Caseys General Stores, Inc.

fiscal year 2025 Casey's General Storage Earnings Conference Call. At this time, all participants are in 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 will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Johnson, Senior Vice President of Business Development and Investor Relations. Please begin.

Good morning, and thank you for joining us to discuss the results from our fourth quarter of fiscal year ended April 30, 2025. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Dan Rebellos, Chairman, President, and Chief Executive Officer of and Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to the potential impact of the FIPS transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity, and related sources or means, 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 that 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. In case it disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as the detailed breakdown of the operating expense increase for the fourth quarter, can be found on our website at www.kc.com under the investor relations link. With that said, I'd now like to turn the call over to Darren to discuss our fourth quarter fiscal year results.

Darren? Thanks, Brian, and good morning, everyone. We're excited to share our outstanding results, but before I begin, I'd like to talk about some of the good Casey's is doing. Casey's is here to make life better for our guests and communities every day. That's our purpose, and it shows in the positive guest feedback we receive, the delicious food we make, and the impact we have on our communities. This fiscal year, Casey's and our partners gave back $6 million in our communities in the areas of education, veterans and first responders, and food insecurity. This resulted in thousands of donations to schools, PTOs, 4-H clubs, veterans organizations, food pantries, and more. Local teachers and students benefited from the 80 Cash for Classrooms grants we were able to give, and we helped provide 8 million meals to those in need. Thank you to our 49,000 team members, guests, supplier partners, and the nonprofits that make this all possible. I know I speak for the entire Casey's team when I say we're proud to be part of the fabric of the towns we call home. Before we dive deeper into the financial results for the year, I want to highlight our strategic pillar of unit growth. Fiscal 2025 was the largest store growth year in the company's history. with 35 new builds and 235 units acquired. This included the largest transaction in KC's history with the Fife's wholesale acquisition and its 198 Sefco convenience stores. I'm incredibly proud of our team's ability to produce record financial results while also integrating the new units. Fiscal 2025 is a testament to our two-pronged approach of both building and acquiring stores which ensures predictable, rateable growth while still capitalizing on great opportunities like Fikes when they come along. Now let's discuss the results of this past fiscal year. Fiscal 2025 was another record year for diluted earnings per share, finishing at $14.64, a 9% increase from the prior year. The company also generated a record $547 million in net income and $1.2 billion in EBITDA, an increase of 13% from the prior year. Our top line growth was impressive. Total inside sales grew 10.9% during the year, while inside same-store sales were up 2.6%, or 7.1% on a two-year stack basis. Total prepared food and dispensed beverage sales grew 10.3%, and same-store sales were up 3.5%, or 10.5% on a two-year stack basis. Total grocery and general merchandise sales were 11.2%, and same-store sales were up 2.3%, or 5.8% on a two-year staff basis. Inside margin expanded 50 basis points year-over-year to 41.5%, as our merchants have done a tremendous job working with our vendor partners to get the right products on the shelves while maintaining a strong value proposition for our guests. We saw excellent results throughout the year in non-alcoholic beverages, as well as hot sandwiches. Our food innovation team remained hard at work, both creating new menu items and improving existing ones. A great example of this is the chicken wing and fry platform we're currently testing, with encouraging early results. Fuel gross profit was up 11%, with total fuel gallons sold up 13%, and a fuel margin averaging 38.7 cents per gallon over the course of the year. Our fuel team continues to grow market share, focusing on gross profit dollars while balancing fuel volume and margin. Our operations team continues to run the stores efficiently while integrating a significant number of new stores this year. Same-store operating expenses, excluding credit card fees, were up only 1.7% for the year, impacted favorably by a reduction of same-store labor hours of 2.4%. The fourth quarter marked the 12th consecutive quarter of same-store labor hour reduction. At the same time, guest satisfaction scores improved and team member engagement scores hit an all-time high, once again showing that operational excellence and store simplification efforts are driving efficiency to benefit guests and team members alike. The strong results in fiscal 2025 show the strength and durability that are a strategic advantage of KC's business model, and we're confident that we can succeed in a variety of economic climates. I'd now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal 2026. Steve?

