Q4 2024 Caseys General Stores Inc Earnings Call

Thomson Reuters StreetEvents06-13

Participants Brian Johnson; Senior Vice President - Business Development and Investor Relations; Caseys General Stores Inc Darren Rebelez; Chairman of the Board, President, Chief Executive Officer; ...

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Darren Rebelez; Chairman of the Board, President, Chief Executive Officer; Caseys General Stores Inc. Steve Bramlage; Chief Financial Officer; Caseys General Stores Inc. Good day, and thank you for standing by, and welcome to the Q4 fiscal year 2024 Casey's General Stores earnings conference call.  Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"CASY":"Caseys General Stores"},"translate_title":"2024年第四季度Caseys General Stores Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CASY":0.9},"content_text":"Participants\nBrian Johnson; Senior Vice President - Business Development and Investor Relations; Caseys General Stores Inc\nDarren Rebelez; Chairman of the Board, President, Chief Executive Officer; Caseys General Stores Inc\nSteve Bramlage; Chief Financial Officer; Caseys General Stores Inc\nMichael Montani; Analyst; Evercore ISI\nBobby Griffin; Analyst; Raymond James\nAnthony Bonadio; Analyst; Wells Fargo Securities, LLC\nKrisztina Katai; Analyst; Deutsche Bank\nKelly Bania; Analyst; BMO Capital Markets\nChuck Cerankosky; Analyst; Northcoast Research\nCorey Tarlowe; Analyst; Jefferies LLC\nJohn Royall; Analyst; J.P. Morgan Securities LLC\nIrene Nattel; Analyst; RBC Capital Markets\nJohn Lawrence; Analyst; The Benchmark Company LLC\nBonnie Herzog; Analyst; Goldman Sachs & Co. LLC\nPresentation\nOperator\n Good day, and thank you for standing by, and welcome to the Q4 fiscal year 2024 Casey's General Stores earnings conference call. (Operator instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.\nBrian Johnson\n Good morning, and thank you for joining us to discuss the results for our fourth quarter and fiscal year ended April 30, 2024. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Board Chair, President, and Chief Executive Officer; and Steve Bramlage, Chief Financial Officer. Before I 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 expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity, and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities, and performance at our stores. There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including but not limited to the integration of the recent acquisition, our ability to execute on our strategic plan, or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks, uncertainties, and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. A reconciliation of the non-GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of the operating expense increase for the fourth quarter can be found on our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our fourth quarter and fiscal year results. Darren?\nDarren Rebelez\n Thanks, Brian, and good morning, everyone. We are excited to share our outstanding results, but I'd like to first begin by thanking our 45,000 Casey's team members for their commitment and effort in achieving another record fiscal year. As we look back on the first year of the three-year strategic plan that was set out in June of 2023, I have never been more confident in our team and their ability to execute the plan to deliver on our commitments we made to our shareholders. Casey's is here to make life better for our guests and communities every day. That's our purpose and it shows the positive guest feedback we receive, the delicious food we make, and the impact we have on our communities. This fiscal year, Casey's, along with its generous guests, partners, and team members, were able to donate over $5.7 million to make a positive impact in our [communities]. In addition, thanks to the strong performance this year, the company was able to direct $6 million in additional funding to charitable fund for donations in future years. Our community giving programs provide improvements for schools and sports fields, meals from those in need, disaster recovery support, and services helping veterans and their families. Thank you to our team members, our guests, and our nonprofit and supplier partners to make all this possible. We are proud to do so much good across what we call Casey's country. Now let's discuss the results of this past fiscal year. Fiscal '24 was another record year for diluted earnings per share, finishing at $13.43, a 13% increase from the prior year. The company also generated a record $502 million in net income and $1.1 billion in EBITDA, an increase of 11% from the prior year. Inside same-store sales were up 4.4% or 11.2% on two-year stack basis, with exceptionally strong results in the prepared food and dispensed beverage category, up 6.8% or 14.4% on two-year stack basis. We had good performance in grocery and general merchandise as well. With same-store sales up 3.5% or 10% on a two-year stack basis. Inside margin expanded 110 basis points year over year to 41%, a testament to our approach of handling commodity volatility while still maintaining a strong value proposition for our guests. We saw excellent results in pizza slices as well as both alcoholic and nonalcoholic beverages. Our food innovation team did a great job with thin crust pizza and our refreshed sandwich menu, all performing exceptionally well. Fuel gross profit was up 4%, with total fuel gallons sold up 6% and fuel margin averaging $0.395 per gallon over the course of the year. Our fuel team continues to take market share while maximizing gross profit dollars with a balance of fuel volume and margin. Our focus on operational efficiency continues to pay dividends. Same-store operating expenses, excluding credit card fees, were up only 2.7% for the year, impacted favorably by a reduction of same-store labor hours of 1.6%. The fourth quarter marked the eighth consecutive quarter of same-store sales late for same-store labor hours reduction. This was done while guest satisfaction scores improved and team member engagement scores hit an all-time high, showing that our store simplification efforts and operational excellence teams are driving efficiency the right way. Strong growth was also a high priority for the company because we built 42 new stores and acquired 112 more in fiscal '24. 22 of those acquired stores were in Texas as we were able to expand our footprint into our 17th state, and we're excited to bring all of our Casey's capabilities into that market. We believe our two-prong approach of building and acquiring stores is a great way to ratably grow the business every year, and we are well on our way to meet or exceed our three-year goal of at least 350 new stores. The strong results in fiscal '24 during a time where the broader retail industry has been challenged illustrates uniqueness, durability, and strategic advantage of the Casey's business model. I would now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal '25. Steve?\nSteve Bramlage\n Thank you, Darren, and good morning. Before I get into the financials, I'd also like to take a moment and recognize the entire Casey's team. The outstanding financial results for the quarter and the full year are remarkable accomplishment for the whole organization and a phenomenal team members that we have make it possible due to their hard work and their dedication. As a reminder, during the fourth quarter, Casey's had one additional operating day due to leap year. This impacted same store and total results for the quarter by approximately 100 basis points. The impact for the full year was therefore approximately 25 basis points. Our fourth quarter financial results were outstanding as diluted EPS was $2.34, a 57% increase from the prior year, and I'll dive further into those results. Total inside sales rose 11.9% from the prior year to nearly $1.3 billion with an average margin of 41.2%, which resulted in total inside gross profit dollars, up $72.1 million or 16% from the prior year. Total prepared food and dispensed beverage sales rose by $42.7 million to $357 million, that's an increase of 14%. And total grocery and general merchandise sales increased by $91 million to $900 million, an increase of 11%. Same-store prepared food and dispensed beverage sales were up 8.8% for the quarter. The average margin for the quarter was 58.1%, up 130 basis points from a year ago. Hot sandwiches and dispensed beverages performed well in the quarter. Margin benefited from some modest resale price adjustments by approximately 90 basis points. Cheese costs were down $0.08 per pound from the prior year to $2.12, and this had an approximately 20-basis-point benefit to margin. The same-store grocery and general merchandise sales were up 4.3% and the average margin was 34.4%, that's an increase of 140 basis points from the same period a year ago. Sales were particularly strong in our nonalcoholic and alcoholic beverages, and we experienced a favorable mix shift towards smaller pack sizes in the alcohol category. Retail price adjustments, the growth of our private-label program, and cost of goods management were all positive contributors to the margin for the quarter. During the fourth quarter, same-store fuel gallons sold were up 0.9% for the fuel margin of $0.365 per gallon. That's up approximately $0.019 per gallon compared with the same period last year. Our same-store gallon volume outperformed relevant Opus geographic data by several hundred basis points. Retail fuel sales were up $139 million in the fourth quarter, due primarily to a 9% increase in the total gallons sold to $695 million and was partially offset by a 3% decline in the average retail price of fuel from $3.36 last year to $3.28. Total operating expenses were up 11% or $57 million in the fourth quarter, approximately 6% of that increase is due to operating 137 more stores than a year ago. Another 2% of the increase was due to higher same-store employee expenses, approximately 1% of the change is related to an increase in accrued costs for incentive compensation due to strong financial performance. And finally, approximately 1% of the increase was due to the discretionary charitable giving a special team member bonus. Depreciation in the quarter was $92.3 million, up $11.7 million versus the prior year, primarily due to operating more stores. Net income was up versus the prior year to $87 million, an increase of 55%. EBITDA for the quarter was $209 million (sic – see press release, \"$219 million\"), an increase of 32%. Our balance sheet remains in excellent condition, and we have ample financial flexibility. On April 30, we had total available liquidity of $1.1 billion. Furthermore, we have no significant maturities coming due until fiscal 2026. Our leverage ratio, as calculated in accordance with our senior notes, is 1.5 times EBITDA, and we continue to have sufficient capacity to make good strategic investments as they present themselves. For the quarter, net