Good day and thank you for standing by. Welcome to the Q3 Fiscal Year 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 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 of Investor Relations and Business Development. Please go ahead.

Good morning and thank you for joining us to discuss the results from our third quarter ended January 31, 2025. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; as well as Steve Bramlage, Chief Financial Officer. Before we begin, I will 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 in this call as well as detailed breakdown of the operating expense increase for the third quarter can be found at our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our third quarter results. Darren?

Thanks, Brian, and good morning, everyone. We're excited to discuss the excellent third quarter results in a moment. Before I do, I want to thank the entire Casey's team for delivering another outstanding quarter. I'd also like to highlight our Feeding America campaign that kicked off in late February in partnership with Celsius. Through April 1st, we're excited to be able to help communities in need, including rural areas in Casey's Country, combat hunger and food insecurity. Now let's get into the results from the quarter. Diluted EPS finished at $2.33 per share and net income was $87 million, both flat with the prior year. EBITDA was up -- was $242 million, up 11% from the prior year. Inside sales were up over 15% and fuel gallons sold were up over 20% while our store count growth was up 10% versus the prior year, an encouraging sign that the economic impact of the stores we are building and buying is greater than the company average. Inside the store, prepared food innovation was also a key driver of strong performance. With regards to fuel, the team managed to outperform the geographic market and grow same-store gallons with fuel margins over $0.36 per gallon. The business continues to execute on our three-year strategic plan as we are growing the food business, accelerating unit growth, all while operating the stores more efficiently. 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 3.7% for the quarter or 8% on a two-year stack basis with an average margin of 40.9%. Same-store prepared food and dispensed beverage led the way as sales were up 4.7% or 12.6% on a two-year stack basis, with an average margin of 57.8%. Hot sandwiches…

Thank you, Darren, and good morning. I'm very proud of the hard work of our team during the quarter as we integrated the largest transaction in the company's history, while also producing outstanding results. Total revenue for the quarter was $3.9 billion, an increase of $574 million or 17.3% from the prior year due to outstanding results in both inside sales and fuel gallons sold, partially offset by a 4.2% decline in the retail fuel price. Results were also favorably impacted by operating approximately 10% more stores on a year-over-year basis. Total inside sales for the quarter were $1.4 billion, an increase of $185 million or 15.3% from the prior year. For the quarter, over $100 million of the increase was attributable to the CEFCO stores. Prepared food and dispensed beverage sales rose by $48 million to $397 million or an increase of 13.7%, and grocery and general merchandise sales increased by $138 million to $1 billion, an increase of 15.9%. Retail fuel sales were up $315 million in the quarter, driven primarily by a 20.4% increase in fuel gallons sold. The CEFCO stores contributed just over 100 million gallons a quarter. This was partially offset by a $0.12 decline in the retail price of fuel from $2.98 per gallon in the prior year to $2.85 per gallon in the third quarter. We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $913 million in the quarter, that's an increase of $126 million or 16% from the prior year. This is driven by both higher inside gross profit of $71.6 million or 14.3% and higher fuel gross profit of $44.8 million or 17.4%. Inside gross profit margin was 40.9%. That's down 40 basis points from a year ago. Prepared…

All right. Thanks, Steve. I'd like to again thank the entire Casey's team, including our new team members from Fikes, for another excellent quarter. I'm also very proud of the team's ability to integrate the largest transaction in the company's history while also producing outstanding financial results. The first pillar of our three-year strategic plan is to accelerate the food business. Our Prepared Food and Dispensed Beverage team continues to do an excellent job innovating and finding the right quality products to serve to our guests. The hot sandwiches launched last year have continued to perform very well. We also had a limited release of new chicken wings and fries in our Des Moines market with encouraging results so far. On the grocery and general merchandise side, we continue to see strength in the energy drink category, as we mentioned earlier, with 18% growth in the quarter. Our store growth pillar was on full display this quarter, integrating the Fikes transaction. Our dedicated integration team has done an excellent job getting our newest team members comfortable operating in the Casey system. We're able to do this while maintaining a strong balance sheet. As of January 31st, we set a 2.1 times leverage ratio and are quickly on our way to the targeted 2 times leverage ratio. Given our track record of executing and integrating meaningful acquisitions, we are well-positioned to continue this strategy and enhance shareholder value. Enhancing operational efficiency is the third pillar of the strategic plan. With strong work from our continuous improvement in operations teams, the organization achieved its 11th consecutive quarter of reduced same-store labor hours. This work has been done without compromising the Casey's experience, and we continue to see guests and team member satisfaction scores rise. Overall, this quarter was another great example of how our differentiated business model, coupled with a great team, leads to outstanding results. With a high level of execution on our strategic plan, we are able to guide to EBITDA growth of approximately 11%, outpacing our standard growth algorithm. We'll now take your questions.

