Good morning and thank you for standing by. Welcome to the Fourth Quarter Full-Year 2023 Casey’s General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning and thank you for joining us to discuss the results from our fourth quarter and fiscal year-ended April 30, 2023. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, President and Chief Executive Officer; and Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995. These forward-looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's 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 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, the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks, uncertainties and factors which are described in our most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. 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 the detailed breakdown of the operating expense increase for the fourth quarter can be found at our website at www.caseys.com under the Investor Relations link. With that said, I'd now like to turn the call over to Darren to discuss our fourth and fiscal year results. Darren?

Thanks, Brian, and good morning, everyone. We're looking forward to sharing our results in a moment. So I would like to start by thanking our 43,000 Casey's team members for their tireless efforts and contribution to a record fiscal year. As I reflect on the three-year strategic plan that we set out in January of 2020, I'm extremely proud of what we've been able to accomplish. Casey's is at the heart of the communities we serve. Our teams give their all, and this shows in the positive guest feedback we receive, the delicious food we make, and the impact we have on our communities. In fiscal year ‘23, Casey's along with our generous guests and committed supplier partners, enabled over $5 million of donations. These dollars provided meals, school supplies, new playgrounds and equipment, disaster recovery needs, and services helping veterans and their families. I'd like to offer a huge thank you to our team members, our guests, and our non-profit and supplier partners that make this all possible. We are proud to do so much good across so many communities. Speaking of good, in early May, we launched an upgrade to our rewards program that's bringing more good to our 6.5 million loyal members. The enhanced Casey's Rewards experience includes a refreshed app design that makes it easier than ever for Casey's Rewards members to track their points, redeem them for rewards and see how much money they save by shopping with Casey's Rewards. The program recently celebrated its three-year anniversary and what guests love most about our loyalty program is the waiting and choose to receive their rewards. Whether it's Casey's cash to help pay for pizza night, or extra cents off when filling the family vehicle, members have the flexibility to decide what works best for them.…

Thank you, Darren, and good morning. Before I jump into the financials, I'd also like to acknowledge the entire Casey's team to the excellent financial results for the quarter, the year, and the three-year strategic plan, our significant accomplishments for the entire organization, and it would not have been possible without the hard work and dedication of all of our team members. Total inside sales for the quarter rose 8.4% from the prior year to over $1.1 billion with an average margin of 39.6%. For the quarter, total grocery and general merchandise sales increased by $66 million to $810 million, which is an increase of 8.8%, and total prepared food and dispensed beverage sales rose by $21 million to $314 million, an increase of 7.1%. Same-store grocery and general merchandise sales were up 7.1% and the average margin was 33%, an increase of 50 basis points from the same period a year ago. Sales were particularly strong in our non-alcoholic and alcoholic beverages and we experienced a favorable mix shift in these categories as single-serve grab-and-go items outperformed. Energy drinks sold exceptionally well driving non-alcoholic beverages, up over 13% in the quarter. Ongoing private-label growth also assisted this category. Same-store prepared food and dispensed beverage sales were up 4.9% for the quarter. The average margin for the quarter was 56.8%, down 10 basis points from a year ago. Bakery, as well as hot food performed well in the quarter. Margin was adversely affected by a higher LIFO charge than prior year, which had an impact of roughly 50 basis points. And while we did experience some cost pressure in bakery and proteins, cheese costs were down $0.06 per pound from the prior year $2.20, this had an approximately 20 basis point benefit to margin. During the fourth quarter, same-store fuel…