cash generated by operating activities of $288 million, less purchases of property and equipment of $196 million resulted in the company generating $92 million of free cash flow. This brought our total free cash flow for the year to $371 million. Return on invested capital for the fiscal year finished at 12.1%, that's up 30 basis points from the prior year. At the June meeting, the Board of Directors voted to increase the dividend to $0.5 per share, a 16% increase. And that marks the 25th consecutive year that the dividend has been increased. During the fourth quarter, we also repurchased approximately $15 million of stock to bring the total for the year to $105 million and we still have $295 million remaining on the existing share repurchase authorization. Our primary capital allocation priority remains investing in EBITDA and ROIC accretive growth opportunities, but we will continue to be opportunistic in regards to share repurchase. The company is providing the following fiscal 2025 outlook. We expect EBITDA to increase at least 8%. We expect inside same-store sales to increase 3% to 5% and for inside margin to be comparable to fiscal 2024. The company expects same-store fuel gallons sold to be between negative 1% to positive 1%. Total operating expenses are expected to increase approximately 6% to 8%. We expect to add at least 100 stores in fiscal 2025 through a mix of M&A and new store construction. Net interest expense is expected to be approximately $56 million. Depreciation and amortization is expected to be approximately $390 million and the purchase of property and equipment is expected to be approximately $575 million. The tax rate is expected to be approximately 24% to 26% for the year. Consistent with our past practice, we're not guiding to a fuel margin CPG figure, nor are we providing EPS estimates. Finally, our May experience was as follows: Inside same-store sales and same-store fuel gallons sold were both consistent with our annual guidance range and expectations. Fuel CPG margin for May was in the low $0.40 per gallon. Current cheese costs are modestly unfavorable versus the prior year, and we expect first quarter operating expense to be up low-double digits and first quarter depreciation to be up mid-teens due to the timing associated with lapping the prior year acquisitions and new store builds. And I'll turn the call back over to Darren.\nDarren Rebelez\n Thanks, Steven. I'd like to again say thank you and congratulate the entire Casey's team for delivering another record year. The financial performance is a result of the tireless effort of the team and the dedication to executing our three-year strategic plan. The plan we laid out in June of 2023 had three pillars: accelerate the food business, grow the number of units, and enhance operational efficiency. We were off to an excellent start on each of these objectives. Our prepared food business, which is Casey's most significant differentiator in the convenience store industry, proved in fiscal 2024 that we have innovated the right products at the right value for our guests. In June of 2023, we rolled out a thin crust pizza offering, has allowed us to meet the needs of the entire family for their pizza occasion. And in calendar 2024, we launched a refreshed sandwich platform that has become a staple of the lunch daypart menu. This innovation as well as being strategic on retail price to ensure that we are a relative value for our guests has shown up in our financial results. Our same-store inside sales growth has been consistent with the strategic plan and as expected, prepared food and dispensed beverage has been pacing that growth. Despite lapping a strong fiscal 2023, we were up 6.8% in same-store sales during the fiscal year. Our commitment to growing the number of units is also off to a great start. During the fiscal year, we built 42 new stores and acquired another 112 for a total of 154 new and acquired stores. We are ahead of our pace for adding at least 350 stores by the end of fiscal 2026. Our two-pronged approach allows us the flexibility to build or buy, and our strong balance sheet gives us the freedom to be opportunistic with acquisitions. That was the case in fiscal 2024 where we had our second most acquisitive year in the company's history. Fiscal 2024 continued a trend of operating the business more efficiently. Our operational excellence team has done a tremendous job identifying areas to improve store efficiency while simultaneously improving guest satisfaction and team member engagement. Two of the highlights from the fiscal year happened inside the kitchen with the digital production planner and our automated voice assistant or AVA. The digital production planner provides the stores with clear data on what quantities of prepared foods need to be made to certain times throughout the day. AVA answers the phone and takes the door so the team members in the kitchen can work on what they do best, which is making great food. The team's work is not done, and we're excited to continue to enhance operational efficiency in fiscal '25 and beyond. Turning to the guests, Casey's Rewards now has over 8 million members. As rewards guests visit the store more frequently and spend more per trip, joining the rewards program is a win-win for both the guest and Casey's. I'd also like to welcome Maria Castañón Moats to the Board of Directors effective July 1. Ms. Castañón Moats is retiring from her role as a partner at PricewaterhouseCoopers on June 30, 2024, and she is a highly accomplished financial expert with over 30 years of experience. Most recently, Maria served as a leader of PwC's governance insight center, which helps Boards, investors, and management teams tackled today's toughest governance and strategic challenges. We're excited to have Maria join the Board. As we look forward to fiscal 2025 and beyond, I'm very excited about the future of Casey's. We have the financial resources, people, and leadership team to execute our strategic plan and drive shareholder value. We will now take your question.