Good day, ladies and gentlemen, and welcome to the Q3 Fiscal 2019 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press "*0" on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Bill Walljasper, Chief Financial Officer. You may begin.

Good morning and thank you for joining us to discuss Casey's results for the quarter ended January 31st. I'm Bill Walljasper, Chief Financial Officer. Terry Hanley, President and Chief Executive Officer, is also here. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements related to our possible or assumed future results of operations, business strategies, growth opportunities, and performance improvements at our stores. There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including our ability to execute on the value creation plan or to realize benefits from that value creation plan, as well as other risks, uncertainties, and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q, as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. This morning, Terry will first take a few minutes to summarize the results of the third quarter and then provide an update on the progress with our value creation plan. We will then open for questions about those results. I would now like to turn the call over to Terry to discuss those results.

Thank you, Bill, and good morning, everyone. As most of you have seen in the press release, diluted earnings per share for the third quarter were up over 135% to $1.13 compared to $0.48 a year ago when you exclude the one-time benefit last year due to tax reform, and up over 50% year-to-date to $4.83, excluding the one-time benefit from tax reform. The results were primarily driven by effective control on operating expenses and a stronger fuel margin compared to the third quarter last year. We are on schedule with the execution of our value creation plan and are very pleased with the progress and I will share later in this commentary. I would now like to summarize our results and some of the details in each of these categories. In the fuel category, our retail fuel team continues to work with the store operations to optimize gross profit dollars. This effort, combined with a favorable fuel margin environment, allowed us to achieve an average fuel margin of $0.221 per gallon for the third quarter and drove a 22.2% increase in gross profit dollars from the fuel category compared to the same period a year ago. Same-store gallons sold in the quarter were down 3.4%. Approximately 1% of the same-store gallon decline was related to our previous strategic decision to reduce the number of 24-hour locations as well as our optimization efforts. In addition, we also experienced softer demand as vehicle miles traveled in the Midwest were down. The average retail price of fuel during the quarter was down $0.18 to $2.22 per gallon from the previous year. Despite the decline in same-store gallons, total gallons sold for the quarter were up 2.7% to nearly 555 million, primarily due to a strong contribution from new stores opened in the…

Thanks, Terry. On the income statement, total revenue in the quarter was down slightly to $2 billion, primarily due to a decrease in retail fuel prices offset by an increase in the number of stores in operation this quarter compared to the same period a year ago. Depreciation in the quarter was up 7.5%, primarily due to capital expenditures for growth over the past 12 months. The effective tax rate for the quarter was 22.7%. The increase in the effective tax rate was due to the adoption of the Tax Reform Act in the prior year. We expect our effective tax rate for fiscal 2019 to be between 23% and 24%. Our balance sheet continues to be strong. At January 31st, cash and cash equivalents were $34.2 million. Long-term debt net of current maturities was $1.3 billion. Our trailing 12-month debt to EBITDA ratio is 2.5 times, as the recent new store openings and previously mentioned operational improvements at our existing stores contributed to growth in EBITDA. At the nine month mark, we generated $367.9 million in cash flow from operations compared to $296 million during the same period last year. Capital expenditures were $332.2 million compared to $452.6 million a year ago in the same period. Adjusted EBITDA grew nearly 32% in the quarter and is up 14.9% year-to-date. We expect capital expenditures to increase in subsequent quarters as new store construction continues. Our capital expenditure estimate remains at $466 million for fiscal 2019. I would now like to turn the call back over to Terry to update you on our unit growth and the progress with our value creation plan.

Thank you, Bill. At the beginning of the fiscal year, our store growth target was to build 60 stores and acquire at least 20 additional stores. At the nine month mark, we had opened 41 new stores, acquired 13 stores, and have 17 additional stores under agreement to purchase. We remain well-positioned for future growth. Currently, we have 133 stores in our pipeline, including 48 under construction. We are on track to achieve our overall unit growth target. However, due to the recent inclement weather, we may have a handful of new store constructions roll over into May. I would now like to provide an update regarding the value creation plan. As a reminder, the multiyear, long-term plan is comprised of several key programs and value drivers, including a new fleet card program, retail price optimization, a new suite of digital platforms for our customers, as well as a continued focus on controlling operating expenses and capital allocation. We are confident these key areas of focus will drive accelerated growth and profitability and deliver increased returns for shareholders. We have completed several key milestones over the course of the last quarter. I will begin with the new fleet card program. We had launched the new fleet card program in late October. Early results show that we are on target with adding new accounts and cardholders. We currently have approximately 960 accounts with over 5,700 cards issued. However, the utilization of these cards is ramping up slower than we expected due, in part, to the timing of the launch toward the end of the calendar year. Our fleet card partner continues to leverage their expertise by utilizing additional marketing campaigns for new members as well as an ongoing build out of their sales team. In conjunction with this new rollout, we…

[Operator Instructions]. And our first question is from Karen Short from Barclays. Your line is now open.

