Good day, and thank you for standing by. Welcome to the Second Quarter FY 2025 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 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 for our second quarter ended October 31, 2024. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Board Chair, President and Chief Executive Officer; as well as Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to the potential impact of the Fikes transaction, 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 on this call as well as a detailed breakdown of the operating expense increase for the second quarter can be found on our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call to Darren to discuss our second quarter results. Darren?

Thanks, Brian, and good morning, everyone. We're excited to discuss the strong second quarter results in a moment. First, however, I want to thank the Casey's team for delivering another outstanding quarter, in addition to officially welcoming the Fikes team to the Casey's family. Each November we raise funds for two organizations to support veterans and their families, Children of Fallen Patriots and Hope For The Warriors. This year we raised over $1 million thanks to our team members, generous guests and partners at PepsiCo. As a veteran myself, I'm personally grateful for the engagement and response this campaign draws each year. Thank you for helping veterans when you shop at Casey's. Now let's discuss the results from the quarter. Diluted earnings per share finished at $4.85 per share, net income was $181 million, and EBITDA was $349 million. All of these metrics were up 14% from the prior year. Our second quarter results were an excellent example of the strength of Casey's differentiated business model. We were again able to expand gross profit dollars while simultaneously controlling operating expenses. Inside the store, innovation in prepared food continued to drive strong performance, while the grocery and general merchandise category was a primary driver of margin expansion. On the fuel side, the team is doing an excellent job balancing volume and margin with fuel margins over $0.40 per gallon while outperforming the geographic market in same-store fuel gallons. As we discussed at our Analyst Day in October, we are very confident in our ability to execute on our three-year strategic plan and is showing up in the results both inside and outside the store. I would now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 4% for…

Thanks, Darren. Good morning. I'm very proud of the hard work of our team during the quarter. We're now halfway through our three-year strategic plan, and we are carrying tremendous momentum into the second half of it. Total revenue for the quarter was $3.9 billion, a decrease of $118 million or 2.9% from the prior year. And that's due primarily to a 14.1% decline in the retail price of fuel, which was nearly offset by higher inside sales as well as higher fuel gallons sold. Results were also favorably impacted by operating approximately 4% more stores on a year-over-year basis. Total inside sales for the quarter were $1.47 billion, an increase of $121 million or 9% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $35 million to $418 million, an increase of 9.2%, and grocery and general merchandise sales increased by $85 million to $1.05 billion, which is an increase of 8.8%. Retail fuel sales were down $232 million in the quarter, driven primarily by a $0.51 decline in the retail price of fuel from $3.62 per gallon in the prior year to $3.11 per gallon in the second quarter. This was partially offset by a 6% increase in total fuel gallons sold as our newer units tend to sell more fuel than a chain average. We define gross profit as revenues, less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $959 million in the quarter. That's an increase of $73 million or 8.2% from the prior year. This is driven primarily by higher inside gross profit of $66.4 million or 12%, while fuel gross profit was higher by $3.4 million or 1.1%. Inside gross profit margin was 42.2% and that's up 110 basis points from the…

Thanks, Steve. I'd like to thank the entire Casey's team for another outstanding quarter and again want to welcome the Fikes team to the Casey's family. We're excited to have you on board and are looking forward to integrating these stores into our network. Our team has done an incredible job executing on the first half of the three-year strategic plan and is looking forward to finishing out the second half strong. Growth is a key pillar of the strategic plan and we're executing on it. Announcing the closing of the largest transaction in the company's history is extremely exciting and right in line with the plan we laid out in June of 2023. We are also committed to maintaining a strong balance sheet and we'll work to delever to our targeted two-times leverage ratio quickly. We believe our ability to execute and integrate acquisitions like these will continue to build shareholder value. Inside the store, we continue to produce excellent results. On the prepared food and dispense beverage side of the business, guests are flocking to our refreshed sandwich lineup as we offer high quality products at a great value. With respect to grocery and channel merchandise, our merchandising team is doing an excellent job identifying the right products and working with our supplier partners to develop effective promotions for our guests. One shining star within the non-alcoholic beverage category remains energy drinks where we had another quarter of over double-digit same-store growth. Overall, we believe our inside offering is a meaningful differentiator in the industry. Enhancing operational efficiencies is the third pillar of the strategic plan. Our continuous improvement team is doing a great job collaborating with store operations to make the organization more efficient. The results are compelling as the second quarter marked the 10th consecutive quarter with a reduction in same-store labor hours. The team has done this with a rigorous process to simplify store operations and get rid of non-value-added work. Sum things up, we've never felt more confident in our team's ability to execute our plan and deliver differentiated results to our shareholders. We'll now take your questions.

