Caseys General Stores, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 FY 2021 Casey's Journal Stores earnings call. At this time, while participants are on a listen-only mode, after the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to turn the call over to Brian Johnson, Senior VP. You may begin, sir.

Thank you. Good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year end, April 30, 2021. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today is Darren Rebelles, President and Chief Executive Officer, and 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 meanings of the Private Securities Litigation Reform Act of 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, performance at our stores, and the potential effects of COVID-19. 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 Buchanan Energy Acquisition, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of COVID-19 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. Now, I'd like to turn the call over to Darren to discuss the fiscal year results. Darren?

Thanks, Brian, and good morning, everyone. The past 12 months with you have been like no other, and that includes our astounding financial results, which we're pleased to share today. Casey's 2021 fiscal year yielded the strongest results in our 53-year history, and I'm humbled to be the one that gets to share how we delivered this phenomenal performance with you today. I want to begin my comments by personally recognizing the over 40,000 people that make our business go every day. We cannot deliver on our purpose to make the lives of our guests and communities better every day without you. This past year, our team members reflected this passion more than ever, before as they remained dedicated to serving our guests in what was arguably the most challenging environment of our lifetimes. We remain committed to the health and safety of our team members who are on the front lines serving local communities. In addition to the many safety measures and incentive pay we've provided throughout the pandemic, we've recently implemented a wellness bonus for fully vaccinated team members and have seen encouraging results from this effort. Beyond our team, as a difficult school year wrapped up this spring, Casey's Cash for Classrooms grant program announced a $1 million contribution to support projects at local schools in our communities. Students, teachers, and families have a brighter future thanks to the support of Casey's and our generous guests. Now let's discuss the results of this past fiscal year. We finished fiscal 21 with an all-time record diluted EPS of $8.38 a share, an 18% increase from the prior year. The company also finished with an all-time high adjusted EBITDA of $729 million. This is a tremendous accomplishment considering the extreme environment the company has navigated through since the start of the pandemic last March. Fuel profitability was a primary driver as our centralized fuel team helped drive a gross profit increase of nearly 24% while offsetting COVID-driven pressures on gallons sold. We finished the year down 8.1% in same-store gallons sold with an all-time high annual fuel margin of 34.9 cents per gallon. Our merchandise team had to be just as agile as they were forced to react to constantly changing guest needs. Grab-and-go and single-serve items were replaced with larger pack sizes, grocery, and PPE needs, as well as higher demand for beer and alcohol as people began to consume more at home versus restaurants and bars. For the year, same-store inside sales were up 4%, led by a 6.6% same-store increase in grocery and other merchandise. Inside margin dipped slightly from the prior year to 40%, due primarily to a mixed shift to higher pack sizes and lower prepared food sales. Fortunately, we're now seeing recovery in our prepared food and fountain business as the world moves toward abnormal traffic patterns. Guest traffic is rising, and we're seeing a resurgence in pizza slices, dispensed beverages, and bakeries, as our guests return to their normal daily routines. The fact that our prepared food business is such a large part of our mix will create a tailwind after the pandemic that not too many of our peers will enjoy. In addition to navigating through a global pandemic and delivering record financial results, the company also did a great job executing on our long-term strategic plan. As a reminder, the three pillars of our strategic plan are reinventing the guest experience, creating capacity through efficiencies, and being where the guest is via disciplined store growth. All three pillars are supported by an investment in our talent. We've made a significant impact on the guest experience, particularly with respect to digital engagement. Our Casey's Rewards program, launched just prior to the pandemic, now includes more than 3.6 million members and continues to grow. We now have over 700 stores that offer DoorDash delivery service and we just recently launched Uber Eats at another 700 stores. Finally, our private label initiative is off to a great start, capitalizing on the brand equity we have built up for over 50 years. We recently eclipsed 3% of grocery and other merchandise sales, significantly outperforming our goal of 2% for fiscal 21. This past year, we stood up several capabilities that will help our company operate more efficiently. Our third distribution center in Joplin, Missouri is now open and operating, servicing over 600 stores and expected to reduce miles driven by approximately 1.8 million miles per year. Our newly formed and centralized procurement team more effectively leverages our company's scale and utilizes contemporary strategic sourcing tactics to drive savings. We now have a dedicated asset protection team that provides loss prevention support throughout the entire organization. And finally, Our centralized fuel team continues to deliver great results. Our performance excelled relative to the industry volumes and profitability in our geography during an extremely volatile time. And we continue to see tremendous growth opportunities in our business and remain bullish on our commitment to add 345 stores over the next three years. We're well on our way as we just recently closed on the largest acquisition in our company's history. The Buchanan Energy Transaction is a perfect strategic fit and we'll pair our outstanding pizza program with their well-located, high-volume stores. We expect the Circle K acquisition in Oklahoma to be completed, or closed, rather, by the end of June. We also built 40 new stores in fiscal 21, despite pandemic delays. Our two-pronged, balanced approach to store growth via organic builds and acquisitions enables us to be selective and disciplined, which we believe is the most effective way to drive shareholder value, and generate a creative EBITDA in returns on capital investment. We've also made great strides this year in building out the capability and diversity of our leadership team. Some of these new capabilities include technology, procurement, human resources, guest insights, and asset protection. Our leadership team has an effective blend of fresh outside perspective alongside veteran Casey's leadership. This mix of talent has been critical for us to execute on the strategic plan during these unprecedented times. I'd now like to turn the call over to Steve Bramlish to cover the fourth quarter in more detail.

