Change #4: We are so grateful to our communities and guests for their generous act of rounding up their purchase as a veteran myself I know the great sacrifices. These families have made and the challenges they face.
Thank you to our partners at PepsiCo who contribute to this campaign, our Casey's team members, and especially to our guests who truly do good when they shop at Casey's.
Speaker Change #4: Thank you to our partners at Pepsico will contribute to this campaign.
Speaker Change #4: This team members and especially to our guests to truly do good on the shopping cases.
Speaker Change #4: Now, let's discuss the results from the quarter.
Diluted earnings per share finished at $4.24 per share, a 16% increase from the prior year.
Speaker Change #4: Diluted earnings per share finished at $4 24 per share.
Speaker Change #4: 16% increase on the prior year.
Inside sales remain strong, driving inside gross profit dollars up 10% to $553 million.
Speaker Change #4: Inside sales remained strong driving inside gross profit dollars up 10% to $553 million.
The company generated $159 million in net income, an increase of 15%, and $306 million in EBITDA, an increase of 13% from the prior year.
Speaker Change #4: The company generated $159 million and net income an increase of 15% and $306 million in EBITDA, an increase of 13% from the prior year.
Inside the store, same-store sales were up despite lapping a very strong second quarter last year, while margins improved both sequentially and year-over-year as ingredient costs improved.
Speaker Change #4: Inside the store same store sales were up despite lapping a very strong second quarter last year, while margins improved both sequentially and year over year as ingredient costs improve.
On the fuel side of the business, we continue to strike the right balance between volume and margin.
Speaker Change #4: On the fuel side of the business, we continue to strike the right balance between volume and margin.
Similar to the first quarter, there are no significant macro events that impacted wholesale fuel costs.
Speaker Change #4: Similar to the first quarter, there are no significant macro events that impacted wholesale fuel costs with.
With each passing quarter, it becomes more evident that higher industry fuel margins are here to stay.
Speaker Change #4: With each passing quarter it becomes more evident that higher industry fuel margins are here to stay.
with another strong quarter, which led to our highest EBITDA in the first six months in the company's history.
Speaker Change #4: With another strong quarter, which led to our highest EBITDA in the first six months in the company's history the.
The strength of our unique business model was again on full display.
Speaker Change #4: The strength of our unique business model was again on full display.
The team continues to do an excellent job operating the business efficiently and effectively, both inside and outside the store, as evidenced by same-store labor hours being down 2% while our overall guest satisfaction score was up over 400 basis points over the prior year.
Speaker Change #4: The team continues to do an excellent job operating the business efficiently and effectively both inside and outside the store.
Speaker Change #4: Evidenced by same store labor hours being down 2%.
Speaker Change #4: Overall guest satisfaction score was up over 400 basis points over the prior year.
I would now like to go over our results and share some of the details in each of the categories.
Speaker Change #4: 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 2.9 percent from second quarter or 11 percent on a two-year stack basis with an average margin of 41.1 percent.
Speaker Change #4: Inside same store sales were up two 9% from second quarter or 11% on a two year stack basis.
Speaker Change #4: Average margin of 41, 1%.
We saw notably strong performance in whole pizza pies, bakery, and dispensed beverage.
Speaker Change #4: We saw a notably strong performance in all pizza pies bakery and dispense beverage.
We're also very pleased with the continued inside margin expansion this quarter.
Speaker Change #4: We're also very pleased with the continued inside margin expansion this quarter.
Same store prepared food and dispensed beverage sales were up 6.1% or 17.2% on a two-year stack basis, with an average margin of 59%, up approximately 230 basis points from the prior year.
Speaker Change #4: Same store prepared food and dispense beverage sales were up six 1% or 17, 2% on a two year stack basis with an average margin of 59% up approximately 230 basis points from the prior year.
Whole pies performed well in the quarter, and we also saw strong performance with appetizers and sides.
Speaker Change #4: <unk> performed well in the quarter and we also saw strong performance with appetizers and sides.
Martin was favorably impacted by softening commodities, notably cheese, during the quarter.
Speaker Change #4: Margin was favorably impacted by softening in commodities, notably changed during the quarter.
Seamstore Grocery and General Merchandise sales were up 1.7% or 8.7% on a two-year SEC basis with an average margin of 34%, an increase of approximately 70 basis points from the prior year.
Speaker Change #4: Same store grocery and general merchandise sales were up one 7%.
Speaker Change #4: Eight 7% on a two year stack basis with an average margin of 34% an increase of approximately 70 basis points from the prior year.
We saw positive momentum in the category, notably in alcoholic beverages, and our private label program continues to be a great value option with bottled water and Casey's chips performing well in the quarter.
Speaker Change #4: We saw positive momentum in the category, notably in alcoholic beverages, and a private label program continues to be a great value option with bottled water and cases ships performing well in the quarter.
For fuel, same store gallons sold were flat with a fuel margin of 42.3 cents per gallon.
Speaker Change #4: For fuel same store gallons sold were flat with a fuel margin of $42 three per gallon.
Our fuel team is striking the right balance between volume growth and margin, and the results continue to show it.
Speaker Change #4: Our field team is striking the right balance between volume growth and margin and the results continue to show it.
This quarter marks the 10th quarter in a row, with fuel margins about $0.345 per gallon, and five of the last six quarters have been over $0.40 per gallon.
Speaker Change #4: This quarter marks the 10th quarter in a row with few margins about 34, five cents per gallon and five in the last six quarters have been over 40 per gallon.
Our volume continues to outperform our geographic market as well as Opus fuel gallon sold data shows the mid-continent region down approximately 5% in the quarter.
Speaker Change #4: Our volume continues to outperform our geographic market as well as <unk>.
Speaker Change #4: Opex fuel gallon sold data shows the mid continent region down approximately 5% in the quarter.
I'd now like to turn the call over to Steve to discuss the financial results from the second quarter.
Steve: I would now like to turn the call over to Steve to discuss the financial results from the second quarter Steve.
Thank you, Darren. Good morning. Our performance was excellent in the second quarter as we saw great results inside and with fuel while we continue to operate the stores efficiently.
Steve: Thank you Darren and good morning, our performance was excellent in the second quarter as we saw great results inside and with fuel.
Steve: We continue to operate the stores efficiently.
This was despite a challenging comparison from the second quarter last year, and that's a testament to the resiliency of our business model and our team's execution.
Steve: This was despite a challenging comparison from the second quarter last year and Thats, a testament to the resiliency of our business model and our team's execution.
Total revenue for the quarter was $4.1 billion, an increase of 86 million, or 2% from the prior year, due primarily to higher inside revenue.
Steve: Total revenue for the quarter was $4 1 billion, an increase of $86 million or 2% from the prior year due primarily to higher inside revenues.
Total inside sales for the quarter were $1.3 billion, and that's an increase of $78 million, or 6% from prior year.
Steve: Total inside sales for the quarter were $1 3 billion.
Steve: Is an increase of 78 million or 6% from prior year.
For the quarter, grocery and general merchandise sales increased by $47 million to $964 million. An increase of $5.
Steve: For the quarter grocery and general merchandise sales increased by $47 million to $964 million, an increase of five 2%.
Prepared food and dispensed beverage sales rose by $31 million to $382 million, an increase of 8.9%.
Steve: Prepared food <unk> beverage sales rose by $31 million to $382 million, an increase of 80, an increase of eight 9%.
Results were also favorably impacted by operating more stores on a year-over-year basis.
Steve: Results were also favorably impacted by operating more stores on a year over year basis.
Retail fuel sales were up $11 million in the second quarter, as a 4% increase in gallons sold to $730 million, was partially offset by a 3.5% decrease in the average retail price per gallon.
Steve: Retail fuel sales were up $11 million in the second quarter is a 4% increase in gallons sold two $730 million was partially offset by a three 5% decrease in the average retail price per gallon.
That average retail price of fuel during the period was $3.62 a gallon, compared to $3.75 a year ago. We define gross profit as revenue plus cost of goods sold, but excluding depreciation and amortization.
Steve: That average retail price of fuel during the period was $3 62, a gallon compared to $3 75 a year.
Steve: We define gross profit because revenue less cost of goods sold but excluding depreciation and amortization.
KC had gross profit of $886 million in the second quarter, an increase of $75 million, or 9.2% from the prior year. This was driven by both higher inside gross profit of $48.8 million, or 9.7%, and higher fuel gross profit of $24.4 million, or 8.6%.
Steve: Tcf had gross profit of $886 million in the second quarter, an increase of $75 million or nine 2% from the prior year.
