Casey's General Stores, Inc. Aktie

Good day, and thank you for standing by. Welcome to the Casey's General Stores Fourth Quarter Fiscal Year 2026 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 today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our fourth quarter and fiscal year ended April 30, 2026. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; 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 Fight transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores.

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including, but not limited to, the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of conflicts in oil-producing regions and related governmental actions, as well as other risks, uncertainties and factors, which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website.

Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call as well as 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?

Thanks, Brian, and good morning, everyone. Before we dive into our strong results for the year, I would like to take a moment to highlight some of the great work [indiscernible] is doing in the communities we serve. Our purpose here is to make life better for our guests and communities every day. It's not just something we say. It's truly something our team members live out every day.

This fiscal year, with the support of our guests, team members and partners, Casey's contributed more than $8 million towards our strategic giving priorities of education, hunger relief and support for community service, including first responders, military veterans and their families. Through our pass for classrooms program, schools and educational organizations across our footprint received 100 grants totaling $1.3 million. In support of hunger relief, more than 10 million meals were provided to local food banks through our Feeding America campaign, and through our work with military nonprofit partners, we helped support more than 2,000 veterans and their families. This impact was made possible because of the dedication of our 50,000 team members, the generosity of our guests and the support of our partners. All of us here at Casey's are proud of how we keep showing up for our communities, and I want to thank everyone who played a role this past year.

Now let's discuss the results for this past fiscal year. We had an outstanding fiscal '26 that achieved the highest ever diluted earnings per share, finishing at $19.16, and net income of $714 million, both representing a 31% increase over the prior year. The company also generated nearly $1.5 billion in EBITDA, its highest ever, an increase of 23% from the prior year. Inside the store, the growth was impressive. Total inside sales grew 10.2% during the year, while inside same-store sales were up 4.2%, or 7% on a 2-year stack basis. Total prepared food and dispensed beverage sales grew 10.2%, and same-store sales were up 5.2%, or 8.8% on a 2-year stack basis.

Total grocery and general merchandise sales were up 10.1% and same-store sales grew 3.9%, or 6.2% on a 2-year stack basis. Whole pizzas and nonalcoholic beverages helped drive the strong results during the year. Inside margin expanded 70 basis points year-over-year to 42.2% 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.

This remarkable performance inside the store is a testament to our team. Over the course of the fiscal year, we launched successful LTOs, expanded our specialty pizza menu, introduced a new frozen carbonated beverage platform and finished our wing test and started scaling. We also partnered with Monster on a red, white and blue [indiscernible] flavor that was sold almost exclusively at Casey's from late January to early May. This product, celebrating America's 250th anniversary, resonated extremely well with guests and was a top seller in the energy category throughout the quarter. It also helped raise hundreds of thousands of dollars for hope for the Warriors and the children of Follow Patriots Foundations, two causes that we are passionate about here at Casey's.

At the pub, fuel gross profit was up 21% with total fuel gallons sold up 10% and fuel margin averaging $0.426 per gallon over the course of the year. The capabilities of our fuel team has developed over the past several years helped us excel during a time of uncertainty and volatility.

Our operations team continues to run the stores efficiently. For the year, same-store operating expenses, excluding credit card fees, were up only 3.7% for the year, impacted favorably by a reduction of same-store labor hours of 0.2%. At the same time, guest satisfaction and team member engagement were at or near all-time highs as we continue to view operational excellence and store simplification efforts through the lens of our team members and guests. Our fiscal 2016 results illustrate the durability and strength of Casey's advantaged business model but we're confident in our ability to deliver results in a variety of economic clients.

I'd now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal '26. Steve?

Thank you, Darren, and good morning. Prior to going over to the financials, I'd also like to thank the team for their hard work and their dedication throughout the year. The incredible financial results for the quarter and the full year are a function of the entire organization working together and executing at a very high level. The results that we are delivering are not easy to achieve.

Now on to the great financial figures for the fourth quarter. Diluted earnings per share was $4.37. That is a 66% increase from the prior year. Total inside sales rose 7.4% from the prior year to over $1.5 billion with an average margin of 42.4%, which resulted in total inside gross profit dollars up $61 million or 10.5% from the prior year. Total prepared food and dispensed beverage sales rose by $36 million to $428 million. That's an increase of 9.2%. And total grocery and general merchandise sales increased by $68 million to $1.09 billion, an increase of 6.7%.

The same-store prepared food and dispensed beverage sales were up 6.6% for the quarter. The average margin for the quarter was 59.5%. That's up 170 basis points from a year ago. Whole pizzas and appetizers [indiscernible] performed well in the quarter. Improved waste was the primary driver of margin improvement and a lower LIFO charge also favorably impacted margins. Cheese costs were down $0.06 per pound from the prior year to $2 [indiscernible], which had an approximate 15 basis point benefit to margin. Same-store grocery and general merchandise sales were up 5.1% and the average margin was 35.7%. That's an increase of 90 basis points from the same period last year.