Thank you. [Operator Instructions] And our first question comes from Bobby Griffin of Raymond James. Your line is open.

Good morning, everybody. Thanks for taking my questions and congrats on getting the Fikes deal over the finish line.

Thanks.

So, I guess, first for me, I just wanted to kind of dive in a little bit to the grocery and general merchandise margin. Another great quarter. Second quarter in a row over 35%. So, can you maybe talk a little bit more about the puts and takes there? And is this a more structural step up in your view of where the margins in this business, this side of the business could be at, especially with some of the opportunities like we saw out there with the back bar changes coming and some things like that.

Yeah. Bobby, this is Darren. What I'd tell you is I think there's a few things going on in grocery and channel merchandise. Obviously, we've done a great job in just working with supplier partners on joint business planning and that ultimately translates into some impact there. But really the biggest driver is in mix. And what we're seeing kind of across the board is a mix shift to some of the higher margin items that we have in the categories. I'll give you a couple examples. If you take a look at alcohol as an example, the lowest margin subcategory within alcohol is premium beer. And that's been probably the softest of the subcategories within alcohol. Inside of beer though, the fastest growing part of that is imports and super premiums which tend to come with higher margin. If you go to the other subcategories, liquor and wine, those are both growing at about a 10% clip and those have higher margin as well. So, as we continue to accelerate growth in the higher margin areas and the lower margins are kind of hanging in there, you're just seeing that margin shift. And so that was a 200 basis point improvement year-over-year, primarily driven on mix. You go to the other example would be tobacco and again you have a similar dynamic where cigarettes, combustible cigarettes are the lowest margin subcategory within that category and they're declining and have been declining for a number of years. On the flip side, you have nicotine alternatives and vapor which are growing at the fastest pace. In fact, nicotine alternatives are almost triple digit increases and those tend to come with a much higher margin rate. So, we're actually seeing margin rate expansion in tobacco overall, even though you're seeing that decline on combustible cigarettes. And then lastly, our asset protection team has done a really nice job on shrink and we've done a lot of work over the last year or so with exception-based reporting and some other technology to really identify sources of shrink and root those out. So, when you put all that together, that's where you end up with 160 basis point improvement in margin. And so, I would say to your other question on is this structural? I'd say to a large extent it is because that mix shift is continuing to go.

Thank you. That's very helpful. And I guess my final one for me is just on the Fikes deal itself. Is there a seasonality aspect to their EBITDA that we should be aware of? I think just some of the investors, we're doing some quick math on the $89 million that was given when you announced the deal and then kind of back it into what's implied for the guidance change. So, I just want to make sure, is there any seasonality aspect we should be aware of? Is that business still trending around $90-ish million, which in EBITDA as it was when you guys announced the deal?

Yeah. Hey, Bobby. This is Steve. There is some seasonality with Fikes. Yes, it's probably not quite as significant as what we would call the Casey's mothership, just because they're not as far -- they're not as far north as we are, but there's still some seasonality. So, the second half of the year for them is not going to be quite as big as the first half of the year. And that would be consistent with our business on a general rule. And yeah, the LTM $89 million that we had talked about previously, which included some contributions from ramping stores, right, that had not been open. They had about 20 stores or so that were either under construction or had not been open a full year. That's a good number to start with. That's the number we're basing all of our plans, et cetera, on. But just remember that there's some ramping store dynamics in that number.