Steve: This was driven by both higher inside gross profit of $48 8 million or nine 7% and higher fuel gross profit of $24 4 million or eight 6%.
Inside gross profit margin was 41.1% and that's up 130 basis points from a year ago.
Steve: Inside gross profit margin was 41, 1% and Thats up 130 basis points from a year ago.
The grocery and general merchandise margin was 34%, an increase of 70 basis points from prior year.
Steve: Grocery and general merchandize margin was 34% an increase of 70 basis points from prior year.
The increase was due primarily to favorable vendor-funded promotions and volume discounts, a lower LIFO charge than in the prior year, as well as private label increasing its share of our mix.
Steve: The increase was due primarily to favorable vendor funded promotions and volume discounts, although our LIFO charge in the than in the prior year as well as private label, increasing its share of our mix.
Prepared food and dispensed beverage margin was 59%, up 230 basis points from prior year.
Steve: Prepared food and beverage margin was 59%.
Steve: Up 230 basis points from prior year for.
The category margin benefited from lower commodity costs, specifically cheese, which was $2.12 a pound for the quarter compared to $2.24 a pound last year, a decrease of about 5%.
Steve: The category margin benefited from lower commodity costs, specifically achieves which was $2 12, a pound for the quarter.
<unk> to $2 24.
Last year, a decrease of about 5%.
Margin also benefited from a lower LIFO charge than the prior year as generally input costs soften.
Steve: <unk> also benefited from a lower LIFO charge in the prior year as generally input costs softened.
Fuel margin for the quarter was 42.3 cents per gallon, up 1.8 cents per gallon from the prior year. Fuel gross profit benefited by $8.4 million from the sale of REN.
Steve: Fuel margin for the quarter was $42 three per gallon up one eight cents per gallon from the prior year.
Steve: Fuel gross profit benefited by $8 $4 million from the sale of brands.
down 2.7 million dollars from the same quarter in the prior year.
Steve: Down $2 $7 million from the same quarter in the prior year.
Total operating expenses were up 7.5%, or $40.5 million in the second quarter.
Steve: Total operating expenses were up seven 5% or $45 million in the second quarter.
Over 3% of the total OPEX increase is due to unit growth, as we operated 129 more stores year over year.
Steve: Over 3% of the total Opex increase is due to unit growth as we operated 129 more stores year over year.
same store employee expense accounted for another 1% of the increase as increases in wage rates were partially offset by the reduction in same store hours Darren previously mentioned.
Steve: Same store employee expense accounted for another 1% of the increase as increases in wage rates were partially offset by the reduction in same store hours Darrin previously mentioned.
The company also incurred higher variable incentive compensation, repair, maintenance, and insurance expense that composed 2% of the total.
Steve: The company also incurred higher variable incentive compensation repair maintenance and insurance expense that composed 2% of the total increase.
Depreciation in the quarter was $85.6 million, and that's up $7.5 million versus prior year, primarily due to operating more stores. Net interest expense was $12.3 million in the quarter, down $1.2 million versus the prior year, aided by rising interest rates on our cash flow.
Steve: Depreciation in the quarter was $85 6 billion and that's up $7 $5 million versus prior year, primarily due to operating more stores.
Steve: Net interest expense was $12 3 million in the quarter down $1 $2 million versus the prior year aided by rising interest rates on our cash balances.
The effective tax rate for the quarter was 23.6% consistent with the prior year.
Steve: The effective tax rate for the quarter was 23, 6% consistent with the prior year.
Steve: Net income was up versus prior year to $158 8 million, an increase of 15, 4% and EBITDA for the quarter was $305 9 million.
Net income was up versus prior year to $158.8 million, an increase of 15.4%. And EBITDA for the quarter was $305.9 million compared to $271.7 million a year ago, an increase of 12.6%.
Steve: Compared to $271 7 million a year ago, an increase of 12, 6%.
Our balance sheet remains in excellent condition and we have ample financial flexibility on October 31st. We have total available liquidity of $1.3 billion. Furthermore, we have no significant maturities coming due until fiscal 2020.
Steve: Our balance sheet remains in excellent condition, and we have ample financial flexibility on October 31.
Steve: Total available liquidity of $1 3 billion. Furthermore, we have no significant maturities coming due until fiscal 2026.
Our leverage ratio, calculated in accordance with our senior notes, is now 1.6 times.
Steve: Our leverage ratio calculated in accordance with our senior notes is now one six times.
For the quarter, net cash generated by operating activities of $253 million plus purchases of property and equipment of $107 million resulted in the company generating $146 million in free cash flow.
Steve: For the quarter net cash generated by operating activities of $253 million less purchases of property and equipment of $107 million resulted in the company generating $146 million in free cash flow.
This compares to generating $115 million in the prior year.
Steve: This compares to generating $115 million in the prior year.
At the December meeting, the Board of Directors voted to maintain the quarterly dividend at $0.43 per share.
Steve: At the December meeting the board of directors.
Steve: To maintain the quarterly dividend at <unk> 43 per share.
During the quarter, we also repurchased approximately $30 million of stock and have $340 million remaining on our existing share repurchase authorization.
Steve: During the quarter, we also repurchased approximately $30 million of stock and have $340 million remaining on our existing share repurchase authorization invest.
Investing in EBITDA and ROIC accretive growth investments remains our primary capital allocation priority, but as we mentioned in our investor day, our balance sheet affords us the opportunity to be more opportunistic than in the recent past with regards to share repayment.
Steve: Investing in EBITDA and ROIC accretive growth investments remains our primary capital allocation priority, but as we mentioned at our Investor day, our balance sheet affords us the opportunity to be more opportunistic than in the recent past with regards to share repurchase.
Our M&A pipeline remains strong, and our integration capabilities continue to expand.
Steve: Our M&A pipeline remains strong and our integration capabilities continue to expand.
The transaction with each group mentioned last quarter has closed and that transaction as well as the other announced deals are being funded with cash on hand.
Steve: The transaction with EG Group mentioned last quarter has closed and that transaction as well as the other announced deals are being funded with cash on hand.
The majority of these payments either occurred in the second quarter or they will occur in the third quarter.
Steve: The majority of these payments either occurred in the second quarter, where they will occur in the third quarter and this includes the transaction of 22 stores and our 17th state of Texas, which closed on November 16th.
And this includes the transaction of 22 stores in our 17th state of Texas, which closed on November .
As a result of the strong financial performance and unit growth year to date, we are updating our fiscal 2024 outlook as follows.
Steve: As a result of the strong financial performance and unit growth year to date, we are updating our fiscal 2024 outlook as follows.
Fiscal 2024 EBITDA growth is expected to be in line with the long-term strategic plan's goal of 8% to 10%.
Steve: Fiscal 2020 for EBITDA growth is expected to be in line with the long term strategic plan goal of 8% to 10%.
The company also expects to repurchase at least $100 million in shares throughout the fiscal year.
Steve: The company also expects to repurchase at least $100 million in shares throughout the fiscal year.
Same store inside sales are now expected to increase 3.5% to 5%.
Steve: Same store inside sales are now expected to increase three 5% to 5%.
Net interest expense is expected to be approximately $53 million, and the tax rate is now expected to be approximately 23 to 25 percent for the year.
Steve: Net interest expense is expected to be approximately $53 million and the tax rate is now expected to be approximately 23% to 25% for the year.
As discussed in the first quarter, the company expects to add at least 150 stores in fiscal 2024. That's more than the originally planned 110.
Steve: As discussed in the first quarter the company expects to add at least 150 stores in fiscal 2024.
Steve: More than the originally planned 110.
As a result of this total operating expenses are now expected to increase approximately six to eight percent
Steve: As a result of this total operating expenses are now expected to increase approximately 6% to 8%.
Though same store operating expenses, excluding credit card fees, are expected to only increase approximately 3% for the year.
Steve: Same store operating expenses, excluding credit card fees are expected to only increase approximately 3% for the year.
Depreciation and amortization are now expected to be approximately $350 million for the year.
Steve: Depreciation and amortization are now expected to be approximately $350 million for the year.
The company is not updating its outlook for the following metrics.
Steve: The company is not updating its outlook for the following metrics.
We expect inside margin to be approximately 40 to 41 percent. The company expects same store fuel gallons sold to be between negative one and positive one percent. And the purchase of property and equipment is expected to be five hundred to five hundred and fifty million dollars. Our results for the current quarter.
Steve: We expect <unk> margin to be approximately 40% to 41%.