Hey. A couple questions on your guidance. I guess, your implied guidance for the fourth quarter. So, I realize February was choppy but you have a very wide range, in terms of implied gross profit dollars by category, as well as sales in the fourth quarter. So, if you could just maybe talk to that a little bit.

Yes. So, the decision on the range to make those changes, we felt if we -- some of those ranges, we were currently outside of the range. And if we felt, based on the forecast in the fourth quarter, we had a chance to be outside of that range, we felt obligated to adjust that range. We still kept the same spread, as you mentioned there. I'm happy to discuss any specific area that you'd like but that's kind of the thought process where we have finished.

Well, I guess, specifically, looking at the range that's implied for the gross profit dollars in grocery, as well as prepared food, I mean, I'm getting $30 million plus, easily, range, low to high end, in gross profit. So, any color you could give there would be great.

Sure. Sure. Let me start with grocery and general merchandise and kind of think about where we're at currently. So, as Terry mentioned, we are currently trending on the upper end of the current guidance on same-store sales. That was, as he mentioned, adversely impacted by February. You might recall that we had some very severe weather here in our market area in the month of February. As we head into the remaining part of the calendar year, we do have some easier comparisons because we are comparing against an April a year ago that had some very severe inclement weather. With respect to the margin side of grocery and general merchandise, typically, our third quarter and fourth quarter tend to be the lower margin quarters for us based on seasonality. And so that's probably the most guidance I can give you on that particular category. With respect to prepared foods, even though we're trending at the low end of that category, again, that was adversely impacted by the weather as well. Keep in mind, we really didn't start making the 24-hour and pizza delivery changes until roughly March last year. And so I think it's still being adversely impacted by that as well. And, again, we're going to be comping against some lower same-store numbers in the month of April due to the weather pattern a year ago. Obviously, the margin in prepared foods, we are benefiting from several things. We still have the price increases that are benefiting us. We took one, just as a reminder, back in May that we'll cycle against here in a few months. We also took one on donuts in the month of July. As you probably know, Karen, we are benefiting from commodity costs. We are not locked in on our cheese. We made a conscious decision to buy on the spot market and that has benefited us tremendously here in the third quarter and we believe will continue to benefit us in the fourth quarter as well. We will still, however, continue to look at opportunities to lock in a portion of our cheese as we move forward. Hopefully, that helps.

Yes, that's helpful. And then, I guess, in terms of the grocery pricing or the in-store pricing test, can you just give a sense of how many items are in the test, in terms of inside the store, And then any color on what that might have done for the comp this quarter?

Yes, I think you're talking about price optimization inside the store. Yeah, really, price optimization didn't really have any impact in the store currently. The test was a small pilot that's kicking off here just, really, in the month of February. And so no impact in Q3. There might be some impact here as we head into Q4. It's going to be a small test, however. When we kicked off that price optimization piece of the value creation plan, we indicated that we would roughly do about 20% of the products when we first started. And so that's where I would probably kind of get your head around it. The first initial wave will be about 20% and then rolling in, roughly Q2/Q3 area, into more and more items in the store.

Okay. Thanks. And then just last question. Any preliminary thoughts on how we should think about op ex growth next year, just given that there are so many moving parts?

Yes. We're currently in the fiscal '20 planning process with respect to every aspect of our business, including the operating expenses. As Terry mentioned, we've made some really great strides in a number of areas. The one he called out was the reduction of store labor hours, being down, in totality, 5.7%. Now, as he mentioned, we're going to cycle over the 24-hour/pizza delivery reductions from a year ago and so, really, the run rate, if you exclude out that roughly about 3% to 3.5%. And that's kind of where we're trending as we move into the fourth quarter. I don't have any information to give you at this point as far as the fiscal '20 but, obviously, it's going to be a key area of focus for us as we move into that fiscal year because it is part of that value creation plan.

Thank you. Our next question is from Christopher Mandeville from Jefferies. Your line is now open.

Good morning. This is Blake on for Chris. Thanks for taking my questions. First, on grocery, can you talk a little bit more about any drivers of the comp strength in the quarter? I think last quarter, you had mentioned some categories, like packaged beverage and other tobacco. Did those continue to do well? And then, just generally, any split you can give on traffic versus ticket for in-store during the quarter?

Yes, I'd be happy to help you out there, Blake. So, first of all, a couple of areas that are moving in the grocery and other merchandise. First of all, the other tobacco category is one that has been very successful. We talked about it in the last quarter. The Juul product continues to be very popular. Coming into the quarter, we weren't exactly sure how that would go moving forward into the back half of the fiscal year with the FDA regulations but that continues to be an exceptionally popular product for us. So, that is moving the comp. Also, we made some changes in our liquor and wine areas that have been doing extremely well. Those particular areas are up significantly for us. Changing the racks out for liquor, adding different wine selections to the customers to better match their demands. Those have been very successful for a couple of call-outs there. As far as the back half of your question there, with respect to traffic, really, it's not so much traffic as it is the ticket. As we look at the same-store customer count sequentially for this quarter versus other quarters, we're down a little bit this quarter relative to prior quarters. That's really more of a weather issue. It's been relatively consistent. When I say consistent, we're tracking down low single digits inside the store when you exclude fuel and commissions purchases. And so we're really pleased to drive that revenue and margin in light of that. So, I hope that helps you out, Blake.