[Operator Instructions] Our first question will be coming from Jacob Aiken-Phillips of Melius Research. Your line is open, Jacob.

Hi, everyone. First, I want to ask something, I guess, more broad, strategic. Both of you joined in like 2019, 2020, and you've overseen the company through like some volatile times, pandemic, inflation. But now we're up against kind of a volatile policy backdrop, tariffs, maybe some accelerating inflation. So just wondering if you could talk about like how Casey has set up things that have changed over the past four years or five years and why you're confident that Casey can operate in this potentially volatile environment?

Hey, Jacob, this is Darren. Yeah, you're right, I started in the middle of 2019 and so -- and then Steve started a year later. And so yeah, we've got to see quite a bit over the last few years. And I guess what I would tell you is that the company we started in five years or six years ago is very different than the company we have today. We've added a lot of different capabilities, whether it's in our procurement function, data and analytics, guest insights, our culinary team, continuous improvement, we just have a whole suite of capabilities that we simply didn't have several years ago. And so, as I look at this particular environment with some uncertainty and a bit of volatility, I feel far more confident now than I ever was before in our ability to deal with those things just because we have a more tenured team, we have more sophisticated capabilities, we have better technology. And so, I just feel like we're better equipped to deal with whatever comes our way. And so far, what we're seeing is a lot of uncertainty, but we haven't seen a lot of concrete impacts to the business either based on all the noise out there in the world. So, I feel like we're in a much better position to deal with whatever comes.

I would probably add to that, Jacob, you put all of that on top of just the resiliency of our core business model, right? Casey's was successful for a long time before any of the current members of leadership team got here, through all kinds of external environments. And the beauty of our business model is we're not dependent on a particular set of exogenous factors going our way, whether it's in petroleum or health of consumer. We've got a differentiated value proposition inside the store when times are tough for a consumer. We've got outstanding fuel capabilities, much more sophisticated than most of the people that we compete against with on a day-to-day basis. And the merchandising offering that we have inside the store we feel is second to none. And so almost irrespective of what's happening outside of our four walls, we feel like we have something that differentiates us from anybody else in the space.

And then I guess just as a follow up on Fikes. It was known that it was going to be dilutive to margins. So I guess mainly from prepared food, what are the, like, easy things to fix? Is it just a factor of different product mix? And what are the timelines to like kind of helping those stores improve on their margins?

Yeah, well, nothing's easy to fix. I guess what I would say is, you know what, if you look at the prepared food side of their business, that's probably where the most glaring difference in the margin profile between where they are today and where we are. Some of that is due simply to product mix and what they sell. What they sell in their food business is a little more protein heavy, which tends to come with a little bit lower margin profile, where we sell a lot of pizza, which has a much higher margin profile. So some of the fix, so to speak, will be when we ultimately get kitchens in those stores and we can get our assortment of products in to complement theirs. So we'll add pizza to their assortment. And what's really encouraging right now is we've converted three stores pretty quickly that already had kitchens in them. And we've kind of taken a best of both approach to the assortment, where we've kept some of the things that really made them successful, we added some of the things that make us who we are, primarily pizza. And we have the best of both. And then we both eliminated some of the things that weren't as profitable for them. And so what we're seeing is really good results so far. Granted, it's only three stores, it's early days, but we really think that as we get further into it and we're able to optimize that menu between what they did really well and what we do really well, we'll see not only increased margins, but we'll see increased velocities as well. And then of course, over time, as their existing supplier contracts come to an end, we'll be able to migrate them over onto our contracts with far more scale. And so we'll be able to blend that margin up as well.

One moment for our next question. Our next question will be coming from Anthony Bonadio of Wells Fargo. Your line is open, Anthony.

Yeah. Hey, good morning, guys. Thanks for taking our questions.

Good morning.