Steve: The company expects same store fuel gallon sold to be between negative one and positive 1%.
Steve: And the purchase of property and equipment is expected to be $500 million to $550 million.
Steve: Our results for the current quarter are as follows.
First, November inside same-store sales are consistent with the updated range of the annual outlet.
Steve: First November inside same store sales are consistent with the updated range of the annual outlook.
Fuel gallons are near the midpoint of the annual outlook and CPG is nearly 40 cents per gallon.
Steve: Fuel gallons are near the midpoint of the annual outlook and CPG is nearly 40 per gallon.
Current cheese costs are modestly favorable versus the prior year.
Steve: <unk> costs are modestly favorable versus the prior year.
And on a final note, as a reminder, in the third quarter, fiscal 23, we had a one-time operating expense benefit of approximately $15 million due to the favorable resolution of a legal matter.
Steve: And now on a final note as a reminder, in the third quarter fiscal 'twenty three we had a one time operating expense benefit of approximately $15 million due to the favorable resolution of a legal matter.
This benefit will not recur, thus total third quarter operating expenses will be up near the low teens in percentage terms, and that's primarily due to lapping the one-time benefit, as well as store growth and several million dollars of one-time integration costs.
Steve: Benefit will not recur, thus total third quarter operating expenses will be up near the low teens in percentage terms and thats, primarily due to lapping the one time benefit as well as store growth and several million dollars of one time integration costs. If we were not lapping this onetime benefit from the prior year total opex.
If we were not lapping this one-time benefit from the prior year, total OPEX would be up approximately 8 to 9 percent in third quarter. I'd now like to turn the
Steve: Ex will be up approximately 8% to 9% in third quarter.
Speaker Change #6: I'd now like to turn the call back over to Derek.
Thanks, Steve. I'd like to thank the entire cases team for another quarter of outstanding results.
Thanks, Steve I'd.
I'd like to thank the entire cases team for another quarter of outstanding results.
We know that it's a challenging time for consumers everywhere. We're so proud of the ability of our team members and stores to serve those guests with high quality products.
Speaker Change #6: We know that it's a challenging time for consumers everywhere. We're so proud of the ability of our team members in stores to serve those guests with high quality products.
Our Private Label Program continues to shine, and we saw positive growth in units and gross profit dollars during the quarter and continue to see a favorable impact on Inside March.
Speaker Change #6: Our private label program continues to shine and we saw positive growth in units and gross profit dollars during the quarter and continued to see a favorable impact on inside March.
and our guests are gravitating towards KC Rewards as we have over 7.3 million members today.
Speaker Change #6: And our guests are gravitating towards Casey rewards as we have over seven 3 million members today.
On the prepared food and dispensed beverage side, thin crust pizza continues to do well and has achieved a 13% share of whole pies throughout the quarter.
Speaker Change #6: On the prepared food and dispense beverage side thin crust pizza continues to do well and has achieved a 13% share of whole pie is throughout the quarter.
The innovation team also moved to the breakfast day part for the launch of the ultimate waffle breakfast sandwich, which has come out of the gate strong.
Speaker Change #6: The innovation team also moved to the breakfast day part for the loss of the Ultimate Waffle breakfast Sandwich, which is coming out of the gate strong.
Speaker Change #6: Our continuous improvement team deserves praise for all it has done to operate the stores efficiently and effectively while maintaining or improving guest and team member satisfaction.
Our continuous improvement team deserves praise for all it has done to operate the stores efficiently and effectively while maintaining or improving guests and team member satisfaction.
the team was able to take out another 2% of same store labor hours in the quarter.
Speaker Change #6: The team was able to take out another 2% same store labor hours in the quarter.
We continue to expand our store count with complimentary geographic rubrics.
Speaker Change #6: We continue to expand our store count with complementary geographic growth recent.
Recent acquisitions have strengthened our eastern footprint in Kentucky and Tennessee, while we've also ventured into Texas, which we think is a hand-in-glove fit in our southwest footprint.
Speaker Change #6: Recent acquisitions have strengthened our eastern footprint in Kentucky, and Tennessee, while we've also ventured into Texas, which we think is a hand in glove fit in our southwest footprint.
All of the stores are within our existing distribution radius. It's at the Casey's Playbook of Rural and Suburban Geography.
Speaker Change #6: All of the stores are within our existing distribution radius and fit the casey's playbook of rural and suburban geographies.
On the fuel side of the business, we had another strong quarter, both in fuel margin and gallons.
Speaker Change #6: On the fuel side of the business, we had another strong quarter, both in fuel margin and gallons with each passing quarter, we are becoming more confident that our industry has as a necessity due to higher operating expenses reset to a higher fuel margin environment.
With each passing quarter, we are becoming more confident that our industry has, as a necessity due to higher operating expenses, reset to a higher fuel margin environment.
And with our team and the capabilities that we've stood up, we're focused on continuing to maximize gross profit dollars.
Speaker Change #6: And with our team and the capabilities that we stood up we're focused on continuing to maximize gross profit dollars.
As we look ahead to the second half of fiscal 24 and beyond, I'm excited about Casey's and our ability to execute our strategic plan.
Speaker Change #6: As we look ahead to the second half of fiscal 'twenty, four and beyond I am excited about casey's and our ability to execute our strategic plan.
Our balance sheet affords us the ability to be disciplined, but opportunistic with our store growth and our capabilities throughout the organization will allow for that growth to be efficient and innovative. We'll now.
Speaker Change #6: Our balance sheet affords us the ability to be disciplined, but opportunistic with our store growth and our capabilities throughout the organization will allow for that growth to be efficient and innovative.
Speaker Change #6: We will now take your questions.
Thank you.
As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced.
Again, we ask that you please limit your questions to one and one follow-up until all have had a chance to ask a question, after which we'll answer any additional questions from you as time permits. Please stand by while we compile the Q&A roster. One moment for our first question.
Speaker Change #6: Again, we ask that you. Please limit your questions to one and one follow up until all have had a chance to ask a question.
Speaker Change #6: After which we will answer any additional questions from you as time permits. Please standby, while we compile the Q&A roster one moment for your first question.
Our first question comes from the line of Ben Bienvenu with Stevens. Your line is now open.
Speaker Change #6: Our first question comes from the line of Ben <unk> with Stephens. Your line is now open.
Ben: Hey, Thanks, good morning, guys.
Speaker Change #8: Good morning, a follow up.
Morning. Steve, I want to follow up on the commentary you gave on quarter to date. You noted that the inside same-store sales results in the month of
Ben: Good morning, Steve I wanted to follow up on the commentary you gave on quarter to date, you noted that the inside same store sales results in the month of.
I guess November , and I don't know if that includes the stub period of December , but it's within the range of the annual guidance. Does the composition of the same-source sales growth look similar to 2Q and that prepared foods is outpacing grocery? And any color that you can offer on kind of that divergence, grocery moderating in the second quarter while same-source sales and prepared food remains very strong would be helpful.
Ben: I guess November and I don't know if that includes the stub period of December.
Ben: But it's within the range of the annual guidance does the composition of the same store sales growth looks similar to <unk>.
Ben: Prepared foods is outpacing grocery.
Speaker Change #9: Any color that you can offer on kind of that divergence.
Speaker Change #9: Grocery moderating in the second quarter, while same store sales in prepared food remains very strong would be helpful.
Sure, Ben, I'll answer the first part of that and let Darren talk a little bit about the experience in the second quarter.
Speaker Change #10: Sure Ben I'll answer the first part of that but Darren talked little bit about the experience in the second quarter.
The commentary is meant to be quarter to date, so it includes a little bit of a stub period into December . And yes, generally we're within the annual range for total inside and prepared food quarter to date is running a little bit stronger.
Speaker Change #10: The commentary is meant to be quarter to date. So it includes a little bit of a stub period into December and yes generally.
Speaker Change #10: We're within the annual range for total inside and prepared food quarter to date is running a little bit stronger.
than groceries, similar to what we experienced in the second quarter. Dare anyone to make a couple of comments on that?
Then.
Grocery similar to what we experienced in the second quarter. Darren you on a couple of comments on that second quarter experience.
Yeah, in the second quarter, Ben, we saw a little bit of softness on the grocery and general merchandise side. That was primarily in the tobacco category, specifically cigarettes.
Yes.
In the second quarter, Ben we saw a little bit of softness on the grocery and general merchandise side that was primarily in the tobacco category specifically cigarettes.
And I think you've, you've seen that throughout the industry that a cigarette volume was significantly softer in the second quarter. And so that offsets some strength and some of the other categories. We also encountered a little bit of weather anomalies, which I don't typically like to talk about, but it does impact the beverage.