Great. Yes, thank you. And then my last question is on the fuel side. Any more data you can share in terms of -- it seems like you're making good progress in terms of, obviously, growing gross profit dollars. Just any more commentary on are you getting closer to finding that right balance in terms of where we can expect the fuel comp to go versus the cost per gallon?

Yes, Blake. This is Terry. Let me take a shot at that question. In general, as we look at the price optimization format for fuel, we're very pleased in our progress. Nathaniel Doddridge and his team are doing an outstanding job working with our store operations leadership team and our BI team to make sure that we're finding those borders, if you will, in terms of price versus volume in particular markets in order to maximize the gross profit dollar impact from fuel. So, as we roll out price optimization here through the remainder of the fourth quarter, we will continue to work on the rules-based options within price optimization and we feel very confident that we'll continue to fine-tune our efforts there. Because, at the end of the day, what we're really trying to do here is drive gross profit dollars from the category and we know we have some opportunities in markets where we can increase gallons through more disciplined pricing strategy but we also know we can increase margin in other areas as well.

Blake, this is Bill. I'm going to add just a couple of things to that, just to give some perspective around fuel. Our same-store gallons were down 3.4% in the quarter, as Terry mentioned. Obviously, he called out the weather piece being roughly about -- or, excuse me, the 24-hour piece roughly being about 100 basis points. But the month of January, you might recall, we did have something they call a polar vortex in our market area. That did adversely impact comps, not only in fuel but inside the store in the month of January. The other piece with respect to the comps is vehicle miles traveled, at least in our market area, are down significantly relative to the VMT when you look at it from a national basis. When you look at the core states of Iowa, Missouri, and Illinois, they're down anywhere from 1% to 2% in the month of November. That's the only updated data that we have at this point. So, we are coming up against that. But on a two-year stacked basis, we are up 0.4% in the fuel category and we think that we're headed in the right direction there.

Thank you. Our next question is from Chuck Cerankosky from Northcoast Research. Your line is now open.

Good morning, everyone. Nice quarter. Going back to the fuel optimization, Terry, obviously, about a third of the drop in gallons is due to the reduced hours. But when you look at sort of the extreme of negative gallons and the $0.22 plus per gallon, is that what you mean by fine-tuning the borders? Should those numbers be closer together, so to speak? Maybe positive gallons and a little less profit or are we going to see that kind of extreme?

Well, Chuck, I think, in terms of price optimization, we need to look at it in totality. If we're looking at fuel margin for fiscal '20 and beyond, we need to remember there are several elements to our fuel strategy other than just price optimization, which would include the product optimization opportunity, the fleet card strategy, and so forth, that we believe can influence not only gallons but margin. But within the price optimization opportunity, certainly, we should see a more steady balance in terms of the increased gallons quarter-to-quarter, as well as the margin. As you know, historically, you can see some fluctuation in those gallons. If you look back and compare to third quarter last year, a 3.8% increase in same-store gallons for the quarter and the month of January was up 5%. And so what we're looking for is a more balanced approach, if you will, in terms of those gallons as well as the margin. And we're going to look at that on a market by market basis. And in doing so, we're going to understand that not every strategy is going to work in every market. And so we'll take some time to make sure that we understood what those rules are in each market, also knowing that those rules may change depending on the reaction of competitors, not only to our strategy but to other competitors within the markets. So, in short, I would certainly hope that, at some point in time, we're going to find that balance here in the very near future. But at the end of the day, what we're really driving for is gross profit dollars and I think we're starting to see the results of that, certainly, from Q3.

Along those lines, was there any significant impact from improving the fuel product mix during the quarter, like biodiesel and more premium?

I probably wouldn't see that coming until Q4 and into next fiscal year, as we complete this rollout or this transition, Chuck. So, I'm sure we'll have greater detail to talk about that in Q4.

Okay. And, Bill, a question for you. Looking at the last quarter of the year and cash flow, what can you talk about with regard to debt pay down and share repo with what looks like a big piece of the capex budget yet to come?

Yes. So, certainly, a couple of things to think about there, Chuck. We do have a fair amount of new stores to open here in the back half of the year. So, there will be some capex coming through in the fourth quarter that will certainly put a crimp on the cash flow. But, generally speaking, Q3 and Q4 are the lowest cash flow quarters for us. Now, as I look out ahead, we do have a lot of things that we'll be kicking off here toward the back end of this fiscal year and into next fiscal year for cash flow. But, as we mentioned, coming into the fiscal year, one of the things that we were focused on is making sure that we're positive free cash flow for this fiscal year and, certainly, I think we are heading in that direction. So, this time of year, unfortunately, weather can play a factor, just like it did a year ago.