So, just digging in on Fikes a little bit more. Can you just maybe talk a little bit more about early performance from that asset? How the integration is going? And then any change to how you're thinking about the cadence and magnitude of synergies.

Yeah, I'll talk a little bit about performance thus far. I'll let Steve talk about cadence of synergies, but performance overall, I mean we're pretty happy. We're only one quarter into it, right? And, unfortunately, that first quarter was in the winter time and they got a lot of snow in Texas and in the panhandle of Florida, which doesn't happen a whole heck of a lot. So probably not as representative of what the normal business performs like. But aside from that, I think it's exactly what we thought we bought. We've got some really high quality, high volume stores in attractive geographies. And like I mentioned before, early indications are that when we combine our assortment and doing the things that, that we each do well, we get some pretty good results. So we feel really good about the deal so far. The team seems to be integrating very nicely and we got a lot of work to do still, but feel good about that so far. And again, the real synergies for us start to happen as we converge sources. Steve, I'll let you.

Yeah, just to reiterate, our expectations on synergy capture have not changed. So over three to four years, we think we can achieve $45 million of synergies. 40% of that or so would be the food synergy capture that Darren referenced. And so that'll be on the back end of that three to four year time period just because that's associated with some construction and remodeling or lead times to get that to work. And so certainly in the first 12 months you would expect us to capture some fuel pricing synergy where we've taken over the pricing of fuel already and starting to convert that more to how Casey's mothership would do that. And then there'll be some overhead synergies, obviously as we work through the rationalization of some of the processes that Fikes had been doing previously. In the middle of that, we'll get some merchandise synergies for our center of store mix. But again, most of what will happen in the next 12 months would be on the fuel and the overhead side.

Got it. That's really helpful. And then just on the gallon side, you guys put up a really strong fuel gallon quarter while we've generally seen pretty choppy industry data and results from others. So, can you just talk a little bit more about what you think is driving that outperformance? And then just maybe your latest thinking on the right balance between gallon growth and margin as you look to optimize gross profit dollars.

Yeah, Anthony, I would say that there are two factors that really drove the gallon performance in this quarter. Some of it is some of the acquisition stores that we did in prior years, they're starting to ramp. And so as we cycle over some softer numbers, when we bought those stores, now we're starting to see our fuel capabilities come to bear on those stores and we're seeing some strong gallon growth in those areas. The other area that we started to see some traction in is on diesel and that's been a subcategory that's been under some pressure for the last several quarters, but started to gain some traction in the most recent quarter, both on the commercial side and through some of the programs that we have to offer incremental value to that over the road diesel consumer. So we saw strength in both of those areas and that really contributed to the overall gallon performance.

And one moment for our next question. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open, Bonnie.

All right. Thank you. Good morning.

Good morning.

I wanted to ask about just the fears of recession right now seem to be gaining some momentum recently. So just hoping you could touch on how your business model and value proposition might position you hopefully well in the case of a recessionary environment. And along those lines, have you become more aggressive on your food and beverage promotions recently, given the increased promotional intensity we're seeing at some of the QSRs? Any broader commentary on the consumer, your recessionary playbook and promotional levels would be helpful. Thanks.

Okay, sure. Bonnie, I think that was five questions, but I'll try to tackle them. Going into recessions, if we end up in one, Casey's, for a long time, has performed very well during recessionary times. And I think that's for a couple of reasons. One is that we sell basic daily needs that people need. They're low dollar denominations. So in the grand scheme of things, when people have to pull back on discretionary spending, a lot of what we sell would be considered by our guests to be non-discretionary. And because there tends to be a lower price point, it isn't the first thing to cut on the list because these are daily needs. That being point number one. Point number two is on our food proposition. We are generally speaking lower price than an equivalent QSR alternative. And so as consumers start to look for value, we're a great trade-down opportunity from a price perspective, but not a trade-down in quality. So I think consumers feel really good about being able to stretch their dollars with us on the food side. With respect to being more promotional, we have not increased our promotional activity. We have been more targeted with that. We've got some new capabilities now, where we're able to more efficiently look at different consumers and what their purchasing habits have been, and where we see that they may be lapsed, we can target them with more specific offers. So we're not spending more from a promotional standpoint, but we're being far more targeted in how we do that.

All right. Thank you.