Steve? Thanks, Darren, and good morning. I, too, am pleased to be able to share in reporting some remarkable performance with you today, as I mark my first year with the company. Our team deserves all the credit, and we could not be prouder of the dedication and the agility that they've exhibited this past year. The fourth quarter was really a tale of two quarters. Sales in the first half were muted by extremely cold weather throughout most of February, and same-store comparisons were challenging given the company's strong performance last year right before COVID-19 showed up. As anticipated, our same-store sales comps then came roaring back once we began lapsing the shutdowns from the pandemic. Please note that the prior year had an extra day due to leap year, but given the size of the pandemic's impact, it's not material to year-over-year comparisons. Total revenue for the quarter was $2.4 billion, which is an increase of $565 million, or 31%, from the prior year. This was due to an increase in retail sales of fuel of approximately $445 million driven by an increase in the number of gallons sold and the higher retail price of fuel along with an increase in inside sales of $115 million. Same store fuel gallons sold were up 6.4% compared to the same period a year ago. Total gallons sold were up 10% to 535 million gallons. Our centralized fuel team continues to successfully balance volume and margin as we aim to grow gross profit dollars. Casey's fourth quarter fuel margin was 33 cents per gallon versus 41 cents per gallon in the prior year. The company did not sell any RINs during the quarter. The average retail price of fuel during this period was $2.70 a gallon compared to $2.05 a year ago. Same-store inside sales were up 12.8% for the quarter as guest traffic counts improved compared to the start of the pandemic. Total inside sales rose 14.4% to $913 million. For some additional context, our two-year stacked fourth quarter same-store inside sales growth is 7.2%. Inside margin rose 100 basis points to 39.9%. Leading the increase in the quarter was prepared food and fountain with fourth quarter same-store sales up 13.4%. Grab-and-go items such as pizza slices, dispensed beverages, and bakery rebounded in the fourth quarter as commutes began to return to more normal patterns relative to this time a year ago. Total prepared food and fountain sales were up 14.7% to $264 million with an average margin of 60.1%. Grocery and other merchandise same-store sales were up 12.5% for the quarters. Total grocery and other merchandise sales were up 14.4% to $650 million. Our store resets completed in the third quarter are serving us well. Packaged beverage items such as sports drinks, energy drinks, and bottled water are performing well along with snack items such as chips, meat snacks, and candy. The higher volumes of favorable mix are strategic sourcing initiatives along with the increased penetration of private brands which are now over 3% of the grocery and other merchandise category, helped improve margin to 31.8% for the fourth quarter, which is an improvement of 140 basis points. Casey's had gross profit, which we define as revenue, less cost of goods sold but excluding depreciation and amortization, of $561 million in the fourth quarter, which is an increase of $36 million from the prior year. This is primarily attributable to higher inside gross profit of $54 million, which was offset by a decline of $22 million of fuel gross profit. Total operating expenses were up 16%, or $59 million, to $426 million. Store-level operating expenses, which include things such as labor, maintenance, advertising, and insurance, were up $23 million, due to the fact the stores were largely open at traditional operating hours versus the reduced open times during the pandemic last year. The increase from operating 36 more stores, or about 2% more units, than a year ago is $7 million. The company also incurred $8 million in incremental long-term and short-term incentive compensation costs due to strong financial performance and $8 million of increased credit card fees due to higher sales volume and an increase in the retail price of fuel. Finally, the company incurred an additional $5 million in impairment charges related to equipment upgrades and EMV retrofit compliance costs. Interest expense was down 19% to $11.9 million due primarily to refinancing senior notes that were completed in August. The company also drew $100 million on the line of credit entering the prior year, fourth quarter, as a precautionary measure at the start of the pandemic, which has obviously been repaid. The effective tax rate for the quarter was 22.2% compared to 21% for the prior year due to the reduction in favorable permanent differences offset by a decrease in state tax expense. Net income decreased 32.8% to $41.7 million. Adjusted EBITDA for the quarter was $140.6 million compared to $159 million a year ago, and that's a decline of 11.6%. The decline in both earnings and adjusted EBITDA in the quarter was largely due to the outsized fuel margin a year ago that was brought on by a significant reduction in and the wholesale price of fuel due to both excess supply and a demand shock from COVID-19. Our balance sheet remains very healthy, our financial flexibility is excellent, and we have no material debt maturities coming due until 2025. At April 30th, cash and cash equivalents were $337 million, and our available liquidity was over $800 million. The Buchanan Energy Acquisition closed on May 13th, and that was funded with cash on hand as well as a $300 million bank term loan that matures in January of 2026. At the June quarterly meeting, the Board of Directors voted to pay a dividend in the amount of $0.34 per share. The company had negative free cash flow of $37 million in the fourth quarter, and we defined that cash flow as cash flow from operating activities of $141 million less purchases of property and equipment of $178 million. This compares to positive $30 million in the prior year, and the difference was driven by the timing of our capital spending, primarily new store construction, as the company ramped up construction operations throughout the fiscal year after pausing most activity at the start of the pandemic. Our record year-to-date free cash flow of $363 million continued to be favorably impacted by higher earnings and strong working capital performance due to proactive efforts to extend our payment terms, an increase in fuel prices, and the deferral of FICA payments under the CARES Act. The company opened 40 new-to-industry stores this year and completed the acquisition of five additional stores. Now while the pace of the economic recovery post the pandemic makes it difficult to forecast the next fiscal year, we can provide some modeling information based on what we know right now. We currently expect full year same store sales for both fuel and inside sales to increase by mid single digit percentages. Total operating expenses are expected to increase in the mid team percentages. And that's primarily driven by the fact we will operate approximately 200 more stores during fiscal 2022. That's a 9% increase in our units, as well as additional hours of labor and other operating costs associated with maintaining pre-COVID hours of operations and higher rates of pay that we are experiencing across our entire footprint. These will be partially offset by lower incentive compensation accruals, and COVID-related spending. The Buchanan Energy acquisition is expected to add approximately $45 million of EBITDA in fiscal 22. The acquisition is expected to be accretive to earnings for the fiscal year, but it will be dilutive in the first quarter, as we incur approximately $11 million in one-time acquisition and closing-related costs. The company also expects to incur $4 to $6 million in non-cash tax charges associated with revaluing our existing deferred tax liabilities upon closing as the apportionment of our state tax profitability will change. The acquisition is expected to add approximately 200 million retail gallons and $150 million of inside sales before any synergies. And please keep in mind, these sales estimates are not included in the same store sales outlook mentioned earlier. Depreciation and amortization expense is expected to be approximately $300 million for the year. That includes the Joplin Distribution Center being placed into service, as well as approximately $14 million for the Buchanan Energy transaction, including purchase price amortization. Annual interest expense should be approximately $50 million, and the effective tax rate should be around 26%, and that's inclusive of the discrete charge in the first quarter. The company expects to invest approximately $500 million in the purchase of property and equipment. This amount excludes purchase price for acquisitions, but it does include the capital spent on acquisition remodel projects for both the Buchanan Energy and Circle K acquisitions. Looking specifically to the first quarter, we expect Q1 year-over-year earnings to be lower due to unfavorable fuel margin comparisons, higher operating expenses, as well as the closing costs related to Buchanan Energy. Our same store volumes for fuel gallons and inside sales in the quarter will likely finish up in the high single digits, and we're currently experiencing fuel margins in a low $0.30 range. With that, I'll turn the call back over to Darren.