Sales were particularly strong in nonalcoholic beverages, specifically energy drinks. Margin expansion was primarily driven by cost of goods management, while product mix notably, nicotine and nicotine alternatives also had a favorable impact.

During the fourth quarter, same-store fuel gallons sold were up 1.5% with a fuel margin of [indiscernible] per gallon. That is up approximately $0.093 per gallon compared to the prior year. Retail fuel sales were up $446 million in the fourth quarter due primarily to a 14.1% increase in the average retail price from $2.98 to $3.40, along with a 3.6% increase in the total gallons sold to $848 million, which also contributed. We believe the flywheel of our unparalleled inside offering paired with competitive fuel prices is helping our comps both at the pump and inside the store.

Total operating expenses were up 10.1%, or $67 million in the fourth quarter. Approximately 2% of the total OpEx increase is due to operating 40 more stores than in the prior year. Same-store employee expense accounted for approximately 1.5% of the increase due primarily to increases in labor rates as same-store labor hours were roughly flat. Same-store credit card fees contributed approximately 1% of the increase due to the higher retail prices of fuel. Higher performance-based variable incentive compensation and discretionary charitable contributions contributed to approximately 4% of the increase.

Net interest expense in the quarter was $21.7 million. That's down $6 million from the prior year. Depreciation in the quarter was $115.5 million, and that's up $8.1 million versus prior year, primarily due to operating more stores. The effective tax rate for the quarter was 23.7%, compared to 23% in prior year, and that's due to an increase in unfavorable permanent differences.

Net income was up versus the prior year to $162.7 million. That is an increase of 65.5%. EBITDA for the quarter was $350.3 million, an increase of 33.2%. Our balance sheet remains in excellent condition, and we have ample financial flexibility. On April 30, we had total available liquidity of $1.4 billion. Also, our debt-to-EBITDA ratio as calculated under the terms of our credit facilities was 1.5x.

For the quarter, net cash generated by operating activities of $398 million, less purchases of PP&E of $191 million, resulted in the company generating $207 million in free cash flow. This brought our total free cash flow generation for the fiscal year to $722 million. This is inclusive of an approximate $100 million cash tax benefit, related to capital spending over the course of the fiscal year from the One Big Beautiful Bill. Return on invested capital for the fiscal year finished at 12.7%. That's up 120 basis points from the prior year, and this represents the highest return on invested capital achieved since a tax [ aided ] 2018.

At the June meeting, the Board of Directors voted to increase the dividend to $0.65 per share. That is a 14% increase, marking the 27th consecutive year that the dividend has been increased. During the quarter, we repurchased approximately $63 million of shares, and the Board also expanded the existing share repurchase program up to a total amount of $1 billion. We anticipate approximately $200 million in share repurchases in fiscal '27. And furthermore, we're providing an outlook as follows for fiscal '27.

The company expects inside same-store sales to increase $0.02 to $0.05 with inside margin above 42%. The company expects same-store fuel gallons sold to be between negative 1% to positive 1%. Total operating expenses are expected to increase approximately 5% to 7%. And the company expects EBITDA to increase between 8% to 10%, which would imply a 35% increase on a 2-year stack basis at the midpoint of the range. We expect to open at least 120 stores in fiscal 2027 through an even mix of M&A and new store construction.

Net interest expense is expected to be approximately $95 million. D&A is expected to be approximately $490 million, and the purchase of PP&E is expected to be approximately $800 million. Please note this is inclusive of the cost of converting the majority of the [indiscernible] stores to Casey's. The tax rate is expected to be approximately 24% to 26% for the year.

Now consistent with our prior practice, we are not guiding to a fuel margin CPG, nor are we providing earnings per share. However, for modeling purposes only, the FY '27 EBITDA outlook is based on a mid $0.40s per gallon fuel margin, combined with the other points of guidance. Our main experience was as follows. Inside same-store sales, same-store gallons sold and fuel CPG margin are all consistent with achieving the annual guidance. Current cheese costs are modestly favorable versus the prior year. And we expect first quarter operating expense to be up high single digits, partially attributable to higher [ credit card ] fees due to the higher retail prices of fuel.

With that, I'll turn the call back over to Darren.

Thanks, Steve. I would like to again express my gratitude and congratulate the entire Casey's team for delivering another record year. Their hard work and dedication in executing our 3-year strategic plan was impressive and has showed up in our exceptional financial results. In June of 2023, we laid out a plan that had 3 pillars. Accelerate the food business, grow the number of units and enhance operational efficiency. We've now completed that plan, and I'm extremely proud of the growth of the organization, as well as meeting and exceeding our financial goals.

Over the course of the plan, we had a thin crust pizza, [ simple pizza ] LTOs, including 3 regional offerings and an expanded specialty pizza menu. In addition to Pizza, we revamped our Hot [indiscernible] lineup create a new fryer platform with [indiscernible] Fries and launched 2 new beverage platforms with [indiscernible] coffee and our frozen carbonated product, [ Frostbite ].