\nQuestion and Answer Session\nOperator\n (Operator instructions) Michael Montani, Evercore.\nMichael Montani\n Hey, good morning. Congrats on the results. Just wanted to ask if I could, if you all can discuss some of the value gaps that you're seeing out there today in terms of your prepared mood -- meals versus fast food competition? And what are you doing to drive newness and innovation, whether it's with LTOs or trying to win a second night of the week like you do in pizza?\nDarren Rebelez\n Yeah, Mike, I'll go ahead and take that. This is Darren. With respect to the value, we've seen I think it's broadly recognized in the restaurant industry that restaurants have taken a lot of price over the last couple of years, and we've probably taken a little bit more measured approach to that. And we like to say we try to price through the cycle. So as commodities at run-up, we took some price, but we didn't try to pass on all the price to consumers, and we're trying to keep that relative value gap because we know that the commodities will inflect and come back down. And as that has happened now, we see our margins start to improve a little bit on prepared foods, but more importantly, that value gap continues to widen between ourselves and our QSR competitors. And so what we're seeing is people trading into our channel and specifically the Casey's for their value proposition. In terms of the innovation, I mentioned a couple of things in the prepared remarks. The first will be the thin crust pizza, and we launched that about this time last year, and we were targeting about a 12% mix on that product and we have achieved that mix. And that was a -- this was a different category within the pizza that consumers definitely wanted and that was giving them a veto vote before. So we've innovated around that but probably the highlight of the show has been our revamped lunch sandwich program. We've added a crispy spicy chicken sandwich and then we upgraded the quality on all of those sandwiches. But we were able to do is by upgrading the quality, we also passed on some price. So we raised prices for that category, that subcategory, it's been up 85% in the first quarter. And so these products have really resonated with the guests and driving performance and prepared through the dispensed beverage category.\nMichael Montani\n Thank you for that. I guess the follow-up, if I could, was just around the margin commentary that it could be comparable for inside store. So I'm just wondering, Darren or Steve, if you can talk about some of the puts and takes that you see there. You definitely mentioned the cheese block prices. Just how to think about that over the course of the year?\nSteve Bramlage\n Sure, Mike, this is Steve. I'll start with that one. We had quite a bit of margin improvement over the course of our fiscal '24 as we talked about. And so it feels like out of the gate holding line on that is probably a prudent assumption for us to make. And when I think of the puts and takes on the grocery side of the business, that is a contractual business for us. We have a pretty good sense of the inflation were likely to occur in that business in fiscal '25 and we've already adjusted retail price points where we need to, to preserve margin in that category. And so I think we feel pretty good that that will be steady as she goes on the grocery side of the business. And then on the prepared foods side of the business at the moment, cheese looks like a little bit of a modest headwind for us on a year-over-year basis, and it was consistently a tailwind. We've got about three quarters of our cheese buy in the first quarter lock and a couple of hundred basis points of headwinds for us in that quarter. We're looking to lock more as we go further out, but right now that's -- the curve is not that conducive. The other commodities that I would say broadly remained favorable with the exception of beef, where we certainly still see some inflation. So you put all that together, and along with our desire to maintain the value proposition that Darren referenced earlier. It feels like the best way for us to generate gross profit dollar growth in the next fiscal year would be the [try to] target comparable margin so that's what we're doing.\nOperator\n Bobby Griffin, Raymond James.\nBobby Griffin\n Thanks for taking my questions and congrats on a great quarter. I guess first off I just wanted to see could you break out or give a little color on the difference between traffic and ticket inside the prepared food business or even just inside the store in general? Really strong results this quarter, so just curious how it moves throughout the quarter on a traffic and ticket basis.\nDarren Rebelez\n Yeah. Bobby, this is Darren. Our traffic was up about 1.5% over the course of the quarter and then the average ticket was up about 2.5%, 2.7%, so that's what gets you to our comp for the quarter, ex leap year effect.