Thanks, Steve. First, I'd like to congratulate the entire Casey's team again for delivering a record year and impressive results. Their hard work and dedication are going to be called upon once again as we look ahead at the fiscal 22. Casey's is well positioned to not just compete, but to win and accelerate our growth. Why? Because our business model is uniquely positioned to take advantage of this moment, given our strategic plan and specifically the momentum ahead for our differentiated food business, our recent M&A milestones, and the strength of our balance sheet. I couldn't be more excited about the opportunity that awaits Casey's this coming fiscal year. We're seeing positive momentum for our prepared food items, from pizza to bakery and beverages. We expect that trend to continue. Culinary innovation within our prepared food and fountain category will also drive results in fiscal 22. In April, we rolled out a new made-from-scratch cheesy breadstick product that's been a big hit with our guests. What's particularly exciting about this product is that it leverages our made-from-scratch pizza dough that we've been using on our pizza for many years. Our dough is a key differentiator from our competitors, and we'll leverage this strength to springboard other innovation in the not-so-distant future. In addition to elevating our food offerings, the stores have never been more guest-ready in merchandise to deliver product sale volumes and velocity. Resetting our stores has resulted in our in-store experience working even harder for us just in time for peak summer traffic. A key component of that reset was to optimize the placement of our private label products. We've already become the number one brand for packaged bakeries, meat snacks, as well as nuts and seeds within the store. Looking ahead, we plan to double the number of SKUs offered under the Casey's brand to keep the momentum rolling on this initiative. We're listening to and building deeper relationships with our guests to better serve them. Through a new, more robust guest insights and analytics capability, we're growing our knowledge and understanding of our guests, and we'll have greater visibility into our customers' preferences and needs than ever before. With over 3.6 million Casey's Rewards members, we have a captive audience that will enable us to target and effectively communicate promotions that can influence guest behavior. KC's rewards members spend more per transaction than a typical guest. Also, guests who actively redeem promotional offers shop with significantly higher frequency than those who don't. Using loyalty program data allows us to tailor segmented campaigns to our guests that will be even more effective. Finally, given our strong balance sheet, recently completed job and distribution center, and macroeconomic pressures that smaller operators may have difficulty navigating through, I'm very bullish on our ability to grow our store count. Our dedicated M&A team is making considerable outreach, and given the likely changing tax environment, the timing might be right for those operators to exit the industry. We'll be ready to assist them when the time is right to transition their business, and we believe we're excellent stewards of their businesses as we add our prepared foods to their stores. In closing, as you can see, I'm very proud of our team's performance and remain extremely optimistic for our company's immediate and long-term future. Of course, none of this would be possible without our 40,000 team members who are out there working extremely hard every day to serve our guests and each other and the communities. Thank you for all you do for Casey's. We'll now take your questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. And we also ask that you limit yourself to one question and one follow-up. Our first question comes from Karen Short with Barclays.

I just want to clarify, in terms of your core to date commentary on gallons and in-store comps, just to clarify, is that where you're trending today? And then I had a bigger picture question.

No, that's where we expect to land for the entire quarter. We're actually a little ahead of that quarter to date today, and that's a function of just the timing in the prior year of the shutdowns and the reopening. So the shutdowns were more significant at the beginning of the first quarter last year, and it's a little easier comp. So that number that we gave is where we expect to land for the first quarter.