Thank you, Darren, and good morning. Prior to going over the fourth quarter financials, I'd also like to take a minute and recognize the hard work and the dedication of KC's team. The excellent financial results for the quarter and the full year shine a bright light on the entire organization and the outstanding team members that we have that make it all possible. Now, as a reminder, during the prior fourth quarter, KT's had one additional operating day due to the leap year. This unfavorably impacted same store and total results for the current quarter by approximately 100 basis points. The current full year impact was approximately 25 basis points. The fourth quarter financial results were nonetheless outstanding as diluted ETFs was $2.63, a 12% increase from the prior year. Total inside sales rose 12.4% from the prior year, to over $1.4 billion, with an average margin of 41.2%, which resulted in total inside gross profit dollars of $64.8 million, or 12.5% from the prior year. Total prepared food and dispensed beverage sales rose by $34.8 million to $392 million, an increase of 9.7%, And so the grocery and general merchandise sales increased by $121 million to $1.02 billion, an increase of 13.5%. As a reminder, we have low exposure to tariffs because less than 5% of what we sell inside the store is imported. Same-store prepared food and dispensed beverage sales were up 1.5% in the quarter. The average margin for the quarter was 57.8%, and that's down 30 basis points from a year ago. Hot sandwiches and bakery performed well in the quarter. Our margin was unfavorably impacted by the lower margin sepco stores by approximately 160 basis points, which was partially offset by improvements in waste and cheese costs, which were also down 6%. cents per pound from the prior year to $2.06. Cheese, therefore, had an approximate 15 basis point benefit to margin. Saintsport Grocery and General Merchandise sales were up 1.8%, and the average margin was 34.8%. That's an increase of 40 basis points from the same period a year ago. Sales were particularly strong in our non-alcoholic beverages, specifically energy drink. Margin expansion was primarily driven by product mix. During the fourth quarter, same-store fuel gallons sold were up 0.1% with a fuel margin of 37.6 cents per gallon. That's up approximately 1.1 cents per gallon compared to the same period last year. This is inclusive of a nearly two cents per gallon headwind due to the subcoast source. Retail fuel sales were up $162 million in the fourth quarter, due primarily to a 17.8% increase, and the total gallons sold to 819 million, which was partially offset by a 90% decline in average retail price from $3.28 per gallon last year to $2.98 this year. In this lower retail fuel cost environment, We believe that our inside offering, coupled with consistently competitive fuel prices, is helping our comps, both at the pump and inside the store. Total operating expenses were up 14.5%, or $84 million in the fourth quarter. Approximately 12% of the total operating expense increase is due to unit growth, as we operated 246 more stores than the prior year. Included in this increase was approximately $4 million in one-time deal and integration costs associated with the FITES transaction. Insurance expense contributed approximately 3% to the increase. Same store employee expense was approximately flat as the increases in labor rates were largely offset by a reduction in same store labor hours. Net interest expense in the quarter was $27.9 million. That's up $13.4 million from the prior year. That's primarily due to the financing associated with the FITES transaction. Depreciation in the quarter was $107.4 million, up $15.1 million versus prior year, primarily due to operating more stores. The effective tax rate for the quarter was 23%. That compares to 22.4% in the prior year. due to a slight decrease in favorable permanent differences. Net income was up versus the prior year to $98.3 million, an increase of 13%. Evened off of the quarter was $263 million, an increase of 20.1%. Our balance sheet remains in excellent condition, and we have more than ample financial flexibility. On April 30th, we had a total available liquidity of $1.2 billion. Our debt-to-eat-a-dollar ratio was 1.9 times calculated under the company's credit facilities. The company has been able to de-lever from the additional debt taken on for the FITES acquisition faster than originally anticipated due to strong operating performance and cash flow generation. For the quarter, net cash generated by operating activities of $334 million, less purchases of PP&E of $181 million, resulted in the company generating $153 million in free cash flow. This brings our total free cash flow for the year to $585 million. Return on invested capital for the fiscal year finished at 11.5%. down 60 basis points from the prior year, and that's due to the capital required for the FICA acquisition. At the June meeting, the Board of Directors voted to increase the dividends to $0.57 per share, a 14% increase, marking the 26th consecutive year that the dividend has been increased. Our first priority in capital allocation remains EBITDA accretive growth. However, now that we've arrived at a leverage level a touch below our long-term target of two times, and we've raised the dividend, we do also anticipate approximately $125 million in share repurchases during our fiscal 26. In addition, we're providing the following fiscal 26 outlook. The company expects EBITDA to increase between 10% to 12%. We expect inside same-store sales to increase 2% to 5% and inside margin of approximately 41%. The company expects same-store fuel gallon sold to be between negative 1% to positive 1%. Total operating expenses are expected to increase approximately 8% to 10%. We expect to open at least 80 stores in fiscal 2026 through a mix of M&A and new store construction And that will bring the three-year strategic plan period total, as previously communicated, to approximately 500 stores. Net interest expense is expected to be approximately $110 million. Depreciation and amortization is expected to be approximately $450 million. And the purchase of property and equipment is expected to be approximately $600 million. The tax rate is expected to be between 24 to 26% of the year. Now consistent with our past practice, we're not guiding to a fuel margin CPG, nor are we providing earnings per share. As a reminder for fiscal 26, the FITES acquisition will be accretive to EBITDA and dilutive to earnings per share, and that will be the case in each quarter as well. Our May experience was as follows. Inside same store sales and same store gallons sold were within the range of our annual guidance expectations. Fueled CPG margin for May was approximately $0.40, and that is inclusive of the FITES headwind of approximately $0.02. Current chief costs are modestly unfavorable versus the prior year. And we do expect first quarter total operating expense to be up in the mid-teens, and that's due primarily to the timing associated with lapping the prior year acquisitions. I'll now turn the call back over to Darren.