Thanks, Steve. I'd like to again say thank you and congratulations to the entire Casey’s team for delivering another record year. The results speak for themselves and are a reflection of the hard work of the team and their dedication to executing our three-year strategic plan. In January of 2020, we laid out a plan to reinvent the guest experience, create capacity through efficiencies, be where the guest is all while investing in our talent. As this plan is now ready for renewal, I'd like to share some of our accomplishments. Our team had to navigate through a global pandemic and the effects therein, including restricted traffic, labor shortages in an inflationary environment. We adapted to the situation and thrived in it as you can see with our results. We reinvented the guest experience in several ways, but we really shined with our Casey's rewards program. We made a commitment to enhance our brand and drive digital engagement and we did just that with over 6.5 million members through May of 2023. And this helped drive results, as our same-store inside sales were at the high-end of our guidance. We wanted to make sure that we create capacity to invest in the business by capturing efficiencies while we grew. The team worked exceptionally hard to make the stores work harder for us, culminating in reducing same-store labor hours in fiscal ‘23 by over 2% while keeping team members engaged and guests satisfied. As shown in the financial results too is our operating expense CAGR of 12% was lower than our EBITDA CAGR of 14%. We also made a commitment to be where the guest is through accelerated unit growth. We came into the plan with an expectation that we would build more than we bought, but as the M&A environment…

[Operator Instructions] The first question comes from Karen Short with Credit Suisse. Your line is open.

Hi, thanks very much, and congratulations on a good year. I just wanted to -- and, you know, also look forward to seeing you in June. I just wanted to parse out on your guidance with respect to in-store margins. Maybe you could parse out a little bit more on the grocery side versus the prepared food side. Obviously prepared food continues to be pressured? And then I guess within the -- both of those components, you know, talk a little bit about price increases and/or branded pass-through on grocery? And then what you're, kind of, thinking through on the actual prepared food commodity cost pressures? And then I have one more quick question.

Yes, Karen, this is Darren, and thank you. Yes, I'll go ahead and start and let Steve fill in some of the detail. Yes, we expect to see a bit of recovery in overall inside margin and we would see that primarily in prepared foods and we think that's for a couple of reasons. We're expecting the inflationary pressure that we've experienced over the last year and a half to settle down a bit. We're currently experiencing some favorability on cheese costs as an example, which as you know is a big input to our prepared food and dispensed beverage margin. So that we expect to continue to improve throughout the year. On the grocery and general merch side, we started to see some of that inflation subside. There is still some categories like chips and candy, where we're experiencing some inflation. But outside of that, there has been some moderation there. And so we're -- we'll still remain diligent in terms of passing on pricing that's appropriate. And on the prepared food side, we'll be a little more cautious on that effort on the commodity side, because we don't want to whipsaw the guest and we want to make sure we maintain a relative value proposition. Steve, any color to that?

Yes. Just Karen for modeling purposes, I think I would advise that you -- grocery and GM to Darren's point probably flattish margin wise year-over-year for all those reasons and the preponderance of the inside improvement will come from prepared food and that's both on the cheese side we're about 43% hedged right now for our fiscal ‘24 requirements. And at the current cheese prices, we're kind of looking at least for the first quarter down about 10% or so year-over-year, so we'll get some tailwind there. We'll also be lapping some significant price increases we've had this year, for example, donuts inflation this year was 40% in the bakery category and we'll lap that during the first part of fiscal ‘24. So most of the improvement mechanically is going to be prepared foods.

Okay. And then my second question is, obviously you're managing OpEx growth extremely well. One of your more rural I guess, I'd say comparisons that had significant number of hours to the stores, just from a labor perspective. And I'm wondering how you think about that in terms of where you're at in terms of being able to actually meet the guests’ needs and whether or not you need to add more labor to the stores, because that seems to be more of a theme even for rural operators.