Speaker Change #10: And I think you've seen that throughout the industry.
Speaker Change #10: Cigarette volume was significantly softer in the second quarter, and so that offset some strength in some of the other categories. We also encountered a little bit of weather anomalies, which I don't typically like to talk about but it does impact the beverage business to a certain degree and we saw some of that in October as well, but.
To a certain degree, and we saw some of that in October as well, but I didn't see anything trend wise outside the cigarettes. It was it was very concerning. And I think.
Speaker Change #10: I didn't see anything trend wise outside of cigarettes, who is very concerning and I think.
What was encouraging to us is that our prepared food growth actually accelerated from the first quarter into the second and so very strong two year comps plus 17% and so we're seeing the overall business perform very well.
Speaker Change #10: While it is encouraging to us is that our prepared food.
Speaker Change #10: Growth actually accelerated from the first quarter into the second and so a very strong two year comps.
Speaker Change #10: Plus 17% and so we're seeing the overall business performed very well.
Okay, great. My second question is related to your operating expense growth guidance. You raised that. You noted that 3Q growth year over year will be elevated and implied in kind of the updated guidance that you've given and the 3Q commentary that you've given is a pretty substantial step down in growth from 3Q to 4Q. Is it just a function of comparisons or what else is going on there? You made nice progress in the period on labor hours.
Okay great.
My second question is related to your operating expense growth guidance. You raised that you noted that <unk> growth year over year will be elevated.
Speaker Change #10: And implied in the updated guidance that you've given in the <unk> commentary that you've given us a pretty substantial step down in growth from <unk> to four <unk>.
Speaker Change #10: It just a function of comparisons or what else is going on there you made nice progress in the period on labor hours.
Speaker Change #11: Yes, I'll start with that Ben.
I would expect the year-over-year total OPEX growth to be the highest in the third quarter, and that's purely a function of lapping the benefit we had last year, and then you're combining that with the fact that now all of these year-to-date acquisitions, all of which have closed, you know, relatively recently, certainly the EG and the Texas transactions, will have several million dollars of integration-related activity, and almost all of that will hit us.
Speaker Change #11: I would expect year over year.
Speaker Change #11: Total opex growth to be the highest in the third quarter and thats purely a function of lapping the benefit we had last year and then you are combining that with the fact that now all of these year to date acquisitions all of which are closed.
Speaker Change #11: Relatively recently, certainly the EG and the Texas transactions, we will have several million dollars of integration related activity.
Speaker Change #11: Activity in almost all of that will hit us.
In the third quarter, and so I would expect that we would be back to almost back into the number mechanically in the fourth quarter, but we would be back into a more normalized run rate in the fourth quarter, albeit with a higher number of units coming into the system. But that that 3% number we gave for same store off X, excluding credit cards that that number should be very consistent quarter in and quarter out just and that's a testament.
Speaker Change #11: In the third quarter, and so I would expect that we would be back to you can almost back into the number.
Speaker Change #11: Mechanically in the fourth quarter, but we would be back into a more normalized run rate in the fourth quarter, albeit.
Speaker Change #11: With a higher number of units coming into the system, but that 3% number we gave for same store opex, excluding credit cards that that number should be very consistent quarter in headquarter out just and that's a testament to how well the mother ship is managing.
you know, how well the mothership is managing op-ecks at the stores right now.
Speaker Change #11: Opex at the stores right now.
Thank you.
One moment for our next question. Please our next question comes from the line of Anthony Bonadio with Wells Fargo. Your line is now open.
Anthony Bonadio: Yeah, Hey, good morning, guys congrats on the nice quarter.
Anthony Bonadio: So I just wanted to ask about fuel margins.
Anthony Bonadio: In the context of the new guidance I'm getting something in the mid 30 cents per gallon, maybe a little higher.
Anthony Bonadio: Implied in the back half to get to that new 8% to 10% EBIT growth number I guess, one is that the right way to think about it and then too.
Anthony Bonadio: Can you just talk about why that's the right number and then just different puts and takes around that.
Yes sure Anthony.
You know, with respect to the fuel margin, we, we tend to prefer to be a little bit conservative on those forecasts because, as you well know, it's a pretty volatile category. That being said, we.
With respect to the fuel margin, we tend to prefer to be a little bit conservative on those forecasts because as you well know.
A pretty volatile category.
Being said we.
You know, we've seen 5 out of the last 6 quarters, you know, be in that 40 cent range. So we're not, we don't see anything specifically that would that would cause a pullback in fuel margin, but we're just being conservative on on that front. And so that's that's really about it about it in terms of the modeling.
We've seen five out of the last six quarters.
Anthony Bonadio: You'll be in that 40 range. So.
Anthony Bonadio: We're not we don't see anything specifically that would.
Anthony Bonadio: That will cause a pullback in fuel margin.
Anthony Bonadio: Just being conservative on that front.
So that's.
That's really about it about it in terms of the modeling.
Okay got it.
Okay, got it. And then just on inside margins, obviously another very strong quarter there. I know you guys have kind of talked about being comfortable around that, you know, 40% level over the long term. Seems like the current environment of the thing about things like mix as well as a lot of the things you guys are doing internally sort of remains favorable. I guess. Can you just talk about the sustainability of what we're seeing today and just how you're thinking about the trade off?
And then just on inside margins, obviously, another very strong quarter there.
Speaker Change #13: I know you guys have kind of talked about being comfortable around that 40% level over the long term.
Speaker Change #13: It seems like the current environment of the thing about things like mix.
Speaker Change #14: Well, there's a lot of the things you guys are doing internally.
So it remains favorable.
Can you just talk about the sustainability of what we're seeing today and just how youre thinking about the tradeoff between.
sort of flowing that through versus investing in value.
Speaker Change #14: Sort of flowing that through versus investing in value.
Yeah, well, we think the margins are sustainable for a couple of reasons. When you look at how the mix is evolving with the tobacco category being one of the lower margin categories in the assortment and that
Yes.
We think the margins are sustainable for a for a couple of reasons. When you look at how the mix is evolving with the tobacco category being one of the lower margin categories.
Speaker Change #14: And the assortment and that.
that the size of that category shrinking as a percentage of the total business, that's favorable to a margin rate.
Speaker Change #14: The size of that category shrinking as a percentage of the total business that's favorable to our margin rate.
as that mix becomes more heavily reliant on the higher margin categories. The second piece of that is our prepared food.
Speaker Change #14: Is that does that mix becomes more heavily reliant on the higher margin categories. The second piece of that as our prepared food business. Our prepared food business continues to grow and you saw the margin expansion in that business and so when you combine those two that's a more sustainable margin mix in the third third thing I would say is our private label.
our prepared food business continues to grow, and you saw the margin expansion in that business. And so when you combine those two, that's a more sustainable margin mix. And the third thing I would say is our private label continues to grow inside the portfolio, which also blends up the margin.
Speaker Change #14: To grow inside of the portfolio, which also blends up to margin.
So, those three things are all working for us. Now, with respect to investing in value, we do invest in value to a certain extent today, primarily through our private brand. And so, with our private label products, even though they represent a significant value to the guest, those are highly margin accretive to us. So, that works out well. And more recently, what we're seeing from a consumer.
Speaker Change #14: Those those three things are all working for US now with respect to investing in value.
Speaker Change #14: We do invest in value to a certain extent today, primarily through our private brand and so with our private label products, even though they.
Speaker Change #14: <unk> represent a significant value to the guest those are highly margin accretive to us so.
Speaker Change #14: That works out well and more recently.
Speaker Change #14: What we're seeing from a consumer standpoint.
Is it at the lower end of the economic spectrum, you're starting to see consumers shift heavier over to prepared foods?
Speaker Change #14: Is it at the lower end of the economic spectrum Youre, starting to see consumers shift heavier over to prepared foods as opposed to grocery and general merch and I think thats just a function of the relative value that our prepared food represents versus.
as opposed to grocery and general merch. I think that's just a function of the relative value that our prepared food represents versus
some of the other snack products and packaged good products you'd see on the other side and so all of that is constructed to margins and so that that's why we we think that's sustainable and we don't need to engage in extreme value.
Speaker Change #14: Some of the other snack products and packaged good products you see on the other side so all of that.
Speaker Change #14: This constructive to margins and so that's why we.
Speaker Change #14: We think that's sustainable and we don't need to engage in extreme value.
Offerings to maintain and drive the traffic.