Thanks, Steve. I would like to again express my gratitude and congratulate the entire CASES team for delivering another record year. The hard work and dedication to executing our three-year strategic plan continues to show up in our outstanding financial results. In June of 2023, we laid out a plan that had three pillars, accelerate the food business, grow the number of units, and enhance operational efficiency. We are now through two years of the plan, and the entire organization is working hard to execute on our commitment. Inside the store, our robust inside offering continues to be a differentiator for cases. It drives store traffic, as approximately three-quarters of our inside transactions are not tied to fuel. This, coupled with unit growth, has shown up in the financial results, as total inside sales grew nearly 11% the fiscal year and 2.6% on a same-store basis. And now we have a familiar favorite back this summer with a barbecue brisket pizza, our most popular limited-time offer of all time for our guests to enjoy. And fiscal 2025 was a continuation of Casey's commitment to operating the business more efficiently. Our operational excellence team has done a terrific job identifying improvement areas to make the stores more efficient, while also focusing on improving guest satisfaction and team member engagement. We're looking forward to fiscal 2026 and are excited about what the team has in store. Turning to the guests, Casey's Rewards now has over 9 million members. Our guests are taking advantage of KC's value proposition, as we're able to offer great products at a competitive price. Both in our prepared foods program, we're single topping pizzas one to two dollars less than a national competitor. And on the grocery and general merchandise side, where we offer guests a great value with our private label products. At the pump, our same store gallon growth continues to outpace the Opus data in our geography. we printed a healthy fuel margin of 38.7 cents per gallon. The new stores that we're building and buying are typically higher volume than the chain average, as evidenced by total gallon growth of 13% on the year. I've already discussed our record-breaking store growth in fiscal 2025. With that said, we're excited about our ability to continue to execute our store growth strategy that has been so effective for us. As we look forward to fiscal 2026 and beyond, I'm very excited about the future of Casey's. In 2023, we shared our strategic plan, and our team is executing on that vision. Casey's still has our best-in-class food program, our rural footprint, our self-distribution, and our scale that has made Casey's a great company for so many years. We've made it a priority to improve operating expense management, generate more free cash flow, and improve return on invested capital. all of which was on full display this fiscal year. In short, we've become a better version of ourselves, and with our financial resources, people, and leadership, we'll continue to drive shareholder value. We will now take your questions.

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. And one moment for our first question. Our next question, our first question will be coming from Anthony Bonadio of Wells Fargo. Your line is open.

Yeah. Hey, good morning, guys. Thanks for taking our question. So I just wanted to start off fuel margins. Fuel margins came in, I think, quite a bit better than many were expecting, despite that CEFCO headwind that I believe you said was around two cents per gallon. So can you just speak to progress on synergies there? how you expect that headwind to trend in 26 and just anything else that contributed to that outperformance.

Yeah, this is Darren. I think, you know, again, our team really managed the fuel pricing environment really well during the quarter. And, you know, we had a we had a nice run up in wholesale costs in March and then a subsequent drop off in April. And I think that that environment typically allows for us to capture a little bit more margin. I'd say the team did an excellent job of doing just that. And if you couple that with some of the progress we've made on our upstream fuel procurement capabilities, I think that overall blended us up to have a little bit stronger margin than perhaps people were expecting.

Got it. And then just on guidance, sort of thinking beyond the components you gave in the press release, can you just talk us through the build as we think about the remaining contribution from FICES, the lack of one-time costs, and assumptions around synergies? And then as we sort of stack all those together, can you speak to the level of conservatism and guidance more broadly?