Yes, Karen. I think whether you add labor or take-away labor depends largely on where you're starting. And for us, we felt like we were always staffing our stores appropriately to meet the guests' needs and we continue to believe that. But what we were able to identify is that we had some unproductive hours in the stores and we had some labor or activities rather that we were doing in the stores it just didn't need to occur in the store anymore. We could pull that activity out of the stores and move it upstream where we can do it more efficiently, And so, we've been on a concerted effort over the last year to do exactly that. We've been able to reduce the number of unproductive hours as we would call it and take those out. And in fact, our overall satisfaction scores as we measure them through a third-party have actually improved, while we've done that, because we've not only freed up those hours and taken some of that to the bank, but we've also given some of those hours back to the store, so they can focus more on the guest experience. So we feel very comfortable with where we're at now. And again for this next fiscal year, we still have our continuous improvement team in place who are going to continue to pursue finding more opportunities to operate our stores more efficiently.

[Operator Instructions] The next question comes from Anthony Bonadio with Wells Fargo. Your line is open.

Yes, hey. Good morning, guys. So just wanted to ask about the gallon guidance, you're guiding to a flattish same-store gallon growth, despite what optically looks like a pretty easy compare and you're lapping what I would assume a some of demand elasticity last year on higher gas prices, plus you've got the loyalty program. Can you just talk about your assumptions there and maybe why you're not more constructive?

Well, Anthony. Yes, with the gallon guidance, I mean, there's a lot going on right now in the world, and you're right, we are -- if you just look at the first quarter last year when gas prices spiked over $5 a gallon, there was a bit of demand destruction there, but then things fell off and got a little bit more normalized, it's been a little bit choppy. As we go into this year, obviously, there's a lot of macroeconomic headwinds going on that could have an impact on gallons to the negative. At the same time, we do think that because we've outperformed our relevant benchmarks in our geography, we think we have some potential to grow gallons as well, so we're trying to be appropriately conservative. We've given ourselves some room to grow gallons in the guidance and also are being somewhat pragmatic about the fact that if we go into recession and the economy changes that we could see some softness. It's just a little bit too early to tell. So that's how we landed on the guidance that we did.

Got it. And then on the 3% to 5% inside same-store sales guidance as we continue to see disinflation and now deflation in some categories, can you just dig in a little more on the underlying components of that growth and specifically how you're thinking about contributions from price and unit growth within that forecast?

Yes, for the inside of the store, we're expecting to see still good growth on the grocery and general merchandise side, probably a little bit softer on the prepared food and dispensed beverage, simply because of what we're cycling. So we've been up over 13% on a two-year comp. So this would be the third year in a row that we're cycling really aggressive costs. We're not expecting a lot on the pricing side from inflation, particularly in prepared foods, we took a lot of price last year to cover commodity costs. And so we're trying to maintain more of a relevant value proposition for our guests, especially as the economy starts to tighten. On the grocery and general merch side, we're still going to see some inflationary impact from tobacco and that's just kind of normal course. And like I said, we are seeing some inflation in some categories, but we're also seeing that moderate. And in fact, when we look at alcohol and the beer category in particular, we're expecting that to be a little more price-competitive this summer with some temporary price reductions from the manufacturers. So that could be actually a little bit deflationary.

[Operator Instructions] The next question comes from Ben Bienvenu with Stephens. Your line is now open.

Hey, thanks very much. Good morning, everybody.

Good morning.

I wanted to ask first on the unit growth, 110 units that you're citing for the year. Is that all organic within the inorganic the -- augmenting agents to that assumption? And then I guess along those lines, could you talk a little bit about kind of the phasing of the unit growth and the pipeline visibility that you have there?

Yes. Ben with the unit growth of 110 units for this year, as we model it out at the beginning of the year, we kind of think that's an even split between organic and M&A. And now, having said that, a lot can happen in 12 months in the M&A world. So I'll leave myself a little bit of wiggle room based on potential transactions that could occur, that mix could change. But we feel very confident in the 110 units, regardless of how we do that. And from an organic standpoint, we feel very good about our pipeline and we've got the sites identified and it's just a matter of building them right now. We're on a better cadence this year, I would say than we were last year. We're feeling better about the supply chain, the permitting component of that equation is starting to get a little bit more ratable. So -- but we feel a little better about the cadence of growth throughout the year on the organic side. On the M&A side, we feel really good about our pipeline and we're having a lot of good discussions with potential sellers. The timing of those tends to be lumpy as you all know. So it's hard to pigeonhole those into any type of quarterly cadence. But we definitely feel good about the pipeline on both organic and inorganic, and we're confident we'll be able to easily get to that 110 number.