\nBobby Griffin\n Perfect. Good balance there. And Darren, I guess my second question or the follow-up is just on more high level. You guys are trending pretty close to right now 8 million Reward Members. Where are you on the journey of leveraging that? Is there still a big opportunity there? Or is it more just incremental benefits over the next couple of years? Just curious in your thoughts around on that as that member profile continues to get larger?\nDarren Rebelez\n Yeah, I think we -- our digital team has done a great job in building up the rewards program, as you mentioned 8 million members and we continue to activate that group. There are for sure the most profitable consumers that we have. They visit the store more frequently. They spend more when they come. Where our real opportunity lies in being able to get more sophisticated in one-to-one marketing. We do some of that today in different cohorts, but we really still have a bit of room to go in terms of being able to actually reach out to an individual through their specific buying patterns and start to influence that purchasing behaviors, so I do think there's still some meaningful runway there, but -- and our team is actively working on that as we speak.\nOperator\n Anthony Bonadio, Wells Fargo.\nAnthony Bonadio\n Good morning, guys. Nice quarter. So I wanted to ask about fiscal '25 guidance in the context of the three-year plan. Year one clearly finished quite a bit ahead of what all of us initially expected, so understanding that there was likely some pull forward versus plan. Can you just talk about one, why the low end of the multi-year CAGR is the right growth rate for '25 given the level of momentum in the business right now. And then two, how does your performance in year one change how you're thinking about what you can ultimately achieve by year three?\nSteve Bramlage\n Sure, hey good morning, Anthony. This is Steve, I'll start with that. Certainly had a good first year of the plan. We would buy into that statement as well feels most prudent for us to coming out of the gate to have a number that we feel highly confident in and we've got an ability to influence and get to right there is broadly speaking there's some concern, of course, around the health of the consumer and what's the consumer pocketbook look like, we feel really good about our value proposition and ability to deliver those results in light of that consumer situation but it just feels like it's the right number for us out of the gate to have. And I think as it relates to achieving the three-year plan, we feel really strongly that we continue to control our own destiny regarding the three year plan number that strong start helps our confidence level for sure. But I think the levers that we have available to us and the momentum that we're exiting the first year against that plan, whether it's -- the things in the mothership side of the business that are driving same-store sales growth or the broader dynamics in the industry around consolidation and new unit growth opportunities. We feel really good about our ability to deliver that strategic plan over the next couple of years.\nOperator\n Krisztina Katai, Deutsche Bank.\nKrisztina Katai\n Hey, good morning and congratulations on very strong results. I wanted to ask about grocery and general merchandise that you saw that acceleration sequentially on same-store sales. And I know, you talked about some modest retail price adjustments that you talked -- that you took last quarter. So just wanted to get your thoughts on how you see consumers' ability to continue to absorb higher prices. And I'm asking this in the context of many food retailers that have now started to announce price cuts. And then just how do you see the dynamic play out in that segment for the balance of the year, promotions have been rising.\nDarren Rebelez\n Yeah, Krisztina, this is Darren. I'll go ahead and take that. We have taken some modest price increases this year. And again, we haven't been overly aggressive on taking price throughout this entire inflationary period. So if you look at the subcategories inside of grocery and general merchandise outside of tobacco, the inflation has been about 2% to 2.5%. So it's not significant inflation there, and we have passed on some of that price, but we're seeing pretty consistent behavior with the upper income consumers. They are continuing to buy as they normally have. The lower end consumers, which is only about a quarter of our guest base, they're still continuing to buy. They're just moving around the store a little bit. A simple example is our fountain soft drink business has been really strong this last year. And that's especially so low or lower income consumers and that on a price per ounce basis is a lot more affordable than buying the bottle and can version inside the store. So they're still purchasing, they're just making different decisions. And those flow back and forth between categories. From what we're seeing right now, the consumer is still pretty resilient and able to purchase. They're just being a little more discerning about what they buy and frankly where they buy it. And then I think that's where our reputation for being a good value for the money overall has helped us in this environment because people can rely on us for that value occasion.