Thank you. Our next question is from Bonnie Herzog from Wells Fargo. Your line is now open.

Hi. I wanted to circle back to something you were just talking about, sort of a follow-on question about your goal to maximize gross profit dollars. It certainly makes a lot of sense that you're trying to strike the right balance between fuel gallons sold and margins. So, I wanted to, first, maybe confirm that that's still a little bit of a work in progress for you guys but you expect this to be a better balance going forward. And then, second, I would love to hear how you think about that in context of trying to get or increase conversion into your stores. I'm asking it because I'm thinking about the prepared food comp growth, which has stayed pretty under pressure.

Yes, I'll kick that one off there. And, certainly, yeah, this is a work in progress, Bonnie. We know that fuel optimization and we just are kicking off the price advantage tool here and so it certainly will be a fluid process trying to find that right strike of balance. The other thing I would say on that balance that I think will allow us some flexibility is -- and we haven't really talked about it yet in this call to any great degree -- is procurement. And so we just recently brought on a Director of Fuel Procurement and so we are looking at opportunities to really change the way we have procured fuel historically. We think that -- in fact, we're optimistic that there is a benefit to be had there as we move into next fiscal year. And so that's part of that fiscal '20 planning process I described in a previous question. So, I think that will help us to maybe strike a little bit of flexibility and that balance. So, with respect to inside the store and conversion, to your point, obviously, we were very cognizant about this dynamic on same-store gallon movement and that balance in the fuel category relative to any degradation inside the store. As you have seen, obviously, same-store numbers continue to be positive. That's really driven by not necessarily traffic at this point but we haven't had any degradation in our traffic here sequentially. And so as long as we continue to drive that direction, that's the balance we're going to continue to see. With respect to prepared food comps, you alluded to that, Bonnie, certainly, as we look to the digital transformation that Terry talked about that kicks off Q1 and then into Q2, I can tell you that we are anticipating a substantial growth in same-store sales acceleration for prepared foods next fiscal year.

Okay. Thank you for that. That kind of gets into my next question because SSS for prepared foods has certainly been pressured and then I'm thinking about the drivers of that and one of them that you've talked about is the price increases, which has certainly been helping, I think, your margins. So, just trying to think through how much, in your opinion, do you think some of the pricing that you've taken in this area has been sticking? I'm wondering how much of a factor that's been on the top line.

Yes. So, the answer -- I think the overall answer is yes. I don't think we've seen any elasticity as a result of our price increases. We've been very deliberate in the products we have selected for those price increases and think that they are sticking at this point, as you termed it. We will continue to look at opportunities next fiscal year as we finish the fiscal '20 planning process to see if there's any opportunities for price increases on any other key products in the store. But I think the acceleration we anticipate in prepared foods next year in comps is really driven more from the new mobile loyalty and whole digital transformation.

Okay. And then I did want to ask you guys about your long-term targets. I guess it's been around a year since you set them. So, wondering how you're feeling right now about those targets, how confident you are that you're going to still hit them. And I think the one that stands out for me, I guess, is the one we're talking about right now, which is the prepared food comp target of 10%-plus by FY '21. I just wanted to get a sense from you what you're thinking.

Yes. No, no, great question. And so as we head into the next earnings call, you'll hear us talk in a little bit more detail about here we are, a year post the rollout of the value creation plan, and give you kind of where we're at on that. With respect to the guidance that we put out, really, it was pretty limited guidance and it really had to do with the three major categories of our business and what I'll call 4%, 6%, and 10% comps with respect to fuel, grocery, and prepared foods. I think the one you're talking about specifically is the 10% on prepared foods. So, we will take a hard look at that because when we put those out about a year ago, we were not exactly sure where price optimization would take us, whether that would be more of a same-store sales play or more of a margin play. And so as we get further down the road, seeing the benefit of price optimization, there may be a pivot to gross profit dollar communication and talk in that direction because we may see more margin gain than we anticipated and perhaps less same-store sales gain. At the end of the day, we're still growing the business in the same direction overall as what we anticipated.

Thank you. Our next question is from Paul Trussell from Deutsche Bank. Your line is now open.

I wanted to maybe just circle back to some of the comments you made about the fleet card. And perhaps you can give just a little bit more detail on how you expect to kind of ramp up that utilization and what your team is focused on accomplishing there over the next few months.