Okay, great. Let me -- revisiting operating expense growth, the 5% to 7% range is much better than you guys have delivered over the last several years understanding that there have been a number of external challenges to getting back to this kind of more normalized growth. When you think about the factors that contribute to either the 5% or the 7%, what are the variables that are the swing agents in that guidance range?

Yes, Ben, I guess, the first thing I'd tell you is, we have made an organization-wide commitment to controlling operating expenses and being very disciplined about that. And so that is as I said, that's an organization-wide effort and I think you saw the results of that effort in this past fiscal year. So you can expect that, kind of, effort from us moving forward. Having said that, I think in terms of the components, when we look at our G&A, we're essentially keeping G&A flat for the year. And so that's a big step in the right direction. And from a store standpoint, we have our continuous improvement team like I've mentioned before that is doing a lot of great work. And so we expect to continue to see a reduction in same-store labor hours this year as we did in the previous year. And on the rest of the equation, we expect to be able to continue to pursue opportunities to leverage our scale and our purchasing power to drive more efficiencies in the business. Steve, anything else you want to add?

Just the other piece around employee wage rates, we will -- we're going to continue to obviously pay people competitively and beyond market. And so our average wage rate right now in our stores excluding our managers is a little over $14 or so an hour. We feel like that's on market broadly across our footprint that we're certainly going to -- we'll remain very competitive in that space. And to Darren's point, that's not a source we're going to control necessarily around store rate, it's more of the efficiency side.

Yes, Ben. I just add one other thing and we've mentioned it before on previous calls. We've also made a concerted effort around controlling our turnover and reducing our turnover and we've had really good success in that over the year end. This past quarter was no different and in the quarter, we saw a 20% reduction in overtime hours, 20% reduction in training hours. And so we expect to continue to work that turnover down. And as a result of that, we'll lower some of those training costs and overtime hours as well.

[Operator Instructions] Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Hi, thank you, good morning.

Good morning.

I had a quick follow-up question on fuel gallons, which trended negative in May, you guys called that out. So just hoping for I guess a little more color on what you're seeing from the consumer in terms of I guess traffic, fill-outs, et cetera? And I guess really what the key drivers of the recent pressured volume growth have been? And how does that compare to the industry and the broader Midwest, are you taking share, for instance?

Yes, Bonnie. On gallons, I guess, I would start with the fourth quarter. Our gallons were flat in the quarter by the mid-continent OPIS data that we saw gallons were down about 2.5% for that same three-month period. So from that perspective, I would say that even though we were flat, we're probably taking share versus some others in our geography. One of the dynamics that we're seeing that's impacting gallon volume is the softness in diesel fuel volume and that's really a result of what we've seen happen in the economy over the last few months with softening retail sales, construction starts, kind of, slowing down. And so you're just seeing less trucks on the road. So we saw a reduction in our diesel volume low-single-digits. And now, that's only 14% of our fuel mix. But when its down it does have an impact. Now on the gasoline side, we are seeing a bit of an increase. So when you mix all that out, it came out flat in the quarter, but that's what's really driving some of the softness right now that we're seeing.

Okay, that's helpful color. And then I wanted to ask a little bit on your private-label business. You highlighted that you now have over what 9% of your gross profits in units is private-label, which is great. So congratulations. Just -- and then hoping you could maybe frame for us how that is or your position there relative to the industry average? And maybe ultimately what the real opportunity could be? And how you're thinking about private-label in the context of your guidance this year? And then maybe touch on any key category callouts where the consumer is trading down more. I think you highlighted beverages, but any others? And then in the context of that, I'm just curious to hear from your perspective about the SNAP benefit changes and what impact that may have had on your business or the consumer in your stores? Thanks.