\nKrisztina Katai\n Got it. And if I could just follow up on fuel margins which came in better than what the Opus data would have suggested. Maybe can you talk about what transpired in your markets from a pricing perspective? And I'd be curious to hear the strength of your margins in the context of same-store gallon growth that you also put up, which significantly outpaced the overall industry as well? Thank you.\nDarren Rebelez\n Yeah, I guess the thing I would say is that our field team is doing a fantastic job and managing pricing and balancing the margin and volume. Throughout the quarter, we had a $0.49 increase in wholesale fuel costs through the quarter. So the first couple of months in the quarter, margins were a little bit thinner. And then as we started to exit April, we saw wholesale prices come down. And so the margins started to expand a bit. But I would really just give a lot of credit to our fuel team. They've been very consistent in their approach and very nimble in terms of reacting to wholesale fuel costs and competitive dynamics that have allowed us to keep that balance. And so we've been able to maintain margins where we needed to and still drive those incremental gallons to be slightly positive over the course of the quarter.\nOperator\n Kelly Bania, BMO Capital Markets.\nKelly Bania\n Wanted to ask just about the low-income cohorts. I think in recent quarters, you've talked about how the fastest growth inside the store was coming from the low-income cohort's. I was just curious if you are still seeing that dynamic playing out or if that's changing? And I guess that maybe is attributed to your value positioning, but just wanted to check in on that. And then also just as you think about the fiscal '25 plan, are you expecting QSR to get more competitive? Because it does seem like there's some more challenges there and maybe some more value price coming within the QSR space. So just curious what's in your plan with respect to that.\nDarren Rebelez\n Yeah, Kelly, I guess I'd say on the low-income consumer, we're still seeing some purchasing strength from that consumer. Like I mentioned previously, they are still buying. They're just making different purchasing decisions inside the store, but they're still coming to the store. I wouldn't say there's a difference there. With the higher-income consumers, we are seeing them accelerate some purchases in certain categories. So I mentioned the new hot sandwich platform that we launched we're having about 85% growth in that category. That's being driven primarily by the higher income consumers in that category. And I think they are trading down from QSR, but they're training over to us and so we're seeing some strength there. They're also more likely to buy the alternative nicotine products. So the pouch products like Zen and some of the others that you see in the marketplace. Those are skewing more higher income. So we're seeing strength on both sides, I guess, is the short answer to the question. With respect to QSR competitiveness, it's an interesting question. Certainly, there's been a couple of the larger burger players have said that they're going to get a little sharper on value with some aggressive combo offers and that sort of thing. But I think the restaurant industry is a little bit of a trick bag because it's primarily a franchise business and a lot of those franchisees don't have places to turn to or other levers to pull to absorb a lot of the operating cost inflation that they've experienced over the last couple of years, and that's why you're seeing many prices expand as high as they have. So you really -- in that scenario, the franchisees have to decide that they can absorb the inflation and really take a haircut in their profitability to be able to drop their restaurant prices. So I'd really don't anticipate that happening. I think you'll see which you're starting to see now with some spurts of promotional activity for a month at a time, which is, I think what some of these guys have been doing but I don't know that that's very sustainable over the long term given the franchise dynamics.\nKelly Bania\n That's very helpful. I just also wanted to just ask about fuel a little bit just number one, how is diesel impacting the fuel margins or how did it in the quarter? And then just maybe an update on the fuel arbitrage strategy and the timing of getting that really into motion?\nDarren Rebelez\n On the diesel side, we've seen a little bit of softness in volume. Our margin has been pretty strong hanging in there, I don't have the exact number right in front of me, but volume was off a little bit and a lot of that has to do with softness in construction industry that's really dampened some of the demand for diesel fuel overall. With respect to the upstream procurement activity on fuel, we are just about ready to begin executing on that. Frankly, we're just -- wait for paperwork now. We filed for all the permits and we just haven't -- we've received verbal approval but we need the paperwork to codify that before we can start executing some purchases so I'd say it's imminent depending on when that paperwork shows up.\nSteve Bramlage\n Yeah, I would just add our experience in the quarter in terms of specifically diesel profitability, diesel's a couple of pennies more profitable for us on a gallon basis during the quarter than gas was but I don't think that's a significant change from what our experience historically has been.\nOperator\n Chuck Cerankosky, Northcoast Research.