Yes, Paul. This is Terry. With regards to the fleet card, certainly, we had some anticipation and maybe, in terms of the gallon impact, being a quicker ramp up, specifically from the fleet program. And it may have been, as we said in the narrative, that the timing at the year-end might have been challenged. Certainly, as customers are wanting to turn over a new fleet card, doing so at the end of a calendar year may not have necessarily been the best timing. However, what we are seeing with regards to the fleet card, obviously, as we stated in the narrative, a great deal of interest in the number of new accounts that we have and the number of cards being issued. And also what we're seeing through the latter part of January and into February is the beginning of the ramping, if you will, of the gallons from those new fleet card customers. So, while, from a fleet card perspective, we may not necessarily hit some targets that we had set by the end of the fiscal year, we certainly see that that ramping up will continue, we believe, during fiscal '20. And I would also say that, with regards to universal fleet card programs, such as WEX and Voyager, we have seen a great deal of growth from those programs as we work very hard to partner with them directly as well. So, I think there's still a great deal of upside here with this program and we certainly also believe that there will be a benefit to inside sales as that program takes off.

Thanks. And my follow-up is just on the digital journey or digital transformation. When you all outlined the original value creation plan, there was a lot of steps, in terms of design, build, pilot, implement, that you all had outlined. Maybe just give us a little bit of a broad update on where we are from an in-store technology standpoint, the commerce platform and how that's being integrated, your ability to utilize customer analytics, the outlook for the mobile app, and loyalty program. It would be great to get an update on that. Thank you.

Yes. So, this is Terry and I would tell you that the development is complete for our e-commerce, customer, and marketing automization integration layer. We have development teams that are focused on fixing some of the friction points within that c-commerce platform. And so we have system integration testing for the e-commerce platform ongoing right now and we have an anticipation of going live with the e-commerce platform during the month of April. And we'll also finalize our kitchen OMS development as well during the month of April. So, with regards to the overall digital platform strategy, we are within our timelines. Not that we haven't had some friction points here and there but that's probably why you do testing, if you will, to ensure the fact that when you go live, you are ready. And we certainly are not going to go live until we are absolutely ready. But at this point in time, we are well within the timelines that we originally established. And as we look to the mobile app and the loyalty program in the early part of fiscal '20, when we go live, we feel very confident that will be a very seamless transition.

Thank you. Our next question is from Ben Bienvenu from Stephens Inc. Your line is now open.

So, I wanted to ask, with respect to the fuel procurement opportunity, what should be our expectation for the realization of the potential benefits? Are you able to renegotiate or negotiate contracts at any particular point in time in this calendar year or will it happen episodically or in tranches over the course of the year? Just help us understand how we might start to see that evidence itself in the results.

Yes, Ben. This is Terry. I would tell you that our new Director of Fuel Procurement has hit the ground running already through an acquisition that we had here during the month of February into March. Fantasy's in Omaha, we have a fuel agreement with Phillips 66. She was very instrumental, as well as other members of the fuel and store operations team in pulling that together. But, certainly, she understands and recognizes opportunities within our market area and is working very hard to establish some additional relationships and opportunities with current suppliers, as well as maybe some others that we necessarily haven't been working with in the past. So, we believe that this is going to continue to be a ramp up for us in fiscal '20 and can be very impactful, in terms of not only gallon opportunity, margin opportunity, but we are very confident that this is a great direction for us and we'll continue to develop our fuel procurement strategy throughout fiscal '20.

All right. Great. And then shifting gears back to fuel gallons, and not to belabor the point, but I want to make sure I understand this dynamic. Is what's happening, if I look at this quarter, kind of excluding the noise from weather, is what's happening is you're just getting smaller fill-ups but you're not seeing traffic meaningfully impacted? Is that why we're not seeing the in-store comps as materially impacted as the fuel gallon reduction might suggest they should be? Just help us understand. Or are those two customer sets, the in-store and the fuel customer, are they mutually exclusive from one another? What have you learned about that process as you've implemented this price optimization type of initiative?

Yes, Ben. This is Bill. And so to answer your question, the gallons per transaction actually is elevating as the retail prices come down. I think it comes back to an earlier comment that we made with respect to customer traffic or transactions. During this period of time and, actually, for a good part of the fiscal year, they've been negative and in low single digits in the quarters. And so it's really more of a function of that. And as we alluded to, specifically, in our core states, vehicle miles traveled, at least so far in the early part of the quarter, are down anywhere from 1% to 2%. So, we think that we're being impacted by that as well. And as Terry also mentioned, again, I'll just remind everybody that we still are being adversely impacted in the comps from the decision that we made back last fourth quarter to reduce the number of 24-hour locations and that's having an impact. So, I still think that we're in good shape there and, right now, we haven't had any degradation inside the store that we believe that's the case. And so the loyalty program that we'll be kicking off here next fiscal year will give us tremendous insight on customer dynamics with respect to their behaviors -- that come to the pump, come into the store -- and we'll be certainly be able to market it and play off of that.

Okay. Great. And just one quick follow-up on that. On the prepared food category, in particular, is that category benefiting materially? I think you mentioned it was benefiting from pricing increases. But is that, perhaps, a reason why the in-store comps haven't been as impacted as well? The ticket is increasing as you've implemented pricing increases.