And one moment for our next question. Our next question will be coming from Mike Montani of Evercore ISI. Your line is open, Mike.

Hey, good morning, guys. Thanks for taking the question. Congrats on the quarter.

Good morning. Thanks.

Thanks. So, just had a two-parter here. The first one was just in terms of a high-level. Maybe if you could talk a little bit about the state of the consumer through your eyes. And secondly, like the value gap positioning that you see versus peers, given some of the promotional activity from some of the other dining options that may exist out there.

Yeah. Sure, Mike. From a consumer standpoint, I think similar to others, we've seen a little bit of pressure on the lower-income consumer. But what I would say is that consumer, and I'll remind you that for those -- we consider a low-income consumer, someone who makes less than $50,000 a year. We only have about 25% of our guest spaces in that category. So we're not overly exposed in the base case. They are still purchasing. We still see positive growth from those consumers. It's just not at the same rate that we see in the other income cohorts. So they're still buying just not as much as some of the other cohorts. Typically about 100 basis points to 300 basis points softer. And it's more in some of those, I guess, maybe more discretionary items like tobacco and alcohol where we see a little bit of softness there. But that's really from the consumer side. And with respect to value, like I said, I think we're still in a good spot from a value proposition standpoint. When we look at our pizza business, on the one hand, only about half of our stores even have a national brand competitor in their trade area. So we don't really have to go head-to-head with somebody that might be a little more promotional in about half of our stores. And the other half where we do have that national brand competitor, we typically are $1 or more below on a typical menu price versus those competitors. So we already start off at a competitive value relative to them. And then we do some promotional activity, they do some. So we feel like we're always competitive. And like I said before, we're able to more -- get more specific and targeted with our rewards members and really be more efficient with our promotional spend.

And one moment for our next question. Our next question will be coming from Bobby Griffin of Raymond James. Your line is open, Bobby.

Hey, guys, good morning. Thanks for taking my questions, and congrats on a good quarter. So I guess, Darren, I want to circle back on February and just kind of ask in the sense of obviously, there's a lot of anxiety on consumer spending from investors and different things like that. But when you kind of ex out the weather or look into regions of your business that might not have been impacted quite as much on a year-over-year basis, is there anything you can share to kind of give comfort that this really was a weather impact around February? Any data or anything like that?

Yeah, Bobby, I don't have specific numbers to share with you on that other than just say, February was a tough weather month. And I can tell you when the temperature difference is 50 or 60 degrees, little colder than the prior year, I mean, you see it in the numbers. And what gives me confidence about this, Bobby, is that when the weather starts to normalize, when even gets back to parity, it doesn't have to be good weather, just has to be comparable weather. We see the business respond accordingly, and we see the growth again. So if I wasn't seeing that, I would have other concerns, but it is -- it has strictly been tied to those weather events where we have a normal -- unusual amount of snow where we've had to shut down some stores, or just like I mentioned before, those extreme temperature variations. So I don't have any concern that there's a more fundamental issue with the consumer because they bounce back as soon as the weather clears up.

Very helpful. And then maybe just on the coffee promotion, as well as the wing test, just anything more you can share on that? In particular, how they win and is something -- I know coffee has been a category you guys have talked about maybe being able to do a little better in and kind of pushing. Is that something that was successful and that might continue going forward?

Yeah. On the coffee side, it's still a little bit early, but we did see some good results. We saw the -- a shift to having positive unit growth in that category for the first time in years. And really, that was assortment-driven. We've got a new supplier, a little more sophisticated on the quality of the product. We did a lot of development and testing on that one. So we think we've got the assortment right. Coffee is a tough habit to get people to change. And so, we got probably a little more aggressive on the promotional side than we normally would. Gave away about 2 million cups of coffee in January, and that -- hence the impact to the margin a little bit on prepared foods. But overall, this is -- we're playing the long game here with coffee. So we like the results so far, but it's going to be work over a pretty protracted period of time to really gain traction in that business. On the wing side, again, early days, we just have -- did a soft launch in the Des Moines market in January and then started to advertise in February. We're very pleased with the results so far, really high satisfaction scores from the guests. So we feel confident that we've got the product right. We're still working through some operational kinks, as you would expect when you test things, but feel really good about this. And what we're seeing so far is that this isn't really cannibalizing the pizza business. This is actually contributing an incremental -- call it, an incremental night per week or an incremental visit from our guests, which is exactly what the goal was. So, so far, so good. Again, more work to do, but feel good about it in the early stages.