Yeah, hey, good morning, Anthony. This is Steve. And specific to the assumptions around FICES from a modeling standpoint, Obviously, we'll continue in the first half of the year. We're going to have more of an operating expense headwind on a year-over-year basis just because we didn't buy them until the third quarter of fiscal 25, and so you'll get a little bit of a sequential difference between that. We certainly are starting to gather synergies from the transaction. If you think of the buckets of synergies, we're assuming prices, I'm sorry, fuel synergies would be the first where we, to Darren's point, we started pricing really from day one the fuel in the SEPCO stores. We certainly are looking at overhead rationalization opportunities, as you would expect, as the second bucket. The third and fourth buckets for us, which would be within the inside of the store, some of the procurement and mix synergies there won't be significant capture of those in this fiscal year that's primarily due to the fact we've inherited with the transaction an existing supply chain agreement which just makes it a little more complicated for us to immediately you know run a traditional casey's play inside those stores and then the largest bucket of synergies is coming from obviously getting kitchens into those stores so that we can put pizza And that's going to be subject to remodeling timelines. And with the lead times there, there won't be significant synergy capture in FY26 for that bucket.

And all of that would be totally consistent with how we had expected the deal at the time of closing.

And one moment for our next question.

Our next question will be coming from Chuck Grom. of Gordon Haskett. Your line is open, Chuck.

Hey, thanks. Good morning. Great quarter. You guided to 41% combined inside margins. I was hoping you could unpack that for us both for the grocery business and prepared foods.

Hey, Chuck. Good morning. This is Steve. We obviously are going to stay from a guidance perspective at the at the inside margin level. I mean, directionally what's happening, certainly as we have 12 months of fikes mixing in, that in and of itself would put some downward pressure on the margins, specifically in the prepared food category more so because of their lack of pizza business. Most of the prepared food business they have now is more protein centric than what we have. inside margin and would mix down prepared food margin even a little bit more. We've done a great job on the grocery side. We've seen that in the fourth quarter of offsetting some of that mixed pressure from bikes in the grocery business, specifically where things like product mix enhancements for us, the reality of what's happening in tobacco inside the stores, Alternatives continue to grow strongly. That's a mixed enhancement for us. And so long story short, progress within the mothership with all of the existing initiatives we have will largely offset most of the pressure mechanically we would have with bikes. And so we feel like it's proven to say around 41, we're hopeful we can do a little bit better than that. But I think 41 is a very safe place for us to start with.

Okay, great. That's helpful. And then, and just to circle back on Anthony's question, do you feel like the two cent drag from Sefco is something we should be continuing to model out over fiscal 26? And then when gas prices drop historically as quickly as they did over the past couple of months, does that tend to be, you know, a profit source for you like it is historically for like, say, the warehouse clubs?

Yeah, Chuck, this is Darren. Yeah, in terms of the expectations on Fikes for the year, I would still anticipate that two cent drag to carry through throughout the year. And we'll continue to work on that over the course of the year. But yeah, where we're looking at it is about two cent impact to the overall margin of the company. In terms of how margins tend to behave when retail prices drop, That is, it is in fact the case that typically when those retail prices drop, the margins do expand because the underlying wholesale cost is typically falling faster than that retail price is dropping, and so those margins tend to widen out. Now, the opposite is also true when wholesale costs are increasing. Retail prices tend to not move up as fast as the wholesale cost, and so

Yeah, a little bit of compression on the front end.

And one moment for our next question.

Our next question will be coming from Kelly Bonilla of BMO Capital Markets. Your line is open, Kelly.

Good morning, and thanks for taking our questions. Just wanted to talk about the same store sales outlook for fiscal 26. in that two to five range i guess it's just a little lower on the low end there um than the past uh several years i believe i just wondering if that's just some conservatism or if there's anything you're seeing from your customers that suggests that that lower end is possible and can you elaborate more on the wings test i think i heard the word encouraging there but what have you learned with that and is there any

meaningful contribution from that built into the fiscal 26 plan yeah kelly this is darren um you know first on the same store sales outlook i think um we feel really comfortable with the range that we've been given the business is performing well as you heard um or our may progress and and we can get into what the cadence of the quarter was in terms of same-store sales, but we feel good about that. I do think with everything going on in the world, it's reasonable to have a little bit of conservatism there on the low end, and so we factor that into the guidance, but I feel comfortable with where we're at right now. With respect to the wings, it is a test. It's only about 225 stores in total, so... We're very encouraged with what we're seeing so far. Guest feedback has been really strong. We're continuing to learn, and we're making some modifications as we look forward, and there'll be more to come on that later.

Okay, that's helpful. Just wanted to ask about the EBITDA contribution from SEFCO in the quarter and what's embedded in the fiscal 26 outlook from the deal there.