Speaker Change #14: Our offerings to maintain and drive the traffic.
Okay.
Thank you.
One moment for our next question. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is now open.
One moment for our next question. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is now open.
Thank you good morning.
I, um, I had a question on your Groschen General Merchandise, you know, first your, your same store sales were a bit soft. So hoping for a little bit more color on the drivers of this and, you know, more color on SIG sales in the quarter, Darren, I know you, you called that out, but just curious.
Good morning, I had a question on your grocery and general merchandise first your same store sales were a bit soft so hoping for a little bit more color on the drivers of this and more color on <unk> sales in the quarter. Darren I know you called that out, but just curious to hear if you're sick.
to hear if your CIG business decelerated versus Q1 and wondering if you're making any changes to your nicotine category or possibly pricing on CIGs to mitigate some of these pressures.
Speaker Change #14: Business decelerated versus Q1, and wondering if you're making any changes to your nicotine category or possibly pricing on six to mitigate some of these pressures.
um yeah sure bonnie i think on the cig category itself just combustible cigarettes were down about four percent in the uh in the
Speaker Change #15: Yes, sure Bonnie I think on the Cig category itself, just combustible cigarettes were down about 4%.
Speaker Change #15: In the in the quarter end.
you know, typically what we've been able to do is, is pass on price.
Speaker Change #15: Typically what we've been able to do is.
As pass on price.
and have that price flow through and with a unit decline offset and still stay relatively positive on the on the
And have that price flow through in <unk>.
Speaker Change #15: For the unit decline offset and still stay relatively positive on.
On the <unk>.
dollars in the category. That was not the case in this last quarter. I think
In the category.
That was not the case in this last quarter I think to a large extent, that's a reflection of where the consumer is right now as you know the cigarette consumer tends to be a lower income consumer generally and so what we've seen is a bit of trade down from that consumer into.
To a large extent, that's a reflection of where the consumer is right now, as you know, the cigarette consumer tends to be a lower income consumer generally. And so what we've seen is a bit of trade down from that consumer.
either not buying cigarettes as frequently or trading down to lower tier brands.
Speaker Change #15: They're not buying cigarettes as frequently are trading down to lower tier brands.
And so, um, our team is assessing where to go from here on the cigarette category, but, but also, you know, that's not as significant a category for us as it is for others. So we're, we're don't, we don't feel the need to knee jerk react. I mean, we still had a strong quarter. We were still constructive on margin. Our gross profit dollars are growing at an accelerated rate relative to our peers. And so we don't feel.
Our team is assessing.
Where to go from here on the cigarette category, but but also.
Speaker Change #15: That's not as significant a category for us as it is for others. So.
Speaker Change #15: We don't feel the need to knee jerk react I mean, we still had a strong quarter, we were still constructive on margin or gross profit dollars are growing at an accelerated rate relative to our peers and so we don't feel.
any sort of undue pressure to do something different. We'll have to see how things play out with that category over time.
Speaker Change #15: Any any sort of undue pressure to do something different we will have to see how.
Speaker Change #15: Things play out with that category overtime.
Yeah, that makes sense. And then, curious to hear your color on the consumer and maybe how things have changed in the last few months and maybe your outlook, and also just in the context of that, color on your day parts, maybe where stronger or weaker than expected, especially the morning day part. Thanks.
Speaker Change #16: Yeah that makes sense and then <unk>.
Speaker Change #16: This year your color on the consumer and maybe how things have changed in the last few months and maybe your outlook and also just in the context of that color on your day parts maybe were.
Speaker Change #16: Stronger or weaker than expected, especially in the morning day part.
Yes.
I guess if I step back and I look at our consumer base, I just remind everybody that about three-quarters of our consumers make over $50,000 a year, and given our geographic footprint,
I guess, if I step back and I look at our consumer base I'd, just remind everybody that about three quarters of our consumers make over $50000 a year and given our geographic footprint.
We are in a very, uh, low cost of living, uh, geography. In fact, the most expensive state we operate in is ranked 27th and a cost of living. So that $50,000 tends to go a long way. So with that cohort of guests, 75% or so, we're really not seeing any change in, in consumption behavior. The changes we're seeing is on the other 25%, which are lower income.
Speaker Change #16: We are in a very low cost of living geography.
Speaker Change #16: The most expensive state we operate in is ranked 27th and cost of living so that.
Speaker Change #16: $50000 tends to go a long way, so with that cohort of gas, 75% or so.
Speaker Change #16: I'm really not seeing any change in consumption behavior. The changes we're seeing is on the other 25%, which are lower income consumers and so we've seen a couple of things there the gravitating more towards our private label.
And so we've seen a couple of things. They're gravitating more towards our private label.
Their cigarette purchases have been impacted, both in univelocity and in just what they are buying when they do buy, like we were just mentioning.
Speaker Change #16: Theyre cigarette purchases have been impacted both.
Speaker Change #16: The unit velocity and in just what they are buying when they do buy but we are.
Just mentioning.
They're pulling back on premium fuels and popping more towards ethanol blended fuels. But generally speaking, that's for that cohort of guests.
They are pulling back on.
Premium fuels.
Obviously more towards ethanol blended fuels, but.
Speaker Change #16: Generally speaking thats for that cohort of guests.
You know, so as we as we look forward, we still feel really good about the value proposition that we offer 80% of our guests believe that we offer a good value for the money. And our traffic was flat over the quarter inside the store and our gallons were flat outside the store. And so.
Speaker Change #16: So as we as we look forward, we still feel really good about the value proposition that we offer 80% of our guests believe that we offer a good value for the money and our traffic.
Speaker Change #16: Was flat over the quarter inside the store and our gallons are flat outside of the store and so.
You know, we're not suffering from a lack of traffic and we're seeing people gravitate more towards the prepared foods as a as a relative value proposition. So we think, as we look forward to the balance of the year, we, we still feel really good about the resilience of the consumers in our geography.
Speaker Change #16: We're not suffering from a lack of traffic.
Speaker Change #16: We're seeing people gravitate more towards the prepared foods as a as a relative value proposition. So we think as we look forward to the balance of the year, we still feel really good about the resilience of the consumers in our geography.
Speaker Change #17: Thank you one moment for our next question.
Our next question comes from the line of Bobby Griffin with Raymond James. Your line is now open. Good morning
Speaker Change #17: Our next question comes from the line of Bobby Griffin with Raymond James Your line is now open.
Bobby Griffin: Good morning, everybody. Thanks for taking my questions I guess the first.
I guess the first question for me is, is it possible for you to size what the tobacco drag was on the grocery segment just so we can get a little bit of a better flavor of how kind of the business performed ex-tobacco?
Speaker Change #19: Question for me is is it possible for you to size what the tobacco drag was on grocery segment. Just so we can get a little bit of a better flavor of how kind of the business performed ex tobacco.
Yeah, Bobby, we would have been about 100 basis points higher top line growth X tobacco and grocery.
Speaker Change #20: Yes, Bobby we would've been about 100 basis points higher.
Speaker Change #20: Topline growth ex tobacco in grocery.
Perfect. That's very helpful. And then I guess secondly, for me, it's just on the labor hours reduction. Another great performance this quarter is, is the, is the team finding new task and opportunities inside the store? And those are kind of the reduction or is this a function of kind of the lower lower overtime that we've discussed in the past? Given that turnover continues to move in the right direction as well? Or is it a combo of both? I guess.
Speaker Change #21: Perfect Thats very helpful. And then I guess secondly for me is just on the labor hours reduction another great performance. This quarter is is it is the team finding new tasking opportunities inside the store and those are kind of the reduction or is this a function of kind of the lower <unk>.
Speaker Change #21: Lower overtime that we've discussed in the past given that turnover continues to move in the right direction as well.
Speaker Change #22: Or is it a combo of both I guess.
Yeah, Bobby, I'd say it's a combination of both. Really, it's primarily driven, though, by that continuous improvement team identifying non-value-added work that we can take out of the stores. That would be the primary.
Speaker Change #23: Yes, Bob I would say, it's a combination of both really it's primarily driven though by that continuous improvement team identifying non.
Speaker Change #23: Non value added work that we can take out of the stores that would be the primary.
impact. That's a 2% reduction in labor hours. The overtime and training year over year is actually flattened out in terms of dollars, but we're using less hours when you factor in the wage rate. So if you think about flat dollars, but our average wage year over year is up about 3.5%.
Speaker Change #23: Impact so thats, a 2% reduction in labor hours, the overtime and training year over year is actually flattened out in terms of dollars, but we're using less hours.