Yes, so, yes, I think you're exactly right. That's part of it. I mean, certainly, customer traffic being down is an impact across all categories of our business and so that's part of it as well. Obviously, we continue to be promotional because it is a competitive landscape and specifically in the prepared food category. And then, also, the 24-hour and pizza delivery are impacting the prepared food category adversely currently. And so when you look at the comps, you can add anywhere from 70 to 100 basis points impact with respect to the 24-hour/pizza delivery. But, as I mentioned, we certainly anticipate a substantial acceleration in the prepared food category with respect to comps as we head into the rollout of the digital transformation that Terry talked about.

Okay. Great. And one final question about prepared food. The margins were up nicely and you mentioned part of that is tactical pricing increases in certain categories but also lower commodity costs. How are you thinking about that balance of reinvesting lower commodity prices into lower list prices for pizza, in particular, where I know that category is competitive? Just help us think about it, particularly since you are focused on gross profit dollar growth. Can you talk a little bit about the competitive landscape there and how you're using that lower cost to your advantage?

Yes, that's good insight, actually, because this also has to do with the fuel side too. As we see margin gain from a variety of areas -- in this case, specifically due to lower commodity prices -- it does give us some flexibility on the pricing and promotion to help maybe drive some customer movement. So, I know our market team is working with that as well. I can't give you any specifics as to what they have done with respect to that but, intuitively, when you gain in that regard, I think that's a direction that we have the ability to take. And so we'll continue to look for those opportunities.

Thank you. Our next question is from Irene Nattel from RBC Capital Markets. Your line is now open.

Hey, guys. Just continuing on that vein, you talked a little bit about competitive intensity in prepared foods. Can you talk about what's going on in sort of the general merchandise, more broadly speaking, as well as on the gas side? And just kind of thinking this through, when you're in an environment that's so favorable to gas margins, does everyone kind of just give up a little bit more because there's so much on the table they can afford to give it up? If you could just talk a little bit about that, please.

Yes. So, I don't know if I would characterize quite as "giving up," but, certainly, when there are higher margins, I think there can certainly be different flexibilities that a particular competitor will make. I'm not aware of anything in our market that would be unusual from a competitive landscape. The prepared food and quick serve restaurant industry continues to be competitive. I don't think that's been accelerated in the third quarter relative to prior quarters but it just continues to be a competitive landscape. The fuel category is always, probably, one of the more competitive because of the pricing and the dynamics of fuel being so public. But I think when you look at opportunities for us going forward with price optimization, I think this is an interesting dynamic because many of the larger competitors will have some form of price optimization. But when you think about our market area, where our competitors, about two-thirds of them, are operators of 10 stores or less, they would not have the technology for the price optimization like we would have. And so I think we may have an edge up when we go to that direction. Coupled with that, Irene, the loyalty program, even though many of our large competitors have a loyalty program, most of the small operators that we compete against on a day-in-day-out basis do not. So, I think that's why we're so optimistic about the rollout of the programs as we head into this next fiscal year.

Yes. I mean, certainly, that makes a lot of sense. Just thinking through kind of key traffic-driving categories, you talked a little bit on the last call about e-cigarettes and on this one. If you could just update us on what's happening there in terms of penetration. But it also looks like core tobacco was kind of strong in calendar Q4 and January. Did you experience that and what do you think is behind that?

Yes. So, tobacco trends. I mean, we still -- let me just give you some metrics. Roughly about 75% of our cigarette sales are still in the pack. That really hasn't changed much. One of the dynamics that I would say is, in the third quarter, as we reported, our grocery and general merchandise comps were 3.4%. If you exclude cigarettes out of that calculation, you're roughly about 6%. That exclusion has been accelerating over the course of this fiscal year. So, the core business, I think, in the grocery and general merchandise, continues to be very solid. To your point, Irene, one of the things that's helping drive that here recently is the other tobacco line. And so, specifically, that Juul product, as we alluded to earlier, has been very popular. It seems to not wane from popularity even though they came out here last quarter with some regulations on the flavor profiles. And so that does continue to be very positive for us. Did I get all your questions answered there, Irene?

Yes. Actually, I just have a follow-up there as it relates to Juul. When you look at the profile of the Juul buyer, it's slightly different. And do you think that you're actually just getting more sales from ancillary products when some of those purchasers come in the store that's helping your sales today?

Yes. I think it's a couple of things. I mean, I think there is some incrementality regarding that particular product but I also think there is some switching of our consumers from cigarettes over to that product. And in doing so, that's a pretty high-dollar product and so I think you are seeing that picked up in the basket ring.

Understood. Thank you. And then, finally, just one question, if I may, on the fleet card. Is this really just a matter of once they roll out, it's kind of inevitable that the volume will come because the users of these cards are on the road and they need to fill up and now they've got your card in their hand? Is it kind of that simple?