Yeah, hey, Kelly, good morning. This is Steve. We do, as we have said, or do PFOs want to say, we do expect it to be EBITDA-agreed. You know, we talked about at the time we did the transaction that the valuation multiple was based on a kind of a high $80 million pro forma EBITDA number. It's not going to be that accretive for us in the year because that was assuming all of their relatively new stores, some of which having an open at the time of the deal, were at full maturity. So it's going to be less than about $80 million, but it will be consistently kind of doubled millions accretive each quarter from an EBITDA perspective over the course of the year. And it was EBITDA accretive for us in the fourth quarter as we expected it to be in FY25.

And one moment for our next question.

Our next question will be coming from Jacob Aiken Phillips of Milius Research. Your line is open, Jacob. And moving forward to our next question. Our next question will be coming from Bonnie Herzog of Goldman Sachs. Your line is open, Bonnie.

All right, thank you. Good morning. I had a quick follow-up question on insight sales. I guess I'm hoping to hear a little bit more color on your inside sales for the full year of FY25, which I guess fell a little short of your lowered full year guidance. Could you talk through some of the drivers of this and maybe what fell short of your expectations? And curious to hear how much illicit vape is possibly negatively impacting traffic and your sales.

Yeah, Bonnie, this is Darren. I'd say for the year, We're pretty happy with where we ultimately ended up. Yeah, it was a little bit below the original guide, and I attribute that to a couple of things. I'd say first, our first quarter of the fiscal year came out of the gate a little bit softer than we had anticipated. And so still positive, still outpacing the industry by a fairly wide margin, but just a little bit shy of our expectations. As you know, our business is heavily skewed towards those first two quarters of the year. And so if we have a little bit of a softer start, that's going to impact the full year numbers. And so we had hoped to claw that back, and we did make some progress on that, but we just didn't get all the way there. The second piece I'd say is when you look at the fourth quarter, I think this is important. Obviously, February was a tough month for us. And really, for the rest of the industry, I think it's been widely reported about the adverse weather, and we were certainly not immune to that. And then the lead day effect had about a 300 basis point impact on February comps. Now, if you look at the cadence for the rest of the quarter, March came back at 3.7%, April came back at 5%, and May was in the guidance range, as we alluded to earlier. We feel very good about the momentum in the business, and we all chalk it up to a tough month in February. And just as a fun fact, the last time we had a negative same-store sales month was four years ago in February of 2021 when we cycled over another leap day. So I think that is very much an understatement for us and really speaks to the strength of the business.

Okay, that's helpful. And Darren, just in terms of, you know, illicit vape, is that, have you been negatively impacted by that, like so many of your peers or not necessarily? Just curious if that's pulling, you know.

Yeah, we believe it is impacting the vape category. I mean, we have seen vape decline as a result of that. And, you know, we've We're talking to the tobacco manufacturers and working on trying to help influence increased enforcement in that space. But yeah, it is having a bit of an impact. I'd say the counter to that has been the acceleration of nicotine alternatives, especially the pouch business. And for us in the quarter, we were up about 54% in that business. And that was due to a lot of work from the merchandising team in terms of resetting stores and giving more space allocation to those products and really leaning in there.

And our next question will be coming from Irene Natel of RBC Capital Markets. Irene, your line is open.

Thanks, and good morning, everyone. Just continuing along with the discussion around the inside store, obviously lots of discussion around low-income consumers and we know you under index, but just what are you seeing in terms of consumer behavior? What is your, you know, what is the rewards program telling you about spending and what kind of promotions are you creating to capture that traffic?

Yeah, Irene. What I'd say overall is I would say the consumer is really hanging in there and continuing to visit our stores as frequently as they have historically. We're seeing good strength from the higher income consumers, those making over $100,000 a year. And then even on the low end, we are seeing that traffic hanging there. They are modifying some some purchasing behavior. I think what's interesting that as we dug into this, there's two types of low income consumers. I think there's the cohort of consumers who perhaps have a family and they're really stretched to make ends meet. But we're also finding in that low income cohort, those are a lot of younger folks that are early on in their careers. And so they are lower income, but they don't behave like folks that are really stretched to make ends meet. And so think more Gen Z and younger millennials. And so the purchasing habits for those folks are very different than what you'd have for some other maybe more mature people in that income cohort. And so it's up to us to make sure we have the relevant assortment in the stores to meet the needs of both. And I think we're doing that pretty effectively right now.

That's really, really interesting. Thank you. And just as a follow-on, as you're thinking about your promotional program for F26 and as we head into the summer months, are there particular elements that we should be looking for and that you're planning on launching to target these different cohorts?