Thank you. And one moment for our next question. Our next question comes from Krisztina Katai of Deutsche Bank. Krisztina, your line is open.

Hi, good morning. Congrats on a nice quarter. So I had a question.

Good morning.

Yeah, good morning. So a question on prepared foods. Darren, you noted that innovation is driving the results there. So I was wondering if you can help contextualize for us how innovation is indeed driving that market share as it relates to bakery, hot sandwiches, et cetera. Where do you see the greatest untapped opportunity, whether that is a broader wings rollout? And we understand February has unique noise, but it sounds like March has bounced back. Is that a fair take? Thank you.

Yeah. As you know, Krisztina, the innovation really has been the bigger driver of our growth versus the promotional activity, and we do both. But whenever we get that innovation right, that's when we really see the outsized growth. And you mentioned it in the hot sandwiches, we launched that platform a year ago, and we're cycling over it with still double-digit increases in it. And so it really goes to show when you get the level of the quality right and with some unique twist to it, we start to see some growth. In our specialty pizza business this last quarter, we had the Italian Deli Pizza, and we saw really strong growth in that specialty pizza subcategory overall. So that's always been the case for us. When we innovate, we win. On the bakery side, we've had real strength in the dessert subcategory, primarily cookies. And the bakery team has done a great job in terms of innovating and coming up with limited time, unique cookie SKUs that really resonate with our guests. And so that innovation has really taken hold. I'm sorry, you had asked another part of that question.

Yeah, just it sounds like you said that as the weather essentially turned, it started to bounce back. So is that a -- is it a fair take to say that March is seeing sort of normalized level of inside comp growth?

I'd say March is seeing that level of growth when the weather cooperates. The -- probably the first week of March didn't look a heck of a lot different than the last couple weeks or two of February, but we're starting to see that weather turn around. And again, like I mentioned, when the weather turns, the sales turnaround with it. So we still have a little bit of room to go in the fourth quarter, but if we get back to normal weather comps, I'm confident that the sales performance will follow.

And one moment for our next question. Our next question will be coming from Kelly Bania of BMO Capital Markets. Kelly, your line is open.

Good morning. Thanks for taking our questions. Wanted to just circle back on Fikes. You gave several of the figures, but just curious how much EBITDA the acquisition of Fikes added to the quarter and how much it's contributing to the 11% EBITDA growth forecast for the year. And if anything has changed on that front, whether it's the performance of the business or just timing of integration activities, just an update on that.

Yeah. Hey, good morning. Kelly, this is Steve. In the quarter, Fikes it was EBITDA dilutive to us. It was a negative number and that was primarily because of the $13 million of integration-related expenses. So, prior to those costs, it was positive EBITDA, but it was net negative when you added in all of the integration and one-time costs. It will be modestly positive EBITDA in the fourth quarter. Again, that's going to be influenced. We'll still have a couple million dollars of integration-related costs for sure. Some of it's sliding out from the third into the fourth. Some of it's just normal course spending. But -- so, it'll become EBITDA positive as we expected it to be in the fourth quarter, but it'll still be a relatively small number. And so if Fikes per se is not a large contributor at all in the second half of the year to us increasing the total EBITDA expectation, that's a mothership phenomenon.

Okay, that's very helpful. And on fuel, you talked a little bit about the factors driving the strong same-store gallons, but I was just wondering if you can talk about how Casey markets, kind of legacy markets performed from a fuel margin standpoint because we were expecting maybe a little bit of dilution from the Fikes' CPG margins just given their regions and where they operate. But just kind of curious what more of a same-store Casey fuel margin looks like? And just what your take on just the performance of fuel margins is today, and when we could maybe start to see those up year-over-year.

Yeah, maybe we'll -- maybe Darren and I'll tag team that one. I'll just start with clarifying on the margin standpoint. So the company produced $0.36 -- almost $0.365 CPG. That's a consolidated number. And so, mothership Casey's would have been almost 0.02 higher than that. So call it a little over $0.38. And then the Fikes' geography, as you hinted at, blends that number down by almost $0.02, $0.02 a share. And I'll let Darren talk about some of that volume stuff.