So I guess I just want to talk a little bit about the mid-teen commentary on OpEx. So obviously you pointed out, I'm assuming in rank order, what the contributing factors are on the mid-teen guidance for growth. But I guess, you know, obviously you have an algorithm of EBITDA of 8% to 10% growth. And with this comp guidance and your OpEx guidance, we're getting to kind of mid-single-digit, high-single-digit decline in EBITDA for the year. So I'm wondering if you could kind of parse that out a little bit more, because it doesn't seem like you should be getting higher sales growth, I guess, for the OpEx that you're guiding to.

I'll maybe start with that. So there's a couple things embedded in there, Karen. So the easiest way, I'll do OpEx first. The easiest way for me to think about the components of the OPEX is, you know, we're going to get 9% more units coming in with that approximately 200 stores, and 75% of those units are going to come in essentially now, right? We've already closed Buchanan. We're closing Circle K this month. So that's coming in in the early first quarter essentially fully loaded, and so that's a big component of that increase. And so if that's you know, if you're doing a little bit of averaging on the rest of the units, seven to nine percent of the increase is just the timing of the new units coming in, and that leaves you, you know, somewhere seven, eight percent for the rest of the OPEX on what we would call the mothership. And if you go back to the fact we will definitely have more hours in the system because of the way we're scheduling this year versus COVID, and you've got rising wages you actually have OPEX going up somewhere in that mid to low-high single-digit number, which is not terribly far off from where our medium-term algorithm would have us to be. And we have not obviously made any comments specifically around EBITDA expectations. Clearly, the acquisitions are bringing incremental EBITDA associated with them. But our commitment to that You know, 8% to 10% EBITDA growth over the medium term is we are fully aligned behind that. I think we feel very, very good about our ability to achieve that. We just happen to have a pretty big slug of acquisition-related operating expense coming into the system all at the same time in this fiscal year.

Okay, but just to clarify on the wages, I think you typically talked about kind of 5% being the standard pressure year in, year out. Has that changed into this year, or is that still the right kind of number to think about?

I think we'll have higher than that this year. I think we're currently running about 100 basis points or so higher than that number with our current forecast we're dealing with. the same dynamic that you're reading about in the paper for all retailers. There's clearly labor pressure in terms of both availability and wage rates in the system. So that would be reflective of what we know today, and, yeah, I think it's a touch higher than what we've had in the last year or two for sure.

Okay. Thanks very much. I'll get back in the queue. Our next question comes from Bonnie Herzog with Goldman Sachs.

Thank you. Good morning, everyone. I guess I had a question this morning on your prepared foods, same-store sales. It ended up much stronger in the quarter than it was trending early on, where I think your trends were actually negative. So could you share how each of the months in the quarter maybe for us were trending and really when things turned positive, resulting in sales being up 13.4%? And then if you could provide how this business has been trending so far in May and early June, I think that would be really helpful. And curious also to hear how consumer behavior has evolved in the last couple of months, especially with vaccine counts increasing. Has conversion been increasing a lot? And what about basket sizes and maybe some comments on shopping hours? Thank you.

Yeah, Bonnie, this is Darren. I guess trends throughout the quarter, if you recall in our March call, we were just coming out of February. In February, we had some really adverse weather situations throughout the Midwest. And so that got compounded by the fact we were cycling over a really strong prepared foods performance the prior year. And so we were a little bit depressed on the prepared foods going into that call. Of course, right after that, we took the back half of March and all of April, we were cycling over the shutdowns from COVID. So things materially shifted and accelerated. That was also held to a certain extent by the fact that things were starting to reopen a little bit and relax. So we saw great momentum in the prepared foods business. And we continue to see that momentum moving forward. And so where we're seeing from a consumer behavior standpoint is the morning day part is starting to recover a bit. We're not all the way back to pre-COVID levels, but if you look at our traffic patterns, we have had some significant improvement in the morning day part and in the overnight day part, which affects the breakfast category as well. People are starting to go back to work. We're now in the summer, so of course schools are out. So we don't think that that full recovery in the morning day part is really going to kick in until the fall once school's back in session. But at the moment, we are experiencing some nice increases in prepared foods, and we expect that momentum to continue throughout the summer.

Okay, thank you.

Our next question comes from Bobby Griffin with Raymond James. Good morning, Bobby.

Thank you for taking my questions. Just one quick housekeeping I wanted to check on the OpEx. Does the mid-teens commentary for FY22 include the $11 million of acquisition costs?

Yes, it's a fully loaded number, yes.

Okay, and are you going to one-time out that cost, or should we include that in, you know, when we arrive and everything's going to be on a gap basis? Just want to make sure we get the model apples to apples in the first quarter.

We will continue to report on a gap basis and just quantify the you know, the impact of all the transaction-related activity.

Perfect. I appreciate that detail. And then I guess bigger picture kind of wise for me, just diving into the fuel margin a little bit, you know, fourth quarter in a row, I believe, a pretty material outperformance versus the industry as well as, you know, you had a rising crude environment as well going on this quarter. So just curious, when you look at that, do you believe that's still somewhat of a function of the quote-unquote COVID environment, or at this point, is the outperformance really a function of all the work the fuel team has been doing on sourcing and pricing, and that type of outperformance could be somewhat sustainable going forward?