Yes. The private brand growth has been phenomenal really, and we're still very bullish on that. Over the course of the year, we saw about 31% growth actually in the quarter, 31% growth in private-label over last year. And as you mentioned, our unit share is just under 10% and our gross profit dollars share is just over 10%. So we're really, really feel good about the contribution that's had and that mix has grown about 100 basis points from the same period last year. So everything's kind of working in the right direction on private label. The categories is probably been the best, our chips, frankly, in fact, we saw over 80% growth in chips and took about 500 basis points of share in the most recent quarter in our chip category and we're also seeing a lot of good success in bottle water. But what I would tell you is that, I think the price increases that we've taken from the national brands over the past year have really put us spotlight on the value proposition for private brands, has really widened that price delta between the two. And so as consumers get a little more penny pinched, they're starting to look for those private brands. And so that's why you saw the mix increase. We expect to add another 40 items into the assortment over the course of the next calendar year and we will continue to grow that business. Steve, I don't know if you have any break down of private-label contributions.

Yes. I mean, listen we consistently obviously, see private label contribution of many multiples of improvement from a margin standpoint. I think we're running if our category nationally is running in the low-30% private label will be closer to 50% contribution on a lot of those items varies by overall category profitability. But it certainly is a quite accretive category in general for us to continue to push.

[Operator Instructions] The next question comes from Bobby Griffin with Raymond James. Your line is open.

Good morning, everybody. Thanks for taking my questions. I guess first guys, it's more of a high-level question, but over the last couple of years, there's clearly been a lot of changes that's happened in the industry, you've had a period of rising wholesale prices, a period of big falls in wholesale, COVID, et cetera. I guess, so when you and the team look, is there a fiscal year or a period of operations that you feel is kind of close to what a normal EBITDA of this business should be where we could benchmark or were you guys benchmark the next two or three or four years of EBITDA CAGRs off of?

Well, Bobby, that's a tricky question. I'm not sure what normal looks like anymore, if you put it in the context of the last four years. I don't know. To a certain extent, I would just fall back on what we've done historically and say we've grown EBITDA at an 8% to 10% CAGR pretty consistently over a long period of time, and that's been through a lot of different economic cycles. So if I were going to anchor on anything, I would say, I think that's a long track record of performance where we've been able to stay in that type of range. Really regardless of how the economy is performing. Now quarter-to-quarter or year-to-year, that may fluctuate a bit. But over a longer period of time, I think that's a pretty safe place to anchor yourself on. And so I don't see anything on the horizon that will prevent us from continuing to do that. And we'll talk about this more on our Investor Day, but no, we feel very good about the future and so. I guess that's the best answer I think I can come up with Bobby, is that what you're kind of looking for?

Yes. I mean that's fair. Yes, I mean, I agree, it's very tough to predict normal. It's just when you kind of -- maybe we best look at it on the rolling three years and kind of have that historical performance there, because there has been such big swings in the fuel side of the business. So no, that's fair. I guess my second question is back to private label. Just the performance there has been pretty impressive, it’s getting to a point now where it's a meaningful part of the business. Just curious, as we've maybe seen some modest breaks and inflation here, how are the national brands now responding? Are you seeing them come back to the table given the success you guys have had in private label and come back with more compelling offerings from a price or a promo basis? Or are they kind of just accepting the shift that's taking place inside your grocery business?

