Good day and welcome to the Ingles Markets Fourth Quarter 2014 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the conference over to the Chief Financial Officer, Ron Freeman. Please go ahead.

Thank you. Good morning, everyone, and welcome to the Ingles Markets 2014 fourth quarter and year-end earnings announcement and conference call. With me today are Robert Ingle II, Chairman and Chief Executive Officer; Tom Outlaw, Vice President of Sales; Jim Lanning, President. Statements on this call include forward-looking statements as defined by and subject to the Safe Harbors created by federal securities laws. Words such as expect, anticipate, intend, plan, likely, goal, seek, believe, and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed on this call. Ingles Markets Incorporated does not undertake and declines any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For a description of factors that could cause actual results to differ materially from that anticipated by forward-looking statements, you are referred to the company's public filings, including the Form 10-K for the fiscal year ended September 27, 2014, that will be filed later this week. In accordance with a longstanding company policy and in recognition of the extremely competitive nature of our industry, this call will not address individual competitors or Ingles' marketing strategies other than what is included in the company's public filings. This morning, I'll provide you with a summary of our fourth quarter and annual results followed by additional comments on each period. After that, we will be pleased to take your questions. Our press release issued this morning is available on our website at www.ingles-markets.com. Our Form 10-K will be filed later. Upon filing, it will be available on the website as well. We're very pleased to report that this was…

[Operator Instructions] We'll take our first question from Damian Witkowski with Gabelli & Company.

Ron, can you talk about when you talk about your core grocery gross margin, it was up 84 basis points in the quarter, how much of that is benefits from the new distribution center and how much is this simply higher-margin categories that you're selling?

There is really three or four factors that are involved here. We do continue to realize some savings out of our distribution center. It's been open for a couple of years now. Inflation has provided a little bit of tailwind that's helped our margin some. Beneficial changes in product mix contributed as well. So we had a lot of factors going our way there.

Putting a number on inflation, what it was in the quarter?

Well, I can tell you the Department of Labor Statistics, the exact impact on our operations is difficult to isolate.

But it is positive obviously and it sounds as though you're able to actually pass most of the higher cost along to your consumer?

Yeah, that's true.

And then on the fuel side, so how many gas stations are you up to now? It was nine out of this year. Obviously the environment for people who sell fuel has been pretty a good one in the third quarter and it probably continues in the fourth quarter. I'm just trying to figure out how much of a positive impact did you get from fuel?

It was a better impact certainly the latter part of this year than it was in the first part of this year. Damian, we operate 83 fuel centers.

I forgot what numbers you disclosed. You haven't disclosed how many cents per gallon you make or how many gallons you can sell.

No, we don't. We deferred the number of stations and the dollar gasoline sales, but that's it.

But obviously Q3 was better this year than a year ago?

Yes.

I know you don't want to talk about individual competitors, but overall would you say the environment remains pretty rational as would be explained by the fact that you're able to pass along majority of the cost? And the reason I ask is I think Kroger on their last call last week talked about Harris Teeter investing more and more in price. We'll not talk about Harris Teeter, but I'm just curious to hear what you're seeing on that front?

Well, again, it's always competitive. And you're right we won't speak about individual competitors. But I will say that that's a fairly rational competitive environment out there right now.

We'll go next to Hale Holden with Barclays.

The upper end of your CapEx guidance for $140 for next year, I was wondering what was included in that or if there was a store opening number you were thinking about?

There is not a store opening number I could give you primarily due to the timing that it takes to get through the entire process. We do have new store projects planned. We'll continue to also add some fuel stations and do a lot of internal improvements, as we've done in the last couple of years.

Are there any updated thoughts on the health of the consumer?

Well, I think with gas prices dropping, the consumer has more money to spend elsewhere, including inside the store. So I think consumer sentiment is pretty good right now.

We'll take a follow-up from Damian Witkowski with Gabelli & Company.

I just wanted to actually follow up on the health of the consumer question. Are you actually seeing benefits already from lower gas prices at defunct?

Yes, we are.

Going back to the CapEx guidance, $100 million to $140 million, I know that there are no new store openings planned for this fiscal year, but you probably will start putting shovel on the ground on some projects. Is there a way to think about how many stores you'll have three, four years out? If it's you feel like 202 today, would you expect to have sort of an average opening at least one a year?

We did have one new store opened right at the end of the year, right before the end of the fiscal year that will really impact '15. It's coming up. We've got three to five and one more that will be opened. So I still don't think you'll see a huge increase in our overall store count, but we do have some new projects going more than we tended to have in the last couple of years. And we're pretty optimistic about that.

You spent a lot over the last few years keeping new stores fresh and replacing and remodeling different things. Any changes to that going forward? I mean do you feel like you're mostly done or is it sort of a continuous cycle?

It's a continuous cycle.

Is there a way to think about how often you can get to remodel a store?

Well, it's really going to depend upon the location and age. I mean we still have stores that are under 40,000 square feet that are a little bit older. We have stores that even though they may be newer, there are some things that we want to do for them to continue to benefit the customer. So we absolutely can't say every x years we're going to do y stores and here's they are. It's a constantly changing model.

We'll take our next question from Kevin Seagraves with Fort Washington Investment Advisors.

I was just trying to understand the change in debt in the fourth quarter. It was a little bit [indiscernible] expecting just given where CapEx and EBITDA came in. Was there working capital change or maybe some stock buyback or something? I was just trying to understand changing debt from 3Q to 4Q.

Sure. Well, you go into the latter part of the year, we do have some extra working capital needs just for extra inventory in stores and extra inventory on the warehouse. And so that's the majority of it. We'll expect to see those levels come back down some once we get through the holiday season.

In general, I think most of you guys invested a little bit in working capital. Is that just a tie-back to the sales growth and the store openings and things like that? I was just to trying to understand big numbers and just trying to understand kind of what drives that year-to-year.

Sure. The main thing is it's going to track our sales growth. Starting back in 2012 when we expanded our distribution capabilities, we did take on more inventory, our sales that we had been getting from the third party. So that kind of increased the working capital need there. You'll always have the seasonality when you go through the holidays, but that's going to be the big driver. But you're right, it's not a huge change one way or the other.

Can you talk about next year in terms of cash taxes? How to kind of think about that? Are there percentage profits we should think about or a number overall you can talk about in terms of cash taxes?

Well, I really can't. One of the things they're considering right now is going back and retroactively allowing bonus depreciation for this past year. And if that passes and gets implemented, that can have a huge impact on our cash taxes and again just given what we do in capital expenditures. So until they get some things like that resolved, it's really difficult to say.

At this time, there are no additional questions in the queue. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Great. Well, thank you. We appreciate everyone joining us today. It's always good to have you take some time and it's good to have some interest in how we're doing. So we wish all of our customers, employees and shareholders a happy and safe holiday season. Thank you very much.

That concludes today's conference. We appreciate your participation.