Yeah, Bobby, this is Darren. I would say it's a combination of both of those things, and certainly our fuel team has done a fantastic job navigating this environment, and it's a challenging environment to say the least. But we still are executing on pricing very well. The team's doing a great job there. And then on the procurement side, we're at 75% of our fuel volume under contract at this point. And we have opportunities to continue to refresh and renew some of those contracts. And we think we have some favorability there as well. But I'd have to say... At this point, I think, which is where you were going, after a year of these kind of margins, I have to believe that the pressures on smaller operators are not going away. And we just talked about labor pressures. That's certainly coming. The EMV liability shift just occurred. That's happening. Credit card fees are rising. Those are all pressures that smaller operators simply don't have a lot of levers to mitigate. And so... they're forced into taking that in fuel pricing. And that's constructive to margins for the industry. So, you know, I've said all along, I think that we probably won't continue to stay at this level of margin, but I don't think we're going back to pre-COVID levels of margin either. There'll be somewhere in between there. But as long as these challenges in the industry persist, I think we're going to see that reflected in more elevated fuel margins.

Okay, great. And I guess lastly for me real quick on prepared food, great to see the sales trends really start to pick up as we start to lap these comparisons and the country reopens. Just the pathway back to kind of the 62% gross margin range that that business was in before COVID, is that all just a function of volume or given some of the inputs, is it pricing and mix of business, like anything there just to help us think about how we can return back to that pre-COVID gross margin range?

Yeah, I think there's a couple of things there. Certainly velocity helps the margins as the write-offs as a percentage of the sales volume decrease. So certainly that's a component of it. There's a mixed component as well where the breakfast day part tends to be a little bit higher margin, but we're losing, or we're not losing, but we haven't completely regained the velocity in the morning day part that we had once before. So we're still working on that. And then we're assessing whether we have retail pricing opportunities as well. But we think all of that is part of the equation to getting those margins back to more historic levels.

Thank you. Our next question comes from Ben Bienvenu with Stevens.

Hey, thanks. Good morning, guys. Good morning. Morning. I want to piggyback on Karen's questions about OpEx. You stated your commitment to the long-term EBITDA growth algorithm. I'm curious, I think within that you've targeted a high single-digit OpEx growth as a component of the EBITDA. If we continue to see an inflationary wage environment, would you expect that level to be higher, and would that potentially imperil your ability to deliver the EBITDA growth? that you would like to. And then I'm also curious, you know, as you think about the variability on OpEx this year, if you deliver upside growth to your same-store sales, would you expect your OpEx growth to accelerate as well, or could we get a little bit better leverage on that if your same-store sales growth accelerates more than you expect?

Yeah, good morning, Ben. This is Steve. I'll start maybe to handle the first Question first, we're not walking away from our algorithm commitment at all. I think we feel very good about our ability to continue to generate EBITDA consistently over the medium term and long term in that 8% to 10% CAGR range. We feel good about that. I mean, to the extent there is incremental wage pressure in the system, and for sure that there is, right? We'll go back to what Darren talked about before. What would you expect us to do, right? We have a lot of tools available. given our scale, how do we counteract that? We will schedule smarter. We will obviously look for ways to automate more within the store environment. There are pricing levers at certain price points available for us to take. And so we will take all of the actions you would expect anyone to take who has a decent size of labor component of their cost of sales to take. And so I don't feel like pressure on OpEx in any discrete period of time puts us into a situation that all of the other levers available to us aren't able to offset. I think we may have to run a slightly different play, for sure, but there's plenty of optionality in our model to keep us on the path of generating the EBITDA targets that we have.

Ben, I would just add to that that those those targets, 8% to 10% EBITDA growth, I mean, those are catered numbers. And so over a period of time, there's a lot of timing that goes into that. Obviously, we had a very strong year this past year that we're wrapping up. We've got some unique things going into this year where we're closing two big acquisitions, and there's costs associated with those early on. All those stores hit early on. So I don't think that the algorithm is at risk at all. There is just a timing and sequencing element to it. And And to Steve's point around the increased costs, these costs are not unique to Casey's. This is a lot of the cost pressures that we're experiencing are cost pressures that the entire industry is experiencing as well. So we do think there's going to be an inflationary component to what goes on. We're currently assessing that. The good news for us is that we were proactive in negotiating on cost of goods for this fiscal year. or for this calendar year, rather. So we've already got costs locked in through the end of the calendar year in a lot of our major categories. So we're, to a certain extent, immune to the cost pressure that's coming on some of our in-store categories, but the rest of the industry may not be. And so we'll be able to leverage that and as prices move up, we'll be able to move that up as well and be able to counteract some of the cost pressures we're experiencing.

I think that maybe the last thing I'd add, Ben, to that point is just a reminder that, you know, a quarter of our OPEX is not store-related. And so I would fully expect, you know, on that component of the business, we'll work very hard to keep that flat, right? We'll get the benefit of spreading, you know, overhead over a larger and larger base of stores, right? We don't need to add, you know, overhead at the same rate that we're adding store units. And so that will provide some natural offset to anything that is happening in the field.

Okay. Understood. Very helpful. I want to ask about your commentary that you didn't sell any RINs in the quarter. Obviously, we're in a very inflationary RIN price environment. S&D is tight in that market. I'm curious, are you holding at bay your RINs and expecting to sell them in future quarters? And along the same lines, how is your increased contracted fuel levels impacting your ability to generate RINs? Does that have any bearing on the number of RINs that you're able to sell?