Yeah, on the volume side, the number that we gave, the 1.8%, that's the same-store number. So that would exclude Fikes because they're obviously not in our same-store panel yet. So that really is the performance of the base business. And again, the factors driving that were cycling over some acquisition activity from the prior year in addition to seeing some recovery in the diesel business.

And one moment for our next question. Next question comes from Chuck Cerankosky of Northcoast Research. Your line is open, Chuck.

Good morning, all. Great quarter. Looking at the wings business, is that at the stage you talked about launching it in Des Moines? I think that was where you said, is it at the decision point where it will become an offering throughout the Casey's footprint?

Yeah, Chuck, we're still early stages there. The team is assessing it. We're still making some tweaks and adjustments. We feel good about what we see so far, but we haven't made that final decision just yet on that platform.

Well, do you have any additional cities where it will be tested?

We don't have any more at this time. The test in the Des Moines area, it is the broader DMA, so it's about 225 stores. So it's a pretty fulsome test both in the metro area and in some of the surrounding smaller towns. We're getting a good look at how this performs both in the -- in a urban environment and in a very much a rural environment. But more to come on that one, Chuck.

Thank you. Our next question will be coming from John Royall of JPMorgan. John, your line is open.

Hi, good morning. Thanks for taking my question. So my first question is a strategic question, and appreciating that your very early days in the Fikes acquisition and the integration will take some time. But as you think through your next legs of growth longer term, you do have this white space in Texas where you're essentially a new entrant. Is it safe to assume that that's your best opportunity to grow from here? And if so, how should we think about NTIs versus acquisitions as it pertains to that opportunity?

Yeah, John, certainly we have a lot of room to grow in Texas. We now have 170 stores there, between 150 there in Fikes and then the 22 we bought last year from Lone Star. So we have tremendous space there. But if I take a step back with our 2,900 stores now, roughly, 2,000 of those stores are in only six states we operate in. We still have a lot of white space on the eastern edge of our footprint. So Michigan, we have three stores open. Ohio, Kentucky, Tennessee, we're just barely getting started. So yes, Texas certainly does present a great opportunity for much more growth. But we also have that same type of opportunity in the number of states we operate in. I guess that'd be point number one. Number two, we don't -- we approach every fiscal year kind of going in with the assumption that our growth target is going to be half from NTI and half from acquisition being the small deal M&A type of stuff. Now, over the last couple of years as deal flow has evolved, it's skewed much heavier on the acquisition side versus the NTI side. But we continue to go out and find real estate and land bank those sites, so that if the deal flow starts to slow a little bit on the M&A side, we have the pipeline to support it from an NTI standpoint and can continue on our growth algorithm. So that's really how we approach it. We don't have a bias one way or the other. We just approach it as a balance. And then as things evolve, we shift and adjust to make sure we can keep that ratable growth that people are looking for.

Very helpful. Thank you. And then just a quick follow up on labor hours. Can you talk about how much runway you think there is to continue to take out same store labor hours? And just what inning you think you're in in terms of getting those hours down to where you'd like to operate them?

Yeah, when we started a couple of years ago, almost when we started this current three-year plan, we had committed to take 1% of same-store labors out per year over the three-year period. So we're, call it, two-thirds of the way roughly through that process. Now, we're -- frankly, we're a little bit ahead of schedule too. We've taken out more than that. So we still have some runway for the next fiscal year. We haven't really guided to anything specific on that yet, and we will do that in the next quarter. But yeah, we still think there's some opportunity there, at least for the balance of this three-year strategic plan that we're in right now.

Thank you. And our next question will be coming from Chuck Grom of Gordon Haskett. Your line is open, Chuck.

Hey, good morning. Thanks very much. On the $0.02 drag on the cents per gallon from Fikes, should we think about that wrapping over the next three quarters, or was there something seasonal about this quarter that distorted it? And then on the prepared foods, 150 basis points of a drag, I guess a similar question, how do we think about that wrapping over the next few quarters? In other words, I guess, at what point do you think you can narrow it down to -- so it's been de minimis?