Absolutely. I appreciate the details and congrats again on a great quarter.

Thanks.

Thank you. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open.

All right. Thank you. Good morning, everyone.

Good morning.

Same-store inside sales guidance of 3% to 5% for the year, which you maintained, I guess at the midpoint this does imply a bit of an acceleration in the second half versus the first half. So, just curious, what will be the drivers of this? And then along those lines, could you maybe touch on how your traffic levels trended in the quarter versus last quarter. And then maybe any color on November and so far in December and again, outlook for traffic for the -- or heading into next year, the rest of your fiscal year. Thanks.

Yeah. Hey, good morning, Bonnie. Steve, I'll start with that. Traffic was positive in the quarter for us. Our November experience, we were right at literally right at 4% inside same-store sales for November. So right in the middle of the range. And so, certainly, we were obviously below the low end of the range in the first quarter on inside same-store sales. So, we're aware of that obviously. But our current thought is, the second quarter was right on the nose in the middle of the range. November, which is the biggest month of the third quarter, is right on the nose in the middle of the range. We feel pretty good about comparability for some of the exogenous stuff on weather and a lot of the initiatives that the team has to launch various programs, et cetera, as we kind of get into the new part of the calendar year. So, it just felt like that range still felt good to us within the range. We are certainly aware of in the fourth quarter that there's the dynamic obviously of lapping the prior year's leap day, but we know that that's in there already. So, it felt like there was no need really to change that range. It feels pretty safe based on what we know kind of year-to-date through November and what we have going forward.

Okay. Can I just clarify something then? I'll pass it on. Just in the context of what you just talked about then, are you seeing any change behavior, consumer behavior, are you seeing any strengthening with the consumer in the context of all of this?

Hey, Bonnie. It's Darren. With respect to the consumer, we're directionally the consumers hanging in there about the same as what we would have talked about last quarter. We're still seeing a little bit of softness on that lower income consumer. But again, we don't have disproportionate exposure to that consumer. For the balance of the consumers, which are about three quarters of them, they're continuing to shop, they're continuing to visit the store at the same frequency, continuing to buy as normal. So, I think getting back to Steve's point this quarter, we're at the midpoint of the guidance. This past month, in November, we were at the midpoint. We think that 3 to 5 is the appropriate range that ultimately we will land on for the year.

Thank you. Our next question comes from Jacob Aiken-Phillips of Melius Research. Your line is open.

Hi. Thanks for the question. I just wanted to go a bit into prepared food and the competitive dynamic there. I'm just wondering what you're seeing in terms of competition with pizza, other QSRs and if you may feel the need to increase like the promotional or invest some of the gross margin there.

Yeah. Jacob, this is Darren. We're keeping an eye on the competition pretty closely and I guess I'd break it into two segments. There's the pizza segment and then there's the rest of the QSRs. With the rest of the QSR, obviously, it's become a much more value-oriented environment. But as we've discussed previously, our value proposition just on a line pricing basis is pretty compelling relative to what a lot of the others are doing. And so, if you think of the sandwich QSR players that have really invested heavily in extreme value, I mean those are typically sandwiches and that sort of thing. And that's where we're seeing the most strength. And so that's more reflective of the innovation and our line pricing value proposition. So, we don't feel the need to have to get any more aggressive than we already are. And those products carry a pretty healthy margin. On the pizza side, I wouldn't say that it's gotten any more competitive than it always is. And we look at our pricing across our geography. And I'd probably remind you that in about half of our stores, we don't even have one of the major pizza competitors. So, we're not under any real pressure at all. From a pricing perspective, in about half of our stores and the other half, we tend to be a $1 to $2 below their standard menu pricing just every day. And then, of course, we layer in a variety of promotional offers via our rewards platform. And so, what you see right now in terms of margin and value proposition is pretty reflective of our normal operating mode. And as long as our sales volume continues to perform like it has been, we don't see the need to get any more aggressive from a value standpoint.