You know, we've worked with our supplier partners through our joint business planning process to create promotional plans that are focused on driving traffic and bringing people into the store. Our food proposition is usually the tip of the spear on that, and we've got a lot of great stuff going on there, primarily with pizza. As I mentioned in the prepared remarks, we've brought back our barbecue brisket limited time offer, which has been a fan favorite and our best performing LTO, and we're seeing good results from that so far. We've also worked on that hot sandwich category. And even though we had really strong results last year, we just started to cycle over that. And we're still up double digits in that category. And so really strong performance there. We're also seeing strong performance in bakery as I think consumers are looking to satisfy sweet tooth, but with a little bit more of a value orientation and with cocoa prices and therefore candy prices moving up pretty significantly, our guests are finding alternatives in our bakery category to satisfy that need.

One moment for our next question.

Our next question will be coming from Paran Sharma of Stevens. Your line is open.

Great. Thanks for the question and congrats on the quarter. Yeah, I just wanted to ask about OpEx and really guidance. I think in the prepared comments, expecting one cue to be up about mid-teens. And I think guidance calls for about 9% at the midpoint. So I was just wondering if you could help unpack that a little bit. What kind of cadence maybe should we expect through the year? Is it kind of in and even cadence downwards to hit that 9%, any color regarding OPX and FY26 would help.

Yeah, this is Steve. You know, the cadence is almost exclusively driven by just the year-over-year consolidation of fights. So in both the first and the second quarter of FY26, it'll be mid-teens. And that's purely a function of, you know, we have all of the fights off X this year and the 1st and 2nd quarter and we didn't have any of the fights off X because we didn't own them in the 1st and 2nd quarter of last year. It will drop quite a bit in the 3rd quarter to, you know, a very low single digit kind of number. And that's a function of In the third quarter of FY25, we were cycling all of the one-time deal-related costs, and so we had a bunch of that roll-through total off-ex that will not repeat this year. So the first half, you're in mid-teens. The second half, as a result of that cage, you're kind of low single digits, and all of that, you know, what we would expect would land us in the middle of that off-ex range that we have for the guidance.

Okay, great. Appreciate that, caller. And just I guess my follow-up would be on expansion. Last couple years, it seems that the lever is really more tilted on M&A. And as you look out to FY26, looks like you're targeting 80. I was wondering, do you see any change in the landscape? Is it still kind of high inflationary construction costs? Are you still facing that? Is it better to lean in on M&A? We'd just love some color as we look out to FY26. Yeah.

All things being equal, as we sit here today, M&A has been a very effective play for us because of what you mentioned. Construction costs have been higher in the last couple of years and we've been able to pretty effectively acquire stores, put capital in them to remodel them, add kitchens, and make them essentially a new Casey's at below replacement cost. And so we continue to look at that. But every year when we give our guidance for new store development, we make an assumption that we're about 50-50 new to industry stores and then you know, the other half small deal M&A, what we would call single-side twos and threes. You know, the larger deals are more opportunistic, and those come along when they come along, and then we evaluate those and see if we want to participate in that process or not. But, yeah, to your point, it has been a little bit more efficient on the acquisition side, If that changes, we can lean heavier on the organic side because we have a pretty developed land bank that gives us that optionality either way.

Thank you. One moment for our next question.

Our next question will be coming from Charles Karankowski of North Coast Research. Charles, your line is open.

Good morning, guys. Great quarter. If we look at the pace of kitchen installations at the acquired sefco stores can you give us an idea where you're at on that and how how rapidly you can go during uh the next few fiscal years because you've got a lot in the pipeline yeah chuck um you know in our assumptions we haven't built in any conversions this year um for our kitchens and a lot of driven on on uh

permitting timeline. And because some of these stores had a food program in that, we've been very deliberate in terms of understanding how that food program behaves and how adding our pizza and some of our prepared foods into that mix ultimately works. So we're in the process of assessing that. Once we have that, then we'll be in a position to develop the full scopes of work. for that remodel activity, because we want to make sure we've got it right. And then that permitting time will take as long as it takes before we can start with remodeling. So again, for our assumptions, we didn't bake in anything for this fiscal year. And there probably wouldn't be anything material, because that would mostly probably end up near the end of this fiscal year, if anything at all. And really, the next two years after that would be when the bulk of the remodeling activity would occur.

And could you refresh us, please, on the existing supply contract the Sefco stores have when it expires and what the conversion process to self-distribution will involve?

Yeah, I believe that contract ends at the end of 27. So we've got a couple of years left on that. We're working with the incumbent supplier right now on that agreement. And so there'll be more to come on that as we progress through. Oh, I'm sorry, Chuck. I was staying corrected. It's at the end of 2026, not 2027.

And one moment for our next question. which will be coming from Christina Katai of Deutsche Bank. Christina, your line's open.