Yeah, I'll start with the second part first. Our contracts with our suppliers really doesn't impact the number of RINs that we collect. So there's really no impact there. With respect to selling the RINs, you know, our team monitors the RIN market closely and, you know, every day. And the fact of the matter was RIN prices were going up pretty ratably throughout the entire quarter. So we didn't see a need to sell into a rising market. So we just held on to them and were waiting to opportunistically assess when those RIN values were kind of leveling out and then We do protect ourselves on the downside. If they start to slide back, we can sell them at a certain price. So that's kind of how we've approached it. We'll continue to do that opportunistically. And so that's where we're at on that one.

Thank you. Our next question comes from John Roy with J.P. Morgan.

Hey, good morning, guys. Thanks for taking my question. John, good morning. Can you talk about the cadence of synergy capture on Buc-ee's in the first three years? As you see it now, I think your fiscal 22 guide suggests probably not much hitting in the first year. And then do you have an EBITDA estimate on the Circlecase stores you can speak to?

Yeah. Hey, John, good morning. This is Steve. I'll start with that. Your premise is right. I don't think there's going to be a significant synergy capture number of associated with Bucky, certainly not in the first half of this year, obviously, as we get our feet under us. We had committed to about $23 million of total synergy capture over a three-year period of time. And if you think about the pieces, we'll get some of the G&A and the fuel-related procurement synergies. I think some of that will come through in the current fiscal year, albeit, again, probably not in the first half. But the majority of the synergies are going to be associated with uplift around inside the store mix as we put kitchens into a lot of those stores. Obviously, it takes time for us to permit those sites and to do the actual renovation. I would expect our PP&E number this year reflects the fact we'll be spending extra money to remodel those stores. I think the synergy capture associated with that spend probably is more of a fiscal 23 item. We'll probably get a couple million dollars this year, but I think that will be back half loaded.

The only thing I'd add to that is when you do these acquisitions, you build your synergy targets pro forma based on what you believe you know going into it. Once you own it, then you get under the hood and you get to really see everything that's going on. I'll tell you, our team on the ground is even more optimistic now about potential synergy capture than we were probably going into it. So we feel very, very confident that on both of these that our synergy targets are well within reach and perhaps have some even further upside.

Okay. That's helpful. Thank you. And then can you parse your guidance for inside sales of mid-single digit between prepared foods and grocery, maybe just high level, and then Any commentary on margins on the grocery side in fiscal 22, just coming off the drag from mix you had during the pandemic?

Directionally, I would tell you, if you just think of what we're lapping from a comp standpoint, I would expect the prepared food number for the year to be stronger on a year-over-year basis than the grocery number, if you just start thinking of those two have to average back to the inside sales. We're not going to quantify those two, but mathematically, prepared food should have an easier set of comps, frankly, than the grocery side of the business. And I think from a margin perspective, on the grocery side of the business, I think we feel very good about that, right? A lot of the initiatives that influence the good performance on margin we had in the fourth quarter around strategic sourcing, Darren referenced A lot of the cost of goods sold contracts are sorted here for this fiscal year, and I think they're sorted in a favorable fashion for us. Obviously, private brand penetration is only going to help us here. The mix is a general role with merchandise resets is going to help us. And so I think I'm not sure it's reasonable to expect quarter-to-quarter outperformance like we had in the fourth quarter every time, but I think we feel pretty good about there's some momentum behind margin accretion in the grocery side of the business going forward.

Thank you. Our next question comes from Anthony Libidinsky with Sidodian Company.

Good morning, and thank you for taking the question. So in terms of the increased wage pressures that you're seeing with everybody else, As far as your ability to offset that, I mean, you touched on a little bit that as far as smaller operators are feeling the pain too, and as far as just wondering about your ability to offset that, whether you're looking at the higher gas margins or increasing pricing inside the stores, how should we think about that?

Yeah, Anthony, this is Darren. I don't want to get into the specifics of what exactly we will do, but we have a pretty wide range of tools at our disposal. We do have retail pricing that we can always take. We have fuel pricing that we can always take and manage. Our prepared foods business presents a unique opportunity for us in that those food products are not commoditized like a lot of other categories within the store where the consumer walks around knowing what the right price is of certain items in that category versus perhaps on some of the other center store categories. We can always be more efficient with our general operations and with labor, and so we put a lot of effort behind optimizing our schedule to make sure we're providing the right amount of labor for our stores to meet the demand of guests. So, again, there's a lot of a lot of different levers we'll pull, and we continue to monitor that and operate as efficiently as we can.

Got it. Okay. Thanks for that. And just wondering if you guys could quantify as far as the Casey's Rewards Program, as far as spending per visit, as far as how that's different from a non-member and the frequency that you're seeing so far from your loyalty members?

Yeah, and with respect to that, we have a deferred revenue impact in the grocery category of about 20 basis points. On prepared food and found, it's a little bit higher, about 60 basis points. And certainly our rewards program guests are our most frequent shoppers and our most loyal guests. They come to the store more often and they tend to spend more money when they do And so that's been a real positive for us, and as we continue to grow that database, we continue to learn more about them and their habits, and then we can more directly market to them and their cohorts and drive more frequency. But we're up to 3.6 million members. That number continues to grow, and we're really pleased with how quickly that ramped up, considering we launched that program just right before the pandemic started.

Thank you. Our next question comes from Kelly Benit with BMO Capital.

Hi. Good morning. Thanks for taking our questions. Good morning.

Thanks, Kelly.