Well, I'm not sure I would go and quite describe it as that simple because they may have other fleet cards at their disposal. I think it's a continued marketing effort on our part, in conjunction with our partner, to continue to provide that right level of discount that entices them. Obviously, having the right locations helps as well. And then continuing, just getting those cards in the holders. Now, as Terry mentioned, we have seen acceleration in the fleet card program and he touched on the universal fleet card, which are other cards, like WEX and Voyager, and we continue to be very aggressive in communicating with them as well. And so when you look at the third quarter, and even late in the third quarter, at a time period when our same-store gallons are negative, we see our universal fleet gallons up anywhere in the high single digits to double digits. And so there is some gain that we're having in the overall universal fleet card program and so we're encouraged by that. And this fleet card that we have talked about is certainly a big part of that. It really comes down, Irene, on kind of a timing issue with this fleet card roll out. As Terry mentioned, we launched in the back half of the year. Maybe that was impacted by that calendar year. And so maybe it's just a timing issue of when we receive that benefit.

Thank you. Our next question is from Kelly Bania from BMO Capital. Your line is now open.

Good morning. Curious if you could go in a little bit more detail on the split between traffic and ticket in each of the in-store categories. And, particularly, as you think about the digital transformation driving substantial improvement in comps, are you expecting an improvement in ticket or traffic from that initiative?

Yes. We are anticipating a lift in the traffic side of that as we roll that out. Now, specifically, to answer your question about what's happening currently, I mean, certainly, we are seeing a lift in the ticket relative to the traffic. As we mentioned, our traffic has been off slightly here in the last three quarters. And so what we have found as we dig into some of the detail is we are losing some of the customers that are buying one item or maybe two items but we are gaining on customers that are buying three or more items. And so that is helping lift the overall comp in addition to what I mentioned with respect to that Juul comment in the previous question. I think that would be consistent across the category inside.

Okay. And then I think you mentioned maybe a 70 to 100 basis point impact from the 24-hour and pizza delivery reductions. I'm just curious, is that complete or are you expecting to do any more of those?

No. The big wave of 24-hour changes and pizza delivery changes is behind us. We'll always tinker with that. We'll pull a handful off in a quarter, we'll add a handful. I don't think you'll probably hear us talk about that unless it's going to be a significant move either direction because those movements kind of tend to wash each other out.

Okay. And then a couple more questions. On the value creation plan, you sort of talked about maybe shifting less, at least on the prepared food, comp outlook, a little bit more toward just a gross profit outlook. And so if we think about the plans that you laid out last year for the 4%, 6%, and 10% comps, is the gross profit higher or lower as a result of kind of this new kind of way you're looking at just gross profit instead of just the top line?

Well, I mean, the shift -- and, again, we are still working on our fiscal '20 planning and the subsequent guidance that we give out to the Street but we want to try to be as transparent as we can to make sure that our message is being heard. So, to answer your question, I don't think I can give a detailed answer with respect to our gross profit dollar expectations next fiscal year relative to the expectation when we put that out a year ago. Obviously, consumer behavior changes and it's always hard to predict years in advance but we still think we have a tremendous opportunity to drive gross profit dollars with any changes we make, whether that's regarding same-store sales or margin improvement.

Okay. And then, in terms of your cost savings or your expense savings plan, I think that was around $200 million in cumulative savings. I'm just curious where you are so far at tracking against that and if there's anything that's changed against that goal.

Yes, there's nothing that's changed against that goal. We'll roll that one up and report on that in the next earnings call. We've obviously made, as you know, some very strong strides here this fiscal year in a number of areas and we think there's opportunities to continue to be very mindful of operating expenses. And at the end of the day, for us, we're trying to balance our operating expenses in relationship to the growth of the company. And so when we have situations or time periods with the company where our same-store sales may be slower than we expect, we want to make sure that we match that with the operating expense. So, I would say if our same-store sales start to accelerate, you will probably see operating expenses accelerate. No different, as you might recall, Kelly, back in 2016, we increased the top line significantly. Operating expenses were also coming up with that to drive overall gross profit. So, just trying to find that right balance to be very mindful in conjunction with one another.

Thank you. Our next question is from Anthony Lebiedzinski from Sidoti & Company. Your line is now open.

Good morning, everyone, and thank you for taking the questions. So, Bill, you mentioned that there's been no degradation as far as your inside same-store sales, even with negative fuel comps. That being said, as you look into fiscal '20, I know you're not giving guidance just yet, but do you think you'll need to have positive gallon comps in order to sustain positive momentum in your stores inside?

Well, that's a tough question to think about going forward here. But I would probably characterize it this way. Something to think about, Anthony, is we still -- this whole price optimization is a very fluid process. We're rolling out that price advantage tool here and we'll get better and better, market by market, as we move forward into fiscal '20. And so whether we're going to be negative gallon movement or not, we haven't quite pulled everything together. However, to answer your question, I think we can be in that area and drive gross profit dollars and still have a positive movement inside the stores. Keep in mind, Anthony, one of the things that we'll have at our disposal next fiscal year is more data around our customer as we roll out the loyalty program. And we'll utilize that data to market toward customers, specifically to their individual preferences. And so I think we have an opportunity to drive comps across the board in that regard. So, especially as we get more data points.