Speaker Change #23: When you factor in the wage rates. So if you think about flat dollars, but our average wage year over year is up about three 5%.
So that overtime came down a bit. Training was about flat. So we think it is a combination. Not as dramatic as it was last year when we were really taking big swaths of overtime and training out with reduced turnover. The turnover continues to reduce, but just not at the same rate as it was last year.
So that over time.
It came down a bit training was about flat so.
Speaker Change #23: So we think it is a combination not is not as dramatic as it was last year. When we were really taking big swaths of.
Overtime and in.
Training out.
With reduced turnover the turnover continues to reduce.
Speaker Change #23: But just not at the same rate as it was last year.
Thank you.
One moment for our next question please.
Our next question comes from the line of Chuck Selinkowski with North Coast. Your line is now open.
Speaker Change #23: Our next question comes from the line of Chuck fill in Karen Koski with Northcoast <unk>. Your line is now open.
Good morning, everyone. Greg Porter. I've got another question about the labor hours. What are you still able to do around fine-tuning the store hours and the number of stores that are doing pizza delivery and the number of days they're doing pizza delivery? How much of that is still available to help the store labor hour calculation?
Good morning, everyone great quarter I've got another question about the labor hours.
Speaker Change #23: Or are you still able to do around fine tuning the store hours and.
Speaker Change #23: The number of stores that are doing pizza delivery and the number of days are doing pizza delivery, how much of that is still available to help the store labor hour calculation.
Yeah, Chuck, I I would say that there's probably limited upside on that front as we sit here today Our team constantly evaluates Operating hours overall to determine whether we need to make adjustments there, but I would say that That process is pretty dialed in at this point. So it'd be just fine-tuning here and there um
Yes Chuck.
I would say that there is probably limited upside on that front as we sit here today.
Speaker Change #23: Our team constantly evaluates operating hours overall.
Speaker Change #23: On whether we need to make adjustments there.
I would say that.
That process is pretty dialed in at this point so.
Speaker Change #23: Just fine tuning here and there.
in terms of labor relative to delivery.
Speaker Change #23: In terms of labor labor.
Relative to delivery.
Yeah, we have a small number of stores that are still doing delivery. I think it's a couple of hundred at this point percent of our stores we deliver. So about 10 percent, so call it 250 stores.
We have a small number of stores that are still doing delivery I think it's a couple of hundred at that 40% of our stores deliver ourselves and about 10%. So call. It 250 stores theyre delivering ourselves and the rest of it is through third party. So that that's not a labor impact for us. It is a margin impact when we have that delivery but.
they're delivering ourselves and the rest of it is through third parties. So that that's not a labor impact for us. It is a margin impact when we have that delivery, but.
Um because that we only pay per delivery. We don't have a delivery driver
Speaker Change #23: Because we only pay per delivery, we don't have a delivery driver.
at the store waiting for another delivery order to come in. It's a far more efficient way for us to do delivery, so that's probably run its course as well.
Speaker Change #23: At the store waiting for another delivery order to come in it's a far more efficient way for us to do delivery. So.
That's probably.
Run its course as well.
Private label products, where are you at on number of SKUs and where's your goal on that?
Okay and then in.
Private label products.
Where are you at on number of Skus and where is your goal on that.
Yeah, we've got 310 SKUs in the assortment right now and that's
Speaker Change #24: Yes, we've got 310 skus in the assortment right now in that sub.
That's the result of adding a number of SKUs in the last quarter and then taking some out that just weren't performing as well as we expected them to. Still, it's the highest SKU count that we've had on private label since we've started. There's still plenty of runway there. The team's got a pipeline of products that we'll be introducing over the next several quarters, and then we're also starting to evaluate different tiers.
Speaker Change #24: As a result of adding a number of skus in the.
Speaker Change #24: And the last quarter, and then taking some out that just weren't performing as well.
Speaker Change #24: We expected them to so still its the highest SKU count that we've had on private label. Since we've started Ah theres still plenty of runway there, but the team has got a pipeline of products that we'll be introducing over the next several quarters and then we're also starting to evaluate different tiers.
of private labeled so think of premium products that would still be a significant value versus a national brand but of elevated quality and in uniqueness so still
Speaker Change #24: Private labeled so think of premium products that would still be up.
Speaker Change #24: A significant value versus the national brand, but.
Speaker Change #24: Elevated quality and uniqueness, so still a lot of way to go there.
Thank you. One moment for our next question. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is now open.
Speaker Change #25: Thank you one moment for our next question. Our next question comes from the line of Kelly Bania with BMO capital markets. Your line is now open.
Hi, good morning. This is Ben would on for Kelly.
Ben Wood: Hi, Good morning. This is Ben wood on for Kelly. Thank you for taking our questions.
So for the past three quarters, you've had flat gallons, which seems to be outpacing public peers down low single digit and outpacing the broader industry where you compete in, where your commentary seems to be pointing towards down mid single digit for that period, implying pretty solid market share gains.
Ben Wood: For the past three quarters, you've had flat gallons, which seems to be outpacing public peers down low single digit and outpacing the broader industry, where you compete in.
Ben Wood: What are your commentary seems to be pointing towards down mid single digit for that period, implying pretty solid market share gains.
So first, can you provide any color on what you guys think is driving those market share gains? Is it loyalty or the value proposition inside the store? Are you investing some fuel margin to get the bargain hunting customer?
Speaker Change #27: First can you provide any color on what you guys think is driving those market share gains is it loyalty or the value proposition inside the store are you investing some few margin to get the bargain hunting customer.
And then second, just more generally, if the industry and your competitors are losing gallons at a mid single digit pace, is that sustainable longer term? Or at some point, are the independence and small chain operators going to have to change strategy to try to drive some more gallons through their stores?
Speaker Change #27: And then second just more generally if the industry and your competitors are losing gallons at a mid single digit pace is that sustainable longer term or at some point or the independent and small chain operators going to have to change strategy to try to drive some more gallons through their stores.
Yeah, let me take the first part first, the flat gallons and
Yes, let me.
Take the first part first the flat gallons.
And now we're driving. If I step back, our stated strategy, which has not changed since I've been here in four and a half years I've been here.
Speaker Change #27: And now we're driving it.
Back.
<unk> stated strategy, which has not changed since I've been here for five years I've been here.
For our fuel team is to drive gross profit dollars
For our fuel.
Team is to drive gross profit dollars in fuel.
and then to maximize gross profit dollars in fuel. That's going to be a combination of balancing.
Speaker Change #27: And to maximize gross profit dollars in fuel and that's going to be a combination of balancing.
gallon growth and fuel margin and so we don't
Speaker Change #27: Gallon growth and fuel margin and so we don't look.
look at a fuel margin number and try to achieve that number in any given quarter. Our goal is to balance those two to maximize gross profit dollars. And so I think this was a great example in this quarter of doing that. We maintained flat gallons. And like you said, over the last several quarters, we've maintained those flat gallons. And we were north of 40 cents a gallon on margin. Now, if you were to look at the Opus numbers, and I think this is reflective of what's going on in the industry right now.
Speaker Change #27: Look at our fuel margin number and try to achieve that number in any given quarter. Our goal is to balance those two to maximize gross profit dollars and so I think this was a great example, in this quarter of doing that we maintain flat gallons and like you said over the last several quarters, we maintain those flat gallons.
Speaker Change #27: And we were north of 40, a gallon on margin now if you were to look at the Opus numbers and I think this is reflective of what's going on in the industry right now.
Opus would say that fuel margin in our geography was about 48 cents a gallon.
Speaker Change #27: Opus would say that fuel margin in our geography was about 48 a gallon.
So that was higher than where we were, clearly. It also said that gallons were down 5.2% in the quarter, significantly below where we are. To your second question, that is not sustainable.
Speaker Change #27: So that was higher than where we were clearly.
Speaker Change #27: It also said that gallons were down five 2% in the quarter significantly below where we are to.
Speaker Change #27: To your second question that is not sustainable for them.
It clearly isn't, but what it is, is it's a reflection of the challenges that smaller and midsize operators are facing.
Speaker Change #27: Clearly isn't by what it is it is a reflection of the challenges that smaller and mid size operators are facing with inflation and in particular the impact that the tobacco category has on them.
Speaker Change #27: Looking at what their mix is.
their mix is probably 40 to 50% cigarettes. And so when that category underperforms like it has the last quarter or two, that's going to have a material impact on their P&L. They don't have a choice. They're operating in survival mode right now. And so they're taking that higher margin and willing to sacrifice those gallons to get it. And that's in the short term.