\nChuck Cerankosky\n Good morning, everyone. Great quarter. Can you talk a little bit about logistics over the next 12 to 24 months, the company's getting bigger, store growth has been considerable. Any new need for distribution centers, what might you be doing with trucking, and maybe applying IT to your routing and so forth to further streamline costs?\nDarren Rebelez\n Yeah, Chuck, at this point where our stores are located, we can supply all of our stores out of our existing three distribution centers that includes the stores we just recently added in Texas. So we can handle that out of our Joplin DC. And so we're very comfortable right now with our store footprint and our ability to scale the operation without having to add another DC at the moment, so no challenges there. And we're doing a lot of work on the IT side inside of the supply chain. Primarily more of the demand planning side at this point to get a little more sophisticated on how we procure products and bring them into the warehouse as well as the outbound loads go into a store, so more to come there, but we're definitely putting a lot of energy and effort behind that demand planning side of that supply chain.\nOperator\n Corey Tarlowe, Jefferies.\nCorey Tarlowe\n Darren, you mentioned that I think labor hours had been reduced now for, I believe, eight straight quarters. How much more opportunity do you think there is to continue to drive efficiency in the stores in this fashion?\nDarren Rebelez\n Yeah, Corey, That is correct. I said eight consecutive quarters of same-store labor hour declines. We have built into our plan this year, another 1% decrease in same-store labor hours. So we expect to make that happen over the course of the year. And I think we have line of sight to fiscal '26 being able to do the same thing. And so I guess we'll say, I want to emphasize is that, this is not just cutting hours. This has been very strategic and with our continuous improvement team really analyzing the work that's being done in a store in finding either ways of eliminating that work altogether, we're moving it upstream or outsourcing it so we get it out of the store. So we've been very successful at not only taking hours out, which obviously translates into OpEx savings, but also giving ours back in the form of Slack, which makes it a little bit easier for the store team members to just deliver a great guest experience, make better food, and frankly, take a little bit of a stress out of working in the store. And what's been great about it is as we do that, the job is easier. Team member engagement goes up because it's easier. Our team members get better at their jobs because they stay longer, they don't turnover as much, but they own turnover as much. We don't spend as much in training and overtime, in fact, training dollars in the fourth quarter were down almost 19% year over year. Guest satisfaction scores go up so it's really a virtuous cycle. But at the root of all of that is taking complexity out of the store and make it easier for our team members to execute. So we're really happy with the progress we've made, and we still have a decent runway of more improvements to make.\nCorey Tarlowe\n Got it. That's very helpful. I just wanted to follow up on private label. What are some recent successes that you've seen within that segment and within your expectations for this year, how are you playing that business? Thank you.\nDarren Rebelez\n Private label continues to be a good contributor for us and really presents a value opportunity for our guests. I'd say one of the more recent successes as we got into the liquor category with our Frost Trail Vodka, and Silk and Gold Bourbon and actually Frost Trail Vodka has become the number two selling vodka in our stores behind Tito's. So that's been a nice success story. The team continues to innovate across the categories. We have about 320 products in the assortment right now with another 20 or so under development. The team is continuing to evaluate ways of getting into different tiers of private label, whether that be a more premium offer or a more value-oriented offer. So more to come on that but team is actively working on evolving our private label portfolio to the next level.\nOperator\n John Royall, JPMorgan.\nJohn Royall\n The first one is, can you talk about how we should think about the mix of build versus acquisition in the 100-plus store additions in fiscal '25? Should we assume from the increase in CapEx that new store portion is accelerating? Or just any color on that would be helpful.\nSteve Bramlage\n Yes, good morning, John. This is Steve. Our assumption at the moment is it's going to be 50, 50 right in terms of units that would shade a higher proportion of total new units in FY25 towards new builds and the proportion that we have in FY24. So there's a little more PP&E spending associated with 50 new units versus the 42 that we had in FY24. But we also remember our continuing to remodel stores associated with all of the acquisition activity. And so there's a lag between closing an acquisition and actually putting capital into those stores. So there's slightly more NTIs year over year, but there's more remodel activity as well baked into that starting assumption around PP&E.\nOperator\n Irene Nattel, RBC Capital Markets.\nIrene Nattel\n Just a couple of follow-ups. On the private label piece, can you update us on current penetration, please?\nDarren Rebelez\n Yeah, Irene. Current penetration from a gross profit dollar perspective is right around 10% and if we exclude some categories, we don't participate in like tobacco and beer, that number goes up to about 13% of the grocery and general merchandise categories. That's our penetration is at this moment.