I appreciate that. And then just wondering if you had any updates on the timeline for remodeling [ph] the Fikes stores or for incorporating some of their fuel assets into your upstream capabilities.

Yeah. With respect to the remodeling of stores, that's probably the longest pull in the tent. In terms of the overall integration, that'll take a few years. And first, as we discussed before, they had a pretty successful food program, and obviously we have one as well. And so, we're going to quickly remodel a few stores, integrating those two platforms and really understand how they perform together, so we can really have an informed scope of work to apply to the rest of the chain. And so, there'll be a little bit of work to do there. And then permitting process can take anywhere from 12 to 24 months, depending on the jurisdiction. So, there's a pretty long timeline there. On the fuel side, that integration will happen a little more quickly as we take over pricing and procurement activities and that sort of thing. So, I'd anticipate a little more benefits sooner in the timeline than on the remodel side. But really, you should be thinking three to four years from where we sit here today to the end of that integration process.

Thank you. Our next question comes from Anthony Bonadio of Wells Fargo. Your line is open.

Hey, guys. Nice quarter. So, just wanted to talk a little bit more about guidance. Looks like the back half now implies 8% EBITDA growth, which includes, call it a 4% headwind from one-time cost and that $15 million to $20 million. So, as you guys work through your revision to guidance, I guess has anything fundamentally changed about how you're thinking about the existing Casey's business in the back half? And then any initial thoughts on the fiscal '25 contribution from synergy capture from Fikes. Just trying to better bridge the back half of the year.

Hey, Anthony. Good morning. This is Steve. I'll start on that. Related to kind of mothership assumptions for the second half of the year, I think no, nothing has fundamentally changed. I mean, we tried to acknowledge our OpEx performance is better than we originally guided to. So, the OpEx growth and the Casey's legacy operations is going to be lower than we had originally guided to by 100 basis points or so. And that's even with some incremental incentive compensation. So, I think we feel really good about that. We certainly, to Darren's earlier comment, have seen really good margin performance in the legacy business inside the stores. And so, we would have no reason to think that that's not going to continue as a general rule. And so, I would say it's largely steady as she goes in the mothership. From an income statement perspective, we're making some consciously different decisions on some items that will impact cash flow just to contribute to the speed of deleveraging. And so, we're resequencing some capital spending on new units that we otherwise would have been building. We'll have a little bit lower set of tax payments because of some of the benefits of the deal. So, cash flow I think could be a little higher than we had initially thought it was going to be. And that'll directly get applied to paying off debt associated with the transaction. And as it relates to Fikes, we don't have any specific commentary out on the next fiscal year yet at this point in time. But generally, on synergies from the transaction, if I bucket them, kind of what comes first, et cetera, we would expect to get some fuel synergies very quickly in the game. That's really a function of us taking over and centralizing the pricing and the procurement of fuel that's already underway as we sit here today. A little bit further out will be some SG&A related synergies as some of that work gets consolidated as -- and procurement synergies will come kind of in line with the G&A as we get the advantage of greater scale on a lot of the sourcing side of the business. Ultimately, the real most significant savings will be on the inside of the store as we introduce the pizza into the stores. That is more dependent on the remodel schedule. So that will certainly not be in the next 12 months realistically, but in the second half of this fiscal year it's not going to be a significant number and it is reflected in the guidance that we've given. But just in the next six months, other than a little bit of fuel, I don't think there'll be synergies per se that would move any of the numbers we've given.

Got it. That's super helpful. And then just to follow up on fuel. I guess, just any additional thoughts on how you're thinking about fuel margins in the context of that 10% EBITDA growth? And just to clarify that I believe mid to high 30s, you said Q to date includes the new CEFCO stores. And just any thoughts on how those margins blend in?