Speaker Change #27: Their mix is probably 40% to 50% cigarettes, and so when that category Underperforms like it has the last quarter or two that's going to have a material impact on their P&L. They don't have a choice they're operating a survival mode right now and so they are taking that higher margin.
Speaker Change #27: And willing to sacrifice those gallons to get it and that's in the short term that can work if youre trying to survive in the long term is not sustainable for us we're not in that position, we're not as exposed to the tobacco category as the others.
If you're trying to survive in the long term, it's not sustainable for us. We're not in that position. We're not as exposed to the tobacco category as the others.
and we benefit from keeping that traffic in the store because we have high-margin prepared foods to sell people and high-margin private label to sell people.
Speaker Change #27: And we benefit from keeping that traffic in the store because we have high margin prepared foods to sell people and high margin private label to sell people and a lot of those others don't have so it's important for us to keep that balance to keep that traffic and you can see in the EBITDA results were most are going backwards and EBITDA, we had double digit growth in EBITDA.
a lot of those others don't have. So it's important for us to keep that balance, to keep that traffic. And you can see in the EBITDA results, where most are going backwards in EBITDA, we had double digit growth in EBITDA. So that
It's not just one metric or the other, it's a combination of all of these things working together that really makes our algorithm work.
That.
It's not just one metric or the other it's a combination of all of these things working together that really makes our algorithm works for us.
Yeah, but maybe I would add one thing there is it just it also continues to drive smaller operators out of the industry in the long run. And it's just more and more difficult for small, independent operators to compete, not just against us, but just anybody with with any reasonable amount of scale. And so part of the, we believe part of the.
Speaker Change #27: And then maybe I would add one thing there is it just it also continues to drive.
Speaker Change #27: Smaller operators out of the industry in the long run it is just more and more difficult for small independent operators to compete not just against us, but anybody with any reasonable amount of scale.
Speaker Change #27: And so part of that we believe part of the.
A long line of consolidation opportunities that exist today in the industry is a function of. It's just getting harder and harder.
Speaker Change #27: Long line of consolidation opportunities that exist today in the industry as a function of it's just getting harder and harder for the smaller operators do business and we just don't see that trend changing anytime in the near term partially because of all the dynamics, we just discussed.
smaller operators to do business and we just don't see that trend changing any time in the near term, partially because of all the dynamics we just discussed.
Okay, Great and then.
I know, so I know we're only two quarters in, but with the guidance update, you're now expecting EBITDA growth within the long term plan compared to kind of originally pointing us toward towards flat. And 1 of the discussion points at your analyst day was that your original plan seemed to imply an acceleration in EBITDA growth.
I know I know, we're only two quarters in but with the guidance update.
Speaker Change #28: And EBIT growth within the long term plan compared to kind of originally pointing us towards towards flat and one of the discussion points at your analyst day was that your original plan seem to imply an acceleration in EBITDA growth, we calculated to kind of 12% to 15% range in year, two and year three have expectations for.
Uh, we calculated to kind of a 12 to 15% range in year 2 and year 3 have expectations for the cadence changed or some acceleration in the EBITDA growth and eventually getting above that 8 to 10% long term plan still the right way to think about it.
Speaker Change #28: The cadence changed or is some acceleration in EBITDA growth and eventually getting above that 8% to 10% long term plan.
Speaker Change #28: Still the right way to think about it.
I'll take a crack at that. I would not divine anything into our updating here midstream in the 1st year around what we're saying in the out years of year 2 and 3. We're committed to a 8-10% CAGR over that 3-year period of time. The reality is that the year has clearly started off stronger than we anticipated that it would be and some of that's clearly fuel margin related and some of that's just
Speaker Change #28: I'll take a crack at that I would not define anything into our updating here midstream in the first year round, what we are saying in the out years of year, two and three we are committed to a 10% CAGR over that three year period of time.
Speaker Change #28: The reality is that the year has clearly started off stronger than we anticipated.
Speaker Change #28: That would be in some of Thats clearly fuel margin related and some of Thats just really good performance across the operations. So we will take a stronger start than we anticipated everyday of the week and we still feel.
really good performance across the operations. And so, you know, we'll take a stronger start than we anticipated every day of the week. And we still feel equally good about all of our longer, medium and long-term prospects for driving growth as we did when we had the investor.
Speaker Change #28: Equally good about all of our longer medium and long term prospects for driving growth as we did when we had the investor day.
Thank you.
Our next question comes from the line of Christina Katai with Georgia Bank. Your line is now open.
Question comes from the line of Cristina <unk> with Deutsche Bank. Your line is now open.
Hi, good morning and thanks for taking the question on private label, which has been very successful for you. I was just curious to get an update on how your joint planning is going for the new calendar year with your national brand partners. Are they noticing or potentially responding to Casey taking unit sharing grocery and anything you can share and expectations around pricing starting in January on and if you think that there's any possibility that maybe prices are going to start to roll back.
Speaker Change #29: Hi, good morning, and thanks for taking the question.
Speaker Change #28: On private label, which has been very successful for you.
Speaker Change #28: Just curious to get an update on how your joint planning is growing for the new calendar year with your National brand partners.
Speaker Change #28: Noticing with potentially responding to Casey taking unit share in grocery and anything you can share in expectations around pricing starting in January.
Speaker Change #28: And if you think that there's any possibility that maybe the prices are going to start to ballpark.
Yes, Kristina: Yes, Kristina I guess on.
on joint planning. We're in the process of wrapping that up as we speak, and I think the planning sessions have gone really well so far. We've had good success over the last couple of years working with our
I'm joined planning.
We are in the process of wrapping that up as we speak and.
Yes, Kristina: I think the planning sessions have gone really well so far we've had good success over the last couple of years working with our.
our primary CPG partners and growing their business and ours together. And so we enter into all of these discussions with that spirit. And I think we have some really good plans during the final stages of development working right now. With respect to the private label, it really kind of depends on the category and the manufacturer we're talking to.
Yes, Kristina: Our primary CPG partners and growing their business and ours together and so we enter into all of these discussions with that spirit and I think we have some really good plans on.
In the final stages.
Development working right now with.
Yes, Kristina: With respect to the private label it really kind of depends on the category and the manufacturer we're talking to.
You know, our goal always, and we communicate this with our partners, is not to steal share from a national brand. It's to grow the overall category, and growing the category both with national-branded products as well as private-labeled products, and I'd use chips as an example. In the last quarter, we had a really strong quarter in chips.
<unk>.
Our goal always and we communicated this with our partners does not to steal share from a national but I guess to grow the overall category and growing the category, both with national branded products as well as private label products.
Yes, Kristina: I'd use chips as an example in the last quarter, we Havent really strong.
Quarter end chips.
The national brands grew 10% and 2% positive unit growth. That's a good result in the quarter. Our private label chips grew 38% and 33% units in the quarter. So it is possible to do both and to have the success at both. And so that's, that's what we're striving for with all of this.
The National brands grew 10% and 2% positive unit growth. That's good result in the quarter, our private label chips grew 38% and 33% units in the quarter. So it is possible to do both.
Yes, Kristina: I have to success at both and so thats.
Yes, Kristina: What we're striving for with all of this is to achieve that in some cases, our national brand manufacturers are also the manufacturers of their respected private label products. So we.
is to achieve that. In some cases, our national brand manufacturers are also the manufacturers of their respective private label products. So, we have varying degrees of integration on that front. In terms of pricing, I'm not really prepared to talk about price. Those conversations are still underway.
Yes, Kristina: We have varying degrees of integration on that front in terms of pricing not really prepared to talk about price of those conversations are still underway, but we.
We would anticipate some low single-digit inflation probably being passed through somewhere around the beginning of the year calendars.
Yes, Kristina: We would anticipate some low single digit inflation, probably be in pass through somewhere around the beginning of the year calendar year.
Thank you. And then just a quick follow-up on some of your comments around the low-end consumer trading down. Do you think that you're attracting a new customer in your prepared food business as part of the trade-down? Or is the acceleration that you saw in the second quarter all organic? So how do you think about opportunities for customer acquisition in this environment and essentially locking them into your loyalty program to make sure that they stay with you? Thank you.
Speaker Change #31: Thank you and then just a quick follow up.
Speaker Change #32: Some of your comments around the low end consumer trading down do you think that you're attracting a new customer in your prepared food business.
Speaker Change #32: As part of that trade down or is the acceleration that you saw in the second quarter all organic so how do you think about opportunities for customer acquisition in this environment and essentially locking them into our loyalty program to make sure that they stay with you. Thank you.