Got it. Okay. That makes sense. So, you've done a very good job with your operating expenses. You called out store labor being down. Are there any other opportunities, you think, or is this kind of as good as it gets, as far as the store labor management?

Well, I wouldn't say it's as good as it gets. I mean, we're always striving to uncover a rock here or there to see what we can do with operating expense. One of the things, I think, as we move forward, a couple of things to think about, one of the reasons that you saw a deceleration in our operating expenses in Q3 is because we are taking a hard look at our store labor hour process and doing a much better job to match the labor hours in relationship to the customer demand. And so you're seeing that reflection in Q3. And so far, in Q4, as I alluded to earlier in the call, that continues. Now, as we move into fiscal '20, that's when we start looking at a more detailed time and motion study and coming up with increased opportunities there.

Got it. Okay. And also, longer term, what are your thoughts as far as your distribution network? I think you've talked about, previously, looking at a third distribution center. Do you have any updated thoughts on that subject?

Yes. We continue to move forward to finding a location for that third distribution center. As you know and as we mentioned in the last call, we did a very deep dive on third party distribution before we went down this path and feel like this is the appropriate path to maintain the optimal efficiency for us moving forward. And so we are hopeful at the next earnings call, we'll announce where that location will be and give you kind of a timetable, at least preliminary timetable, as to what to expect with that particular project.

Got it. Okay. And, lastly, Terry, you mentioned during the opening remarks that you've signed up 5,700 new cards for the fleet card program. Do you guys have any sense as to how many incremental new customers to Casey's you may have gained from that?

Well, Anthony, I can't sit here and tell you exactly in terms of incremental new customers but we certainly feel very confident in the fact that this is a very positive approach and response. We're excited about the number of new customers or new accounts. We actually have just short of 1,000 accounts on file to date, as we mentioned in the narrative. So, as we work with the fleet core team, we certainly believe, with the density of our stores across 16 states, we have great opportunities to continue to take on new customer accounts and it'll take a coordinated team effort between our retail fuels team and the fleet core team to continue to grow that opportunity.

[Operator Instructions]. And our next question is from Damian Witkowski from G Research. Your line is now open.

Hi, Bill. Hi, Terry. I have a couple of quick ones. Did food stamps help at all? I think they were kind of accelerating through January. Did you see an increase there?

Yes. I don't have any specific data on the food stamp utilization but I'm not aware that that was a material impact in the third quarter.

This must be a pretty big part of your business, isn't it?

I wouldn't say it's a huge part. It's about $30 million to $35 million over the course of a year. So, it's not a huge part. But, certainly, it's a service and something that we need to make sure that we continue to be mindful of.

And miles driven in your areas, what is, in your mind, causing the decline? I know it's only low single digits but still. I mean, is it just people simply driving less for economic reasons? Is it that everybody's driving a Tesla? I'm just trying to figure it out.

Well, it's not the latter. There are not a lot of electric vehicles here in the Midwest yet like you might see on the coast. But I'm not sure we have an answer as to why the vehicle miles traveled in the Midwest were down differently than they would be, necessarily, on the coast. But the data certainly supports that at least, again, as I mentioned, in the month of November, it was down significantly in the states of Iowa, Illinois, and Missouri to the tune of 1% to 2% depending on the state.

And, lastly, just the price optimization the fuel side. How many stores is that in currently? Not all of them, right?

No. We had that 100 store pilot that we concluded and we are now currently rolling this out to the rest of our stores. We think that we can roll this out to the majority of our stores somewhere by the end of fourth quarter into the first quarter and have it up and operational.

Thank you. Our next question is from Karen Short from Barclays. Your line is now open.

Sorry, just a housekeeping. Can you just give us credit card fees in the quarter? And then I just had one other question.

Yes, $31.6 million in the quarter.

Okay. And then, in terms of your fuel procurement, I'm just curious, will Fantasy actually -- it will be bannered with Phillips or not? I wasn't sure. And I guess within fuel procurement, is there maybe some contemplation that you might move to some more bannered gas?

Yes, Karen, this is Terry. With regards to the Fantasy acquisition, no, there is no Phillips 66 banner. This will strictly be a Casey. This is purely a procurement agreement with Phillips 66. And, certainly, that will be our preference on a go-forward is only contractual procurement agreements as opposed to looking to fly somebody else's banner. We believe that the Casey's banner takes primacy in this market and we don't see any reason or any benefit to fly a fuel banner as well.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Terry Handley, President and CEO, for closing remarks.

Thank you. I would like to thank everyone for joining us this morning and would like to close the call by reiterating our key initiatives are designed to position Casey's for accelerated revenue growth and improved profitability through our long-term value creation plan. This will be done through a disciplined capital allocation strategy that focuses on prioritizing high-return growth and profitable initiatives. We strongly believe the combination of these actions will drive and continue to drive our long-term track record of driving shareholder value. Thanks, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.