Yeah. Listen, we consciously -- we don't guide the fuel margins. Our crystal ball is not any better than anybody else's necessarily. And so, our obviously experience in the quarter is kind of that between the mid and the high 30s. I would expect just the mixing in of the Fikes business, those geographies tend to be a little bit lower margin fuel geographies than what we have. There's probably about a penny or maybe a little bit more than a penny per gallon headwind. Just on the math of mixing in that fuel profitability from Fikes, that would be reflected obviously in our EBITDA expectations for the second half of the year. But we don't have a specific number we're going to guide to for CPG in the second half of the year, just consistent with how we manage the full year expectations.

Thank you. Our next question comes from Michael Montani of Evercore ISI. Your line is open.

Yes. Hey, guys. Congrats on the quarter in getting the Fikes deal completed.

Thanks.

Thanks.

I just wanted to ask on the inside margins, first off, if there's anything to be aware of in terms of timing or headwinds, et cetera, that could kind of impact this improvement that we've seen in grocery and gen merch into the back half of the year. And then secondly, other than cheese spot, any headwinds you'd call out to the prepared food side of the gross margins as well.

Yeah. Michael, this is Darren. On the grocery and general merch side, I wouldn't anticipate any real headwinds. We're not seeing any of that. As we roll over the calendar year, there'll be some cost increases in some categories and we should be able to offset that largely through pricing action. So, I wouldn't anticipate any big shifts there. The mixed evolution is something that I do think will stick. And so, yes, I think that's probably to our benefit on the cheese side. Steve, maybe you can comment on the cheese.

Yeah. Listen, I just wanted one thing to buttress Darren's comment. There's a little bit of seasonality in our normal course product mix on the grocery side, right? In the coldest part of the year, we don't sell as much ice and things that are kind of higher margin products for us. So, I think the third quarter natural mix is probably going to be a little bit dilutive relative to the summer periods of time. And outside of cheese and prepared food, no, I don't think there's anything significant to note. Again, cheese at the moment is a little bit more -- or it's less of a headwind as we sit here today than it was in the second quarter.

Thank you.

Thank you. Our next question comes from Krisztina Katai of Deutsche Bank. Your line is open.

Hi. Good morning, Darren and Steven, and congrats on nice results. So, I wanted to ask on OpEx, but as it relates to the Fikes stores and now that you've owned them for almost a month and a half, I was wondering if you could just discuss your initial assessment on some of the opportunities at these acquired stores. Just how do you see opportunity to implement many of the same labor hours saving initiatives that were so successful at Casey's? And then what could that general timeline look like over the next 18 to 24 months?

Yeah. Krisztina, this is Darren. Yeah. We feel pretty good about that. Fikes has done a great job operating their stores, so I would say they have a good operation generally. But we've learned a lot ourselves over the last couple of years employing a lot of these different techniques and tactics and technologies to impact our OpEx. So, we feel we still have that opportunity to do that in the Fikes stores. That's going to take some time. I wouldn't anticipate a lot of that for the balance of this fiscal year. We're still pulling together that operation overall, but we'll have some more detailed plans as we go into the next fiscal year in terms of how we might approach that and when we might expect to see some of those benefits. But we definitely have the opportunity there, so we feel really good about that.

Got it. That's helpful. And then just a follow up, I was hoping you could talk a little bit more about your joint planning process on the prepared food side of things, which I think is a relatively newer development for you. And then just if you could discuss on the type of benefits you and your vendors look to achieve in the upcoming calendar year. Thank you.