Hi, good morning and congrats on the really nice quarter. I wanted to ask on private label, across food retail, this continues to be a source of strength. So can you dig into maybe how your private brands have been performing? Are you seeing any new opportunities across categories as we think about some of the CPGs that still struggle with volume recovery? and just any update on the work that you're doing for your tiered offering.

Yeah, Christina, we've got a lot of work going on with our private label products right now, and when we first launched our private label several years ago, we really kind of targeted national brand equivalent, and it was really somewhat of a one-size-fits-all, and we had some really good success with that. We're evolving that assortment and that approach to more of a tiered approach where we'll have a premium tier, so more premium products, higher quality ingredients, more differentiated products in that premium tier. The middle tier will be more that national brand equivalent, and that will have a more value-oriented tier that would be more commoditized. And so we're in the process of refreshing the assortment across all of those tiers, and we think that gives us some really good opportunity to drive incremental business, drive some margin at the same time.

Great. Thank you for that. And just to follow up on the strong fuel profitability, you continue to – you're working on fuel 3.0, and as you buy fuel further upstream, just can you update us where you are on that work, and just how is the FIKE team performing? Thank you.

Yeah, everything's been going according to plan on the fuel 3.0, as we call it. And really, I think we've mentioned on previous calls that the FICES fuel supply team has been doing this for a very long time. And so we've really integrated those folks into the Casey's team and working together on that supply. So I think it's been working well so far. There's tremendous opportunity. to continue to grow that, but first things first, we wanted to make sure we were able to get our own capabilities solid and then integrate that team, but we had about 3% of our fuel supply was through that in the quarter, so making progress, and we'll continue to grow that as time goes on.

One moment for our next question. Our next question will be coming from Bobby Griffith of Raymond James. Bobby, your line is open.

Good morning, everybody. Thanks for taking my questions. I guess first, I just... Oh, and congrats on a great quarter, too. I guess first, I just wanted to touch quickly on the OpEx. There's two follow-ups. Do you get the $26 million in one-time and integration costs back in FY26, or is there a little carryover that will impact the first and second quarter?

There'll be a little bit of impact, Bobby. I mean, I... probably be somewhere in the neighborhood of $5 to $7 million over the course of a year on integration-related costs. And that's probably ratable, as a lot of that is kind of ongoing integration work. So not zero, but a lot less.

Okay, good, that's helpful. And then does the plan assume a labor hour reduction again, or are we kind of at the point where we've pulled out there and we're kind of just flattish labors or even modest growth in labor hours?

Bobby, yeah, there is a modest labor hour reduction assumption built into the plan. You know, I would remind everybody that when we started this fiscal year, we said we would have about a 1% reduction reduction each year over the three year period. And we've been well ahead of that pace. We were over 2% last year. So we're running a little bit ahead of schedule. So it probably won't be as much as we had been the last couple of years. But there will still be some improvement over the course of the year.

Thank you. One moment for our next question. Our next question will be coming from John Royal of JP Morgan. Your line is open, John.

Hi, good morning. Thanks for taking my question. So my first question is just on the $125 million of share buybacks. If that number comes to fruition, it's the largest number I think we've seen since fiscal 18. So my question is how do you arrive at that number? Is the idea to kind of allocate capital fully within cash flows and sort of plug the buyback in? Is there any cash draw in the assumptions? And should we expect that number to flex up and down depending on where you shake out in the EBITDA guidance range?

Hey, John. Good morning. This is Steve. When we think about capital allocation, I think it's just a function of how we prioritize, right? So we've tried to be very consistent with saying that if we have opportunities to make EBITDA and ROIC enhancing, from a growth perspective, we'll do that first and foremost. The 80 units would be reflective of that in the FY26 guide. We're at the target leverage level already, a touch below that, so we're not going to proactively look to take that down faster than it normally would happen. We don't feel like that's the right cost of capital answer for us. We're really proud of increasing the dividend for the 26th consecutive year, and so that's something that will continue to tend. And then the reality is as the company grows, we're throwing off more operating cash flow. And in a particular year that doesn't have a significant transaction included in it, all the fikes, we will throw off more operating cash flow than we can reinvest within you know, a discrete period of time, and we've tried to message that when that happens, we will return capital in the form of share repurchase. And so that's what you're seeing in the FY26 assumption. There is no draw from a debt standpoint to fund that. That would all be funded with operating cash flow on hand. And it would essentially be not diluted for us for both FY26 and going back into FY25 and mopping up. dilution from FY25 when we didn't do any share repurchase either.