Well, I think first, I think they started to moderate on the price increases that they're passing on to us. And so I think some of that is a reflection of just inflation overall starting to subside. Some of it is a reflection of the fact that our private brand mix has grown continuously. And we have really good relationships with our major suppliers, and we have great conversations with them about this subject. In some cases, they make some of the private label for us. In other cases, they probably wish we didn't have it. But yes, I think as we continue to have success with it, we continue to challenge each other to find ways to grow the entire pie. Our goal with private label isn't to reduce sales of national brands. Our goal in private label is to meet the needs of consumers that are looking for more affordable high-quality options. And so we seek to offer that to those guests. And at the same time, we do a lot of great work with our national brand suppliers to make sure we're satisfying the needs of those guests as well. And so -- yes, we have good discussions. That's all part of our joint business planning process that we've been implementing for the last few years. And as you can see with our inside sales numbers, it's been pretty successful.

[Operator Instructions] The next question comes from Kelly Bania with BMO Capital Markets. Your line is open.

Good morning. Thanks for taking our questions. And sorry if I missed this, but I was wondering if you could just comment on traffic versus ticket within the in-store comps? And just any color on units versus inflation and mix within the two in-store categories?

Yes, Kelly, if you look at -- if you look at the composition of our same-store sales last quarter, we were up 6.5% in inside same-store, about 6% of that was from price and about 0.5% of that was from traffic. And so we feel really good about the fact that we're generating positive traffic, albeit just a little bit, but it is positive. And we're also seeing that dynamic play out in the first quarter as well with positive traffic. So as the pricing kind of moderates as we cycle over some of that inflationary pressure, we shifted our focus more towards driving traffic, and we're starting to see the benefit of that.

Okay. That's helpful. And I think there was a comment about an expectation to continue seeing a reduction in same-store labor hours. But I was wondering if you could be more specific in terms of the magnitude of further labor hour reductions that are embedded into your 5% to 7% OpEx growth outlook for this coming fiscal year?

Sure, Kelly. Good morning. This is Steve. Our 5% to 7% or plans at the moment for another 1% year-over-year reduction in same-store labor hours. So that be on top of it, it is something that we realized this year. And then obviously, we'd have wage offsetting that, but a 1% same-store labor hour reduction is baked into that 5% to 7% OpEx guidance.

[Operator Instructions] The next question comes from Irene Nattel with RBC Capital Markets. Your line is open.

Thanks and good morning, gentlemen.

Good morning.

Good morning. Just listening to your commentary, it sounds as though you are sort of marginally more cautious on sort of consumer and spending trends and marginally more bullish on the M&A outlook. So I'm wondering if you could just talk a little bit in both those categories about what you're seeing in the stores, a little bit more around trade down behavior other than private label and the initiatives that you have underway for providing value. And then on the other side, just on the M&A, what you're seeing in terms of valuation expectations and, I guess, your volume in the pipeline?

Yes. Sure. Irene, I'll go ahead and start with the consumer. I'll let Steve talk to M&A. With the consumer, I think we all recognize that the economy started to soften a bit and so we started to see some consumer behavior from a more macro perspective. When you look at our consumer base, I'll just remind everybody that a couple of things. One, is about three-quarters of our consumers earn over $50,000 a year. And that's significant in the fact that -- of the geography that we operate in the most expensive state we operate in is ranked 20 seconds in terms of cost of living. And seven of the bottom 10 states are in our geography. So $50,000 goes lot further in our geography than in many others around the country. So with that as a backdrop, what we're seeing from the consumer in our stores is pretty consistent behavior for that group, that three-quarters of the group that are earning $50,000 or more, not any real significant shifts in buying behavior. With the group that's that other 25%, call it, that's earning less than $50,000 a year, we are seeing some shifts certainly shifting more towards private label. Reducing some of discretionary purchases, think lottery and some ice cream novelty, that sort of thing. But they're also shifting those purchases over to more affordable indulgence like candy. We're also starting to see some behavior where they're leaning a little more into our freezer section of buying individual meals and that may be in lieu of going to a QSR occasion as well. So we are seeing a bit of that shifting around the store. But again, our traffic has been positive. So we haven't seen any sort of behavior that would suggest that the consumers not shopping. And this is one of the beauties of our business model. We sell basic needs for people. And so these are things that people have to have. And so they're going to continue to come. They're just made behave a little bit differently. But at this point, it's really been the low-income consumer that's been most impacted.