Yeah. You're right. The joint planning process on prepared foods is a little bit newer than it is on the grocery and general merchandise side. But I think what we're seeing more broadly is that we're -- the suppliers that we've used historically are pretty large companies, have a lot of capabilities, and I don't think we were truly tapping into all the capabilities that they could bring to bear to help us improve our business. And so, we're doing a much better job of that. And I think that's starting to yield some results, I would say primarily in the innovation side of the equation. So, most of these ingredient suppliers have pretty sophisticated culinary teams in their own right. And when we partner them with our culinary team, we can really get some great innovation, get some great improvements in quality, and get some improvements in cost at the same time. And so, I think the chicken sandwich platform and really the hot sandwich platform overall is a great example of that. All of the ingredients and components in those sandwiches are new, and those were jointly developed with our culinary team and the culinary team of the ingredient manufacturers to produce a higher quality product at a better cost that allowed us to get the kind of performance we're getting. So, we're going to continue that process with all of our suppliers, and this will be year two of that process that we're wrapping up right now. So, we're pretty optimistic about what's lying ahead for us.

Thank you. [Operator Instructions] Our next question comes from Corey Tarlowe of Jefferies. Your line is open.

Great. Thanks. Darren, two for you and then one for Steve. For Darren, I had -- so you mentioned, I think it was energy drinks where you had seen some nice momentum. I was just curious if you could talk a little bit about what's driving that momentum. And then, I was also curious about the effectiveness of the promotions that you've been doing recently and how that's helped support inside sales. And then for Steve, could you just remind us about what the traditional ramp to maturity is for a new Casey store, and maybe if you could contrast that with Fikes as well. Thank you so much.

Yeah. Corey, this is Darren. Yeah. On the energy drinks, that category is up essentially 13% year-over-year. And I would say that that is a combination of assortment optimization, assortment management, and promotional activity. So, we've got some new products in the assortment. [Indiscernible], new Ghost and C4 are all performing very well. And those are newer entrants into the assortment. Red Bull and Monster on the flip side have been stalwarts in the category and continue to grow and accelerate pace. So, I'd say the growth is really being driven in part by the new items coming into the assortment. And then on the Red Bull and Monster side, less of that and more of some different promotional activities and really execution at the stores. And as a reminder, we self-distribute Monster, which is unique in the industry. And I feel like our execution at store level and our in-stock position as a result of that is a differentiator versus others in the industry. And so, I think that really accrues our benefit and that's part of the equation behind the growth in energy drinks.

On the question on ramping. So, we really don't have a significantly different expectation for ramping. A new to industry build versus an acquisition model. But in terms of returns, of how quickly they generate returns on NTI, we would expect that to be certainly a positive return in the very first year right out of the gate. It should be a double-digit after tax returns by the second year and it should be mature in terms of kind of mid-teens after tax returns on invested capital by the third or fourth year. Our literally decades of history with NTIs would be very supportive of that as a consistent pattern in a newer geography, where the brand is a little bit less recognized and people aren't as familiar with the quality of the pizza specifically, you probably add an extra year to that ramp as a general rule. And that's all about just adoption of prepared foods. For Fikes' stores specifically, they're a little bit different in that -- we're obviously buying an existing business. They've got some very, very busy, high returning stores already. The returns there -- they're not going to be starting at zero because you're buying that existing business. So, you'll get more of a step change as we remodel those stores because you're putting in the pizza business kind of all at once and you're introducing a prepared food business that they just don't have something comparable. So that'll be a little bit different pattern. But back to the return expectations on those stores, right? We'll finish the remodeling of those stores over a three-to-four-year period of time based on permitting timelines. But in the meantime, above unit of the stores, right, the fuel benefits, the procurement benefits, the SG&A benefits, those are going to accrue to kind of Casey's consolidated even if they don't show up on an individual store's P&L necessarily.

Great. Thank you so much.

Thank you. I'm not showing any further questions at this time. I would like to turn it back to Darren Rebelez for closing remarks. End of Q&A:

Okay. Thank you for taking the time today to join us on the call. And before we sign off, I want to once again thank our team members and wish them and everyone on the call a happy holiday season.

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