Yeah. Hey, good morning, Chuck. This is Steve. I'll start with that. So, on the CPG, somewhere around $0.02 is probably a good number for the assumption in terms of whatever you had modeled for a traditional Casey's geography, the states that Fikes is active in generally blends in at about $0.02 down. We've only owned it for one quarter, so I want to be a little careful on the seasonality aspect of it. I mean, generally speaking, the Fikes units are larger volume units than an average kind of Casey's in the mothership. They pump more gallons, literally. But I don't have any reason not to tell you, $0.02 is a pretty good number on a prospective basis. Some of our synergies that we expect to capture in that $45 million number will be fuel-related synergies. And so, can we chip away at that delta over time? Yeah, I think we can, but we're not going to gain enough synergies to somehow right-size those geographies back to what our average is. That's not what we're trying to do. On the prepared food side, that's going to be -- listen, we do over time expect to bring the Fikes stores, the majority -- 85% of the Fikes stores that will be converted to a Casey's to a Casey's like prepared food margin profile that will be dependent on the construction timeline where we get new kitchens in. And so, back to an earlier question, it's not going to happen in the next 12 months because of the permitting timeline required. So that will be on more in kind of year three and year four. But ultimately, there's no reason for us not to assume that the Fikes stores will come in line with the prepared food margins of the existing Casey's business.

Okay, great. Thanks, Steve. And then my follow-up just on the macro question everybody seems to be focused on. I guess, a different angle would be when you dissect your basket, are you seeing trade down more people buying fountain drinks? Is there anything to unpack over the past four weeks to six weeks given the environment? Thanks.

Yeah. We have seen some strength in fountain drinks. I will say that, but you know, it's across the spectrum of income cohorts. So I can't necessarily tell you that it's a lower-income consumer indexing higher on that. Actually, it's the higher-income consumers are actually growing the fastest on our dispensed beverages. So, I'm not sure if I can draw any conclusions from that other than they're liking our fountain business. We have seen and continue to see some shifting around the store with candy prices being very high in our bakery program being really robust and some good innovation there. We are seeing people switch over from the candy category into the bakery category, which is a little more affordable and still allows people to get that sweet indulgence that they're looking for. And we like that trade from a margin standpoint. So we'll take that all day long. That's a good one for us. But generally speaking, that's kind of what we're seeing. There's a lot of other mix shifts going on that I don't think have really anything to do with the consumer from a pressure standpoint. What -- and you see this in our grocery and general merchandise margin and how that's been able to grow. The cigarette category, combustible cigarettes is under a lot of pressure. And so that subcategory has been declining. At the same time, nicotine alternatives have been growing at a really fast rate. In the last quarter, our nicotine alternatives were up 74%, while the combustible cigarettes were down right around 4%. So that margin trade is a much better trade for us. So that blends that margin up. And at the same time, the overall category has -- is less of the overall grocery general merchandise mix, and more of that is going to non-alcoholic beverages and grocery, which carries about double the margin rate that the tobacco category does. So you see those shifts going on. And so that's what's allowing us to blend that margin rate up overall in grocery and general merchandise.

And we do have a follow-up question from Mike Montani of Evercore ISI. Mike, your line is open.

Hey, thanks for letting me squeeze this in. Just wanted to ask on the private label front if you could talk about any of the tiering initiatives, how that's going? And then secondly, there's got to be a lot of pressure out there on the independents. So, is there additional opportunities for acquisitions, especially in light of the ability to deleverage you've shown so far?

Yeah, Mike. We are starting to make progress on that tiering is we are literally, as we speak, just getting some of those new products into the stores and we'll see that gradually bleed into the assortment over the next, call it, nine months to 12 months as we wind down some inventories on existing products and ramp-up some of the production on the new products. So we like what we've seen so far, but it's only a handful of SKUs to be honest, and we have a lot more coming over the next several quarters. And then I'm sorry, the M&A environment. Yeah, look, I think you see the same industry data that we do. I think the smaller independent operators are under a lot of pressure right now, and those are the conversations that we continue to have, that is impacting also some of the larger scale players. So we're optimistic that the environment will continue to be favorable to buyers like us, and we're seeing some pretty good deal flows, especially on the smaller stuff. The bigger opportunities are a little more lumpy, but we're -- whenever something comes to market, we're actively engaged in it. And so we like the hand we're holding right now. The balance sheet is in great shape. The team is very experienced at integrating these things. So it's really about finding the right opportunities and at the right price for us.

I would now like to turn the call back to Darren Rebelez for closing remarks.

All right. Thank you for taking the time to join us on the call today, and hope everyone has a great day.

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