\nIrene Nattel\n That's great, thank you. And then just tying together the innovation piece with the consumer spending piece. As you think about F25, '26 and the new product development pipeline, to what degree are you taking into account some of the pressure on consumer pocketbooks to -- if you will offer the right types of products for the current environment.\nDarren Rebelez\n We really spend most of our time innovating is on prepared foods and on private label. So both of those categories just naturally represent a very good value proposition to the guests, especially relative to international brand alternatives or QSR, as the case may be. So what we do is we focus on what the guest is looking for from a product perspective first. We've got to have the right product at the right level of quality and then we price it appropriately in our pricing and just as a matter of normal course, tends to be positioned as a much better value versus other alternatives. So we're certainly conscious of the value, but we're not overly -- trying to over engineer the product to be cheap. Frankly, we're trying to make it as good as we possibly can because we do believe we won with quality and then we can price accordingly for the value proposition.\nOperator\n John Lawrence, Benchmark.\nJohn Lawrence\n Great. Thanks, guys. Great quarter. Would you speak to a little bit about Casey Rewards and talk about the difference in spend for somebody that's really engaged on the rewards program versus somebody that's not and just how that has changed over the last couple of years started?\nDarren Rebelez\n Yeah, John, with rewards I guess where it started is about 40% of our guests are using some form -- are using the rewards program, so 40% of our transactions have a rewards account tied to it. They tend -- they visit more frequently and then they spend more when they -- they spend about 15% more when they visit versus a non-rewards member. So it certainly improves our benefit to get more and more people into that rewards program. And we've been on a cadence over the last really almost since the inception of about 100,000 new members per month so give or take a little over $1 million a year, they will come in on rewards program and with that engagement rate is about 40%, that's a pretty good number. We're still trying to grow that but that's where we stand as we sit here today.\nOperator\n Bonnie Herzog, Goldman Sachs.\nBonnie Herzog\n I had a question on your inside margins. You saw strong expansion last year, but are guiding margins to be flat this year. And I know you touched on cheese costs, but hoping you could just highlight any other headwinds or tailwinds that we should be mindful of this next fiscal year.\nSteve Bramlage\n Sure. Hey, good morning. This is Steve. On the grocery side of the business specifically, I think there's not a lot of pressure on that margin. Again, I think we've referenced earlier that's a contractual business for us. We know what those cost decreases are going to be. It's a couple of hundred basis points generally across that category, and we've adjusted retails accordingly. So I think we've priced to preserve margin on the grocery side. And broadly speaking on the prepared food side, cheese is a little bit of a headwind. Yes, I think the aggregation of proteins is a little bit of a tailwind. So beef is up for us, but almost all the other proteins are a modest tailwind. So I think that washes out based on what we know now and you end up with generally speaking, comparable margins year over year.\nBonnie Herzog\n Okay. That's helpful. And I know a lot's been asked already, but maybe a big picture question on from me. Darren and I guess, Steve, as you guys sit here today, where do you see the biggest opportunity for upside to your guidance in FY25 and as well as maybe where you see the biggest risk to your business? Thanks.\nDarren Rebelez\n Yeah, Bonnie. I'd say the biggest upside do we have is on the store growth side. I mean, we feel good about the entire business and we have a lot of momentum across the board but I think as the industry continues to be challenged more operationally as we get into a more normal operating environment, those pressures are continuing to mouth on smaller operators, and we see that in terms of the velocity of potential M&A opportunities. And so I would say probably the single biggest opportunity we have is if we can transact on some larger opportunities -- gives us a step change in our [storefronts] and of course, all the benefits that come with that. From a risk standpoint, I would say that I feel really good about where we're at with the consumer. I think the consumer health is probably the single biggest risk and that's a risk for everyone in retail but because we've been able to maintain a strong value proposition and preserve margins at the same time, I feel really good that we stand to benefit from that risk actually. And if a consumer wants get a little bit tighter, we'll probably be more of a beneficiary of that impact than a victim of it.\nOperator\n And I'm showing no further questions. I would now like to turn the conference back to Darren Rebelez for closing remarks.\nDarren Rebelez\n Okay. Thank you all 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. Have a great day, everyone.\nOperator\n This concludes today's conference call. Thank you for participating. 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