That's very helpful. Thank you. And then my follow-up is just on the diesel side. I know it's not a huge needle mover for you always, but it was called out as a source of strength on the volume side in the third quarter. So just wondering how those trends are evolving this quarter.

Yeah. Well, last quarter, diesel was – was positive for us. But again, it's only about 16% of our mix. So it's not a huge contributor, but it does help move the needle. And we did see some increased traffic from over-the-road truckers. We had a little bit of in February with the weather conditions, like I mentioned before. But overall, it's been trending up. We continue to lean in on that for a source of incremental volume.

And one moment for our next question. Our next question will be coming from Michael Mentani of Evercore ISI. Michael, your line is open.

Yes, hi. Good morning. Congrats on the quarter, and thanks for taking the question. I just wanted to ask first off on top line and then at a margin follow-up. So just on the top line front, can you parse out a little bit traffic and ticket, how that played out for the quarter and then for the year, and then based on some of your early vendor negotiations, et cetera, how do you see that working into the 2% to 5% guidance that you've put forward for fiscal 26th?

Yeah, I think, Mike, I'll start on the traffic and ticket in the quarter. Traffic in the quarter was a touch negative, but that's all because of February, right back to Darren's point. So traffic, you know, the weather, it was kind of a single-digit negative in the month of February because of weather, and then positive for us and progressively better in both March and April. But if you're looking at kind of the total growth for the quarter, it was, was essentially ticket and very modestly negative traffic.

But again, it's really a February dynamic for us.

Okay. And just the outlook for the year.

Sorry, go ahead, Mike.

Sorry, I was just saying, and then, you know, how does that inform your view for the year in the two to five guide? What are the assumptions for that?

Yeah, positive traffic is built into that guide for the year. You know, we're trying to be conservative back to Darren's earlier conversation around the guests, but we do continue to have some ticket growth in there, more tickets and traffic, as you would expect, right? Just we have good visibility. into some of the inflationary pressures that we have right now in both grocery and the prepared food businesses. And we're trying to remain prudent in how we offset those and preserve margin and maintain the value proposition. But we've got modestly positive traffic and a little bit more kind of ticket improvement through both mix and price and within that guide.

Thank you. And our next question will be coming from the line of Brad Thomas of KeyBank Capital Markets. Brad, your line's open.

Hi, thanks. Good morning, and congrats on the strong quarter. I was hoping we could circle back to talking about the economy a bit more. You just alluded to this a little bit, but just as we think about inflation, what are you seeing? How are you thinking about that potentially impacting your consumer as tariffs continue to flow through. And then in the second part to that, just wondering as you look at the House spending bill, if there's any items in particular that you think might affect Casey's.

Thanks. Yeah, I'd say on the inflation front, we haven't seen a lot of inflation just yet. On the commodity side of things, actually, for the most part, we've ended up fairly flat. And that primarily impacts the prepared food and dispensed beverage business. On the grocery general merchandise business, outside of tobacco and almost exclusively cigarettes, we're not seeing a lot of inflation there either. So I would say at this point, we're not seeing any flow through of any sort of tariff impact as of yet. And so right now, I think we're in pretty good shape. And again, as I mentioned before, the fine behavior of most of our guests has stayed pretty consistent throughout the quarter. And I'm I'm not aware of any specific house provisions that would really impact the consumer. There is some stuff on accelerated depreciation that would certainly be a tailwind for us if it were to come to fruition.

But outside of that, I'm not aware of anything directly consumer related.

Great. Texas and Florida, these are obviously newer states for you where you're still learning a lot. I was wondering if you could talk about any new learnings on the likelihood that the CACES models continue to be very successful as they go into those new states, and any new thoughts on if fuel margins can be as high in these states for you as they are in your prior states. Thanks.

Yeah, I'd say with Texas and Florida, they're behaving exactly as we thought they would. And so, you know, so far, I think in the three proof of concept stores that we have converted in Texas, they've been really well received, particularly our pizza has performed exceptionally well in those markets. And again, while we're in different states, we are in, We tend to be in those smaller towns and rural communities, and so that is right in our wheelhouse. That is absolutely Casey's country, and there's a little bit of nuance between one state and another, but by and large, they're behaving exactly like we expected. On the fuel side, those margins in those geographies have tended to be a little bit thinner than what you get in the Midwest. The counter to that is that the volumes have been much higher, and that is all exactly what we expected and what we modeled when we did the deal. So we were expecting higher volumes and lower margins, and that's exactly what we're getting right now.

I would now like to turn the conference back to Darren Rebella, CEO, for closing remarks.

Okay. Thank you for taking the time today to join us on the call. I'd also like to thank our team members once again for their contributions in delivering another record year. Thank you.

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