Just want to go back to the questions about EBITDA CAGR, and I think maybe the better way to ask the question is just are you thinking about growth from fiscal 21, basically a lot of volatility but a very fuel margin-driven market, year for EBITDA and earnings, is that a good base that we can think that you can continue to kind of have that algorithm of 8% to 10% off of that? Or is there any, you know, anomalies that we should think about or look maybe at the prior year to think about a more normalized algorithm of growth from?

Kelly, this is Darren. I'll take that. I think when you're looking at the algorithm, I would say, and kind of the way we think about it is that Certainly, fuel margin has been a favorable tailwind for us throughout the pandemic. Again, we expect those margins to be elevated from where they were a couple of years ago pre-pandemic. We don't expect them to necessarily maintain at the levels that we experienced in the last fiscal year. And so that we think will start to equivalize as volumes start to come back. And then on the store side, we expect volumes to recover over the course of the year to more something resembling pre-pandemic levels. And so that's really how the algorithm works. So I think both of these things, the sand kind of shifts from one side to the other, but ultimately planes out at that 8% to 10% EBITDA CAGR that we committed to. And again, when we made that commitment, we said it was a CAGR because Things happen, and there's variables from a year-to-year standpoint. Certainly, the pandemic created one variable. We have acquisition integration creating another variable, but we still feel very bullish about the idea that the algorithm works. It's just going to be some timing and sequencing as to how that recovery ultimately plays out and the acquisition integrations play out as well.

Okay, thank you. That's helpful. Just a couple more questions on my end. In terms of the gallon, the comp gallon outlook for mid-single digit, I guess, just curious how you think about how your share is tracking in gallons, what your strategy is. I guess maybe we were thinking maybe that would be a little higher next year, just looking at kind of the national average data, but maybe – You know, just curious what you're seeing in your market and how you're kind of managing that kind of gallon strategy at this point.

Yeah, well, what we're seeing in our geography, frankly, is based on all the information we can gather, is that we're outperforming our competitors from a gallon standpoint as well as a margin standpoint. So, recall, our strategy has been to optimize gross profit dollars, and that's a balancing act between getting growing profitable gallons. And so I think we've done a good job of that so far. And again, based on the indicators that we see in our geography, we think we're outperforming. So we don't believe we're losing any market share from that standpoint. You know, the cadence of that growth is going to largely be dependent on, one, how we execute, which we've already talked about. And then the other piece is just how things result resumed to more normal. And so what we've seen in our geography is traffic is starting to improve. People are starting to go back to work. But now we're in the summer and school's out. And so we think that the summer will probably normalize a little bit and then we're going to get back to the fall. And from what we've seen and heard so far, it appears that most school districts are going to go back to in-person school. So we believe that more people will be out and about, more people will be going back to work because daycare challenges will have been addressed. And so we think we'll start to see some more of that recovery feathering throughout the course of the year. I still believe ultimately that there's going to be a bit of a dynamic with some virtual work in addition to people coming back to work. So that dynamic is going to have to play out over time. So we think that certainly from a gallon standpoint, will continue to grow, but we're also cognizant of the fact that this recovery is going to take a little bit of time.

Thank you. Our next question comes from Matt Fishbein with Jefferies.

Hey, good morning. Thanks for squeezing me in here. Can you remind us where these acquired stores are in terms of cost per store relative to the base? And I think you said a quarter of the OpEx is not store-related in terms of total company. In terms of the expected wage pressure next year, store wages probably the larger contribution to the total increase, but which is generally seeing more pressure right now? Is it store wages or warehouse and distribution? And also, if you could provide any color on maybe how much of the mid-teens increase in OpEx is owing to the full year of Joplin being up and running.

Yeah, hi Matt, this is Steve. I'll try to deconstruct that. I mean, generally speaking, I would tell you we are, I think it's just as tight and tough of a market for us on the warehouse distribution side in terms of wages and just labor availability as it is store labor. I'm not sure I would draw much of a distinction between that. There's certainly less wage pressure as a general rule on salaried staff, but on the distribution side, I think it seems like it looks a lot like the store environment based on what we see right now. To your question around the acquired stores, it's a little bit of a mix. On average, I think a typical Bucky's store is a little bit bigger than an average Casey's store if you're just using it across the system. So those stores would come in with a little higher per store OPEX number than what we have on average, but they're also going to generate higher EBITDA per store. So I think that would be my point there. The Circle K deal, those would tend to be a little smaller stores generally than our average footprint stores. So you probably have the, it's just on the other side of the Buchanan conversation. And can you remind me, there was one more question I think in there. It was Joplin. Oh, Joplin. Listen, Joplin's going to save us money on a year-over-year basis just because we're taking the miles off the road. So we have several million dollars of distribution savings from Joplin in fiscal 22, which is embedded in that overall OPEX number. That's what's helping us offset on that 25% that's non-store related. Joplin's given us a benefit there.

Thank you. Our next question comes from Paul Trussell with Deutsche Bank.

Hi, good morning. This is actually Christina Katayun for Paul. You know, thanks for squeezing us in here. I just want to follow up a question. I mean, you talked about your outlook for inside comp sales to be sort of in that mid-single digit range. And, you know, you touched on this earlier, but can you just walk us through, again, the various puts and takes for gross profit margins for inside sales? You know, we really think about the various cost components like cheese and any potential plan promotions that you might have.