And Irene, on the M&A side, the pipeline, I think, remains quite robust as we sit here today in terms of the things that we're looking at, we feel good about that. And just a couple of things that are in that mixing bowl. Listen, there's a higher cost of financing for sure, associated with anybody who does a deal, and I think that's generally a good thing for us. I think potentially marginal buyers are sidelined quicker. Certainly, non-strategic buyers have largely been sidelined for many of the potential processes that we're looking at where there's no longer a, kind of, a cost of financing advantage and then they just don't have any synergies to bring to bear. And so I think it's a smaller pool of potential buyers in general, the operating environment for potential sellers still remains tough. It's tough sledding for a lot of these small -- smaller operators, which is rising costs and the need to reinvest in the business and labor dynamics, et cetera, that remains definitely a tailwind for us and generally I think the industry is still working through valuation expectations. There's no doubt that sellers want potential sellers. They want to start with all-time high fuel margins and LTM numbers and 0% financing driven historical multiples, and that's not the world that we're in. And so you have a little bit of standoff at least initially with that. I think that's starting to break a little bit, but there's no doubt there's still some valuation disconnects at the beginning of a lot of the processes we're involved with.

That's really helpful. Thank you. And then just one other question, please, around cheese pricing. You said that you have 43% of this year's needs locked in. Can you tell us at what price? And can you also give us an idea of whether sort of that 43% is time-based or sort of prorated across the year? And what are your plans in terms of locking in pricing given where we are today versus where we were three months ago on pricing?

Well, we watch the prices every day. So this is a big deal to us, obviously. And so if we feel like we can lock in year-over-year deflation as a general matter, that's a pretty attractive entry point for us to be able to do that. The 43%, it is across the whole fiscal year. It's a little bit higher in the first quarter. We're kind of two-thirds or so locked in the third quarter or in the first quarter, I'm sorry, and then it progressively goes down from there. And again, I think, I said we're about low-double-digits, 10% to 15% deflationary in the first quarter based on the amount that we've locked and it probably would be consistent as you go into the later quarters too, but where this trip ultimately settles is still remains to be seen. And so that number can change. But we're certainly in a much better spot coming out of the gate on cheese than we were entering fiscal ‘23.

[Operator Instructions] The next question comes from Chuck Cerankosky with Northcoast Research. Your line is open.

Good morning, everyone. Darren and Steve, can you address shrink in the quarter and the year and whether that's a component of concern in operating the stores?

Yes, Chuck. Shrink is always a concern in our stores and our business. I would say that so far, we have not seen any real shift in shrink versus where we've been historically. And I know there's a lot of talk out in the industry about strength, but we just have not experienced that yet in our stores at this point.

Okay. That's great. In the tobacco category, as we look out for fiscal 2024, that continues to shrink in volume. What is that -- what effect is that having on the gross profit margin?

Well, Chuck, what we've experienced is essentially, kind of, flat sales from a dollar perspective and kind of mid-single-digit erosion in unit volume. And so the pricing that we've been able to pass on has essentially covered the cost increases plus maybe $0.01 or $0.02 a pack. So from a dollar standpoint, it's holding steady, but from a margin rate perspective, it does it does put a little bit of pressure on the grocery and general merch category. I don't know exactly what that impact is, Steve, I don't know if we actually.

We have the math on that. But Chuck, what we've also seen overall in the grocery and general merch category is some margin expansion. And so I think that's -- we've been able to offset any pressure from tobacco by accelerating our private label and working closer with our supplier partners on more margin-accretive activities that just overcome that drag from tobacco.

[Operator Instructions] The next question comes from John Royall with JPMorgan. Your line is open.