Yeah, I like our opportunity here in this sort of economic environment. You know, our prepared foods business really does represent a tremendous value for consumers. You can get a whole pie and two sides for far less money than it would cost to take the family out to a QSR, as an example. And so we have the opportunity to attract new guests.
Speaker Change #33: Yes, I like our our opportunity here in this sort of economic environment.
Speaker Change #33: Our prepared foods business really does represent a tremendous value for consumers you can get a whole pie in two sides for far less money than it would cost to take the family out to <unk> as an example, and so we have the opportunity to attract new guests.
to our stores based on the fact that it's just at our normal pricing, it's a strong value. And then again, like I said, what we're starting to see on the
Speaker Change #33: Two our stores based on the fact that.
Yes.
At our normal pricing pricing is.
Speaker Change #33: <unk> value and then again like I said, what we're starting to see on the.
with our lower-income consumers is that they're making a choice about what food to buy, and they're gravitating more towards prepared foods as opposed to packaged foods because the prepared foods offer an incremental value there. So we see the ability to grow that business on both sides, which is great for us because it's the highest margin category that we operate.
Speaker Change #33: With our lower income consumers is that theyre, making a choice.
Speaker Change #33: What food Dubai and are gravitating more towards prepared foods as opposed to packaged foods because the prepared foods' offer.
But incremental value there.
So we see the ability to grow that business on both sides, which is great for us because it's the highest margin category that we operate.
Yeah.
Thank you one moment for our final question.
Yes.
Our final question comes from the line of Don Royal with JPMorgan, your line is now open.
Our final question comes from the line of John Royall with Jpmorgan. Your line is now open.
Hi, good morning. Thanks for taking my question. So could you dig in a little on some of the ingredient costs, tailwinds in prepared foods and what are your expectations for the second half of the year for ingredient costs? It looks like you're, you're tracking at the top end of your guidance range for inside margin, and you made some adjustments to guidance, but you didn't adjust that one. So should we assume that margin may come in a little in 2H and just anything there on what looks like maybe a conservative second half guide on the inside margin? Thanks.
John Royall: Hi, good morning, Thanks for taking my question.
John Royall: So could you dig in a little on some of the ingredient cost tailwind in prepared foods.
John Royall: What are your expectations for the second half of the year for ingredient costs. It looks like you're you're tracking at the top end of your guidance range for inside margin and you've made some adjustments to guidance, but you didn't adjust that one so.
John Royall: So should we assume that margin may come in a little intuition just.
John Royall: Anything there on what looks like maybe a conservative second half guide on the <unk>.
<unk> margin thanks.
Yeah, hi, John . Good morning. This is Steve. I'll start with that.
Yes, Hi, John Good morning, This is Steve I'll start with that.
You know, specific, you know, cheese is, let's start with cheese. That's obviously the biggest input cost and the one that gets most attention.
John Royall: Specific cheeses, let's start with cheese, that's obviously the biggest input costs. The one that gets most attention.
You know, we're about 80, 80% hedged or locked, I should say, for the second half of the year on cheese costs. And so, you know, I would expect that to be.
John Royall: We're we're about 88 zero percent hedged.
John Royall: Locked I should say for the second half of the year on cheese costs, and so I would expect that to be modestly favorable at current current spot prices.
modestly favorable at current spot prices year over year, similar to what it was in the second quarter. So somewhere between five and 10% favorable based on the current strip for cheese for the rest of the year. Most of the other input costs on the prepared food business.
John Royall: Year over year similar to what it was in the second quarter, so somewhere between five and 10% favorable based on the current strip for <unk> for the rest of the year most of the other input costs on the prepared food business or not.
contractual, a lot of commodities with proteins, etc., and so right now, you know, we don't have a reason to believe the protein cost experience for the second half will be significantly different than what it was in the first half, which is, you know, just a modest.
John Royall: Contractual a lot of commodities with proteins et cetera.
John Royall: And so right now we don't have a reason to believe.
John Royall: Protein cost experience for the second half will be significantly different than what it was in the first half, which as you know.
John Royall: A modest slow improvement on a year over year basis, I think that would be.
low improvement on a year-over-year basis. I think that would be somewhat similar. You know, you've seen that really in the LysoCharge experience we've had in the first half of the year specifically in prepared food, right? We still have.
John Royall: Somewhat similar you've seen that really in the LIFO charge experience. We've had in the first half of the year specifically in prepared food right, we still have.
lifeboat spends, but we have less year over year, and that's really just a function broadly of what kind of inflation pressure we're having in that business.
John Royall: LIFO expense, but we have less year over year, and that's really just a function broadly of what kind of inflation pressure we're having.
John Royall: In that in that business.
Great. Thank you. And then my next question is on the buyback guide, $100 million on the year. You use the word opportunistic, but putting out a guide for the year, I think suggests that maybe it's becoming a little more entrenched maybe in your capital allocation framework. Can you just talk about how we should think about the buyback as part of the framework going forward?
Speaker Change #35: Great. Thank you and then.
Speaker Change #36: Next question is on the buyback guide $100 million on a year you used the word opportunistic but.
Speaker Change #37: Putting out a guide for the year I think suggests that maybe it's becoming a little more entrenched maybe in your capital allocation framework can you just talk about how we should think about the buyback as part of the framework going forward.
Yeah, listen, I think your point, it's a point well taken. We obviously have not been active in share repurchase for the last couple of years. We tried to message to folks at the Investor Day that as the company grows and continues to generate more operating cash flow.
Speaker Change #38: Yes, listen I think here I think your point is a point well taken.
Speaker Change #38: You, obviously have not been active in share repurchase for the last couple of couple of years.
Speaker Change #38: We tried to message to folks at the Investor day that.
Speaker Change #38: As the company grows and continues to generate more operating cash flow and that cash flow out strips in the short term.
and that cash flow outstrips in the short term, our ability to allocate it back into growth, which is always going to be the first stop on the bus for us. If we can grow EBITDA and ROIC, do it accretively, that's where we'll put the money. It just gives us more flexibility around capital allocation. And so as the leverage level continues to slowly tick down,
Speaker Change #38: Our ability to allocated back into growth, which is always going to be the first stop on the bus for us if we can grow EBITDA and ROIC do it Accretively, that's where we'll put the money.
Speaker Change #38: It just gives us more flexibility around capital allocation and so is the leverage level continues to slowly tick down.
I'm not sure that necessarily serves us well, letting that continue to get lower. It's driving up the cost of capital. We've got ample flexibility now, and so share repurchase just becomes kind of a logical next stop. We've been pretty disciplined on how we pay the dividend, around 15 to 20% payout ratio, and trying to match EBITDA growth over the medium term. We're not gonna walk away from that. We've raised the dividend, I think, for 24.
I'm not sure.
That necessarily serves us well letting that continue to get leverage driving up the cost of capital we've got ample flexibility now and so.
Speaker Change #38: Sure share repurchase just becomes kind of a logical next stop we've been pretty disciplined on how we pay the dividend around 15% to 20% payout ratio and trying to match EBITDA growth over the medium term, we're not going to walk away from that we've raised the dividend I think for 24 years in a row at this point and so we're proud of that but.
years in a row at this point and so we're proud of that but we simply have more available cash and share repurchase feels like you know an appropriate part of the capital allocation when you put all of the pieces of the balance sheet and just cash flow generation together and so it's not it's not going to be
Speaker Change #38: We simply have more available cash.
Speaker Change #38: And share repurchase feels like an appropriate part of the capital allocation. When you put all of the pieces of the balance sheet of just cash flow generation together and so it's not it's not going to be.
You know, nearly as significant as what we're reinvesting into growth. I would not want to set that expectation, but the reality is I do think it has a part to play more so than it has the last couple of years.
Speaker Change #38: Nearly as significant as what we're reinvesting into growth I would not want to set that expectation, but the reality is I do think it has a part to play more so than it has over the last couple of years.
Thank you. I would now like to turn the conference back to Mr. Darren Rabelis for closing remarks.
Thank you.
I'd now like to turn the conference back to Mr. Damian rebellious for closing remarks.
All right, thank you and thanks for taking the time today to join us on the call. Before we sign off, I want to thank our team members for all their hard work this quarter and wish everyone a happy holiday season and a new year.
Alright, Thank you and thanks for taking the time today to join US on the call before we sign off I want to thank our team members for all their hard work this quarter and wish everyone, a happy holiday season, and a new year.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change #39: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Yeah.
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