I'll start with cheese. Right now, based on we're about 70% locked in the first quarter. I think we'll have a little bit of deflation on cheese. in the first quarter, a couple pennies a pound. That'll be a modest tailwind for us on margin. If you look out for the rest of the year, the current strip would be very comparable for a total year in terms of cheese costs. So on a full year basis, I don't think cheese will have a significant impact on margin one way or the other for us, though it'll be a little bit of a benefit in the first quarter. And then when you back to product cost on the grocery side of the business. I think we're well insulated from inflation on the product cost standpoint. I think that's going to probably be a tailwind for us in that grocery category. We are more exposed to commodity cost on the prepared food side of the business beyond just cheese, where we've got proteins, et cetera, that have a little bit more pressure. But I don't think there is more product cost inflation in the system today than we've dealt with in the last couple of years. I think our remarkable inflationary pressure generally is going to be on the wage side more than on the product side as we sit here today.

Got it. That's helpful. And secondly, I just wanted to ask about your capital allocation priorities. Obviously, you have just completed your largest acquisition to date. Store growth is reaccelerating here as we exit COVID. But you do have a $300 million share buyback authorization. So how do you think about the balance between all of your strategic initiatives, paying down debt, and resuming a share buyback program at some point?

Yeah, this is Darren. I'll start with that. You know, our strategy has been and continues to be that we're going to invest all of our discretionary capital towards growth. And so... After we certainly satisfy the dividend, we'll go ahead and invest in growth opportunities. And that's what we have done. That's what we'll continue to do. So as long as those growth opportunities present themselves, we don't have any short-term plans to take advantage of the share buyback authorization that we have. It's out there if we don't have those opportunities. From a leverage standpoint, the balance sheet is in great shape. We're about two and a half times debt to EBITDA as we sit here today. Post-closing the Buchanan transaction, we will pay down some debt over the course of the year. We'd like to have that debt to EBITDA ratio down in the low twos. But aside from that, that's how we're looking at it. First, invest in growth. Certainly take care and protect the dividend. We'll delever a little bit on the balance sheet, and we have the share price authorization there. or the share repurchase authorization out there if we choose to use it.

And just maybe to reinforce Darren's commentary from the prepared comments, the reason we're over-indexing on growth is because from a value creation standpoint, if we can drive incremental EBITDA and we can improve returns on capital with growth investments, we think that's the right play to run from a shareholder perspective. And we don't see an end to those opportunities here in the near term. And so that feels like the right place for us to put the marginal investment dollar, certainly for the next couple of years based on what we see right now.

Thank you. Our next question comes from Chuck Surinkoski with North Coast Research.

Good morning, everyone. In looking at some of these inflationary trends, especially in your cost of goods area, is there any opportunity for inside margin, i.e. forward buying, to help you out, other than fuel?

Can you ask that question one more time, Chuck? When you say inside margin and buying to help us? Forward buying.

Forward buying. You might not have heard that part.

I'm sorry. Yeah, listen, we obviously do some of that with the cheese commodity. We occasionally will do that with some of the other commodities. De facto, by locking in supply agreements with a lot of the grocery providers on the CPG and DSD side of the business, we have locked in our cost of goods for the calendar year, for beyond the calendar year, for several of those. So I think we have essentially done that on the grocery side and where it makes sense for us We'll do it on the prepared food side, but it's probably there's less forward certainty on that side of the business today than there is on the grocery side just by the nature of the contracts that we have.

Thank you.

Our last question comes from Brian McNamara with Burnenberg Capital Markets.

Hey, good morning. Thanks for taking the question. So you're a quarter removed from the big store reset, and I'm curious how the private brand rolled out. Is it trending relative to your internal expectations? You exited Q3 at a 3% penetration. It seems like you stayed there through Q4. How do you see private brand penetration a year from now?

Yeah, Brian, this is Darren. We're really pleased with how that's progressed. And more recently, we're getting a little bit closer to that 4%. mix of private brands as we go into the summertime and some of the beverage categories start to accelerate, water in particular. We're nearly a 50% share in bottled water within our stores for Casey's brand. We've also got another 100 plus items in the pipeline that we expect to roll out over the next four to six months. So We feel like we're well on track to continue to grow that business. We haven't given out any real targets for this year, but suffice to say we feel really good about the innovation around those categories, the pipeline that we have, and the continued rollout of it. So we expect to continue to grow that share at a pretty meaningful clip.

And then just one quick last one from me. Speaking with another C-Store industry participant recently, they opined, at least to me, that 2021 could be the biggest year ever in terms of industry consolidation. It sounds like you guys are optimistic as well, but I'd be curious on your thoughts on the opportunities you're seeing in M&A and the drivers of those opportunities. Thank you.

Yeah. You know, we're pretty bullish on the opportunity within the industry as well. And we've talked about some of those drivers during the call with increased cost pressures, increased regulatory pressures. You need to have scale and capability to really compete effectively in this environment. The other thing that I think is really going to create some tailwind from an M&A standpoint is the potential tax changes and tax treatment of capital gains. And so if that that ultimately comes to pass and capital gains rates double, um, which is some of the discussion right now. There's a lot of these independent operators that are, um, if they were on the margins before, they're probably looking to sell right now. And so we have, we have seen, seen some increased interest. Our M&A team is actively reaching out to, uh, to, uh, candidates throughout our geography to see if there's interest, and so we're having conversations right now, and we think there'll be more opportunities to come.

Thank you. This concludes the Q&A portion of today's conference. I'd like to turn the call back over to Darren.

All right. Well, thanks, everybody, for joining us this morning on the call, and we're looking forward to visiting with you again on our first quarter conference call in September. Thank you.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.