Hi, good morning. Thanks for taking my question. So can you talk about the recent volatility on the fuel margin side going from the mid-30s in 4Q. And I think Steve said it jumped to the low-40s in May and then snap back to the low-30s. Can you talk about the drivers of that volatility. It doesn't feel like price has been quite that volatile since the end of April. So any color there would be helpful. Thanks.

Yes. It's just John, that we just had some wholesale cost increases and decreases, and it has been volatile. And then of course, we're not alone in this, there's a competitive set. And so we have to stay competitive with others in the market. And sometimes that overall dynamic between cost increases and competitive pricing posture allows us to make more margin in some situations and less margin than others. And so we've had -- it's probably been a little bit more extreme month-to-month than we would see historically. I would just point you to the last four months, the three months in our last fiscal quarter and then May. Two of those months were in the low-30s, two of those months are low-40s and so typically, the spread is not that much, but I'd say there's nothing unusual in the world that's driving that, just continued competitive activity and wholesale cost fluctuations.

Okay. That's helpful. Thanks, Darren. And then I noticed you had a pretty sizable working capital draw in 4Q. Any color around that and any portion of that that might be reversible in 1Q or later on in the year?

Yes. John, this is Steve. I think from a working capital perspective relative to where we were in the prior year. So a lot of our working capital change is just going to be driven by the price of fuel. So right, as the wholesale value of fuel goes up and a particular period that's going to show up, right, as an increase in inventories for us and it's going to show up as an increase in payables, and then it's going to go the opposite direction. And so the single biggest impact on our working capital change, both in the prior year 12-month period was a big change in the wholesale cost of fuel, and it was the same this year, it just happened to be going in the other direction. There is nothing substantially different happening in the business. We generally, as we add units, our working capital positive, just based on the timing with which we procure fuel and have to pay for fuel and receive credit card payments. And so adding a bunch of units at the very end of the period this year we'll have a differentiating impact on working capital if we add units at a different pace in the prior year as well.

[Operator Instructions] The next question comes from Krisztina Katai with Deutsche Bank. Your line is open.

Good morning. This is Jessica Taylor on for Krisztina. I just wanted to go back to vendors and pricing and just get your thoughts what you're seeing competitively for pricing? Are your competitors looking more -- doing -- taking more pricing actions? And then from the vendor perspective, if you're seeing any within your negotiations and your joint planning, like any indication that your vendors are looking to drive more units and to price accordingly?

Yes, Jessica. From a competitive standpoint, we do see some competitors still continuing to take price. And I would say particularly among the smaller operators that dynamic is not all that different than fuel, where they don't have a lot of levers to pull, so they're pulling the price lever to try to offset higher costs across the board. So we are seeing some of that. From a supplier perspective, it really depends on the type of supplier in the industry and the categories that they're in. I think we're seeing an interesting mix of some suppliers that still believe they have the ability to pass on more price. And so the -- we are seeing a little bit of that. That has certainly moderated from where it was a year ago. We see others, like I mentioned before, in the beer category who are looking to be a little more aggressive this year, and we expect them to be battling over share. And so we're expecting some price off on that category. So a little bit of a mixed bag from that perspective.

And then as a follow-up, I think on the last call, we talked a little bit about pizza a little bit of -- I'm just wondering there if you're seeing any softness in slices or whole pies and how the promotional environment is there. Are you still seeing a lot of promotions from your competitors?

In Pizza, we've done pretty well. Our slices, the units are -- have actually been growing. Whole pies have been a little bit soft from a unit perspective, but we've taken pretty significant pricing in that category. But overall, we're just kind of flat to maybe a little bit negative in that category. So -- and that compares pretty favorably to what we see in our pizza competitive set. We are starting to see some more promotional activity from the major pizza competitors as they all try to get some unit velocity back we're taking a fairly conservative approach on that. We are doing some promotional activity, but we feel like we're line priced pretty competitively in the base case. So we don't have to discount too aggressively. We have more of an everyday low-price approach, and that seems to work pretty well for us.

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

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

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