For this summer, we recently brought back a [indiscernible] favorite, Bacon Cheeseburger Pizza and made it even better by pairing it with Casey's fries, and our [ soft wings ] were sold at nearly 850 stores by the end of the fourth quarter. Despite lapping our largest store growth year in company history of fiscal 2025, we opened 80 stores with [ free ] acquisitions and 40 new builds in fiscal 2026. We were able to do this while converting 50 [ Setco ] stores to Casey's, bringing our synergies to those sites. This brought our 3-year total to over 500 new units, which well exceeded our original 350 unit goal.

While adding and remodeling a substantial number of stores, we continued our commitment to operating the business more efficiently. Through continuous improvement, we have done a great job of identifying opportunity areas to make the stores more efficient, while improving overall guest satisfaction with strong team member engagement. For the course of the past 3 years, we reduced same-store labor hours by approximately 5%, while also improving turnover by more than 70 percentage points.

As we closed out our 3-year strategic plan, I want to reiterate how proud I am of the work we've accomplished and grateful for the amazing team we have in place. On behalf of the Casey's team, we're all excited to share with you our plan for the next 3 years on June 24 in New York [indiscernible]. We love the hand we're holding. We look forward to continuing the momentum.

With that, we will now take questions.

[Operator Instructions] Our first question comes from the line of Bobby Griffin with Raymond James.

Congrats on capping off an impressive 3-year plan, Darren and team. My first question, Darren, is on the fuel side of the business and more of a high-level question. Just -- has -- in your view, as the historical relationship we're used to between higher [indiscernible] prices and higher oil prices and fuel margin compression just broken down more over the last, call it, a few years. And I guess I'm just asking this in the context that in the quarter, [ RBOB ] went up over $1.50, and you guys still reported the highest record CPG margin in Casey's history. And even when you look back versus the time of Russian Ukraine, it still was materially better of outsized gains.

So just any thoughts there on -- have the dynamics in the industry and the cost pressure has just changed a relationship that maybe [indiscernible] on Wall Street were kind of used to being a little bit more firm with higher oil versus compression CPG?

Yes, Bob, it's a good question. I don't know that it's fundamentally changed for the industry. I do think it did play out a little bit differently this quarter than maybe we've experienced historically. And what I mean by that is there's a lot of volatility in that path from where we started, when the conflict started up to today. And so it wasn't a smooth increase going up like we've experienced before. There's a lot of choppiness. And I think, generally speaking, as a retailer, we don't like to change those prices as frequently as maybe the dynamics on the ground or the wholesale cost is changing.

And so when you hold those prices somewhat flat and then it drops for a little bit, you make some -- your margins widens out for a moment in time and then it spikes back up and it gets compressed. So I think it was just a little bit more volatile on the way up relative to the experience we've had in the past, and that enabled us to capture a bit more margin than we might have otherwise done.

Our next question comes from the line of Krisztina Katai with Deutsche Bank.

Congrats on a really strong finish to the year. I wanted to ask you guys on the inside margin progression, right? When we look at prepared food margin, it was, I think, the best margin in 5 years that you have seen. Also on the grocery side, we continue to see really strong performance. So I wanted to get your views on how do you view the durability of that? Like how much of what you were seeing in the fourth quarter is repeatable? And I know on the prepared food side, you said reduced waste was the biggest driver. So can you just speak to how much opportunity there still from an extension perspective?

And then just on the grocery side, like how are you guys viewing volume versus price, if you could touch on those dynamics?

Yes. Christina, this is Steve. I'll maybe take a shot at that. I think broadly on margins there are clearly some structural tailwinds that are helping us, but we would expect to continue, certainly, on the grocery side of the business. If I start there, right, we mentioned now for more than several quarters, the mix shift that is benefiting us in the grocery categories. Nicotine is probably the single biggest contributor to that. So as combustible cigarettes generally continued to decline as a portion of that mix replaced by nicotine alternatives that is a very accretive margin switch for us and for, frankly, any retailer our position of having leaned in early and disproportionately with some of the changes we made in our back bar.

Planograms and creating more space for nicotine alternatives and shrinking space for cigarettes for the first time really ever, has given us, I think, a structural advantage in the marketing of those products. And so I do think that is going to continue to accrete for us generally to a lesser extent, but still real. the shifts within the nonalcoholic beverage category. So energy drinks have been the star performer for us for a while. And that part of the store, and those are a higher-margin category than other things in that non-alcoholic category. And so as they continue to outperform, that will also naturally accrete up.

Finally, within the [ center store ] in grocery, our investment in our liquor assortment and the footprint and the [indiscernible] advantage we have with, I think, over 1,500 liquor licenses, allow us to have a much broader assortment in that category. And within the alcohol category at large liquor is going to be margin accretive for us certainly relative to beer. So we feel good about structural tailwind on the grocery side of the business.

And the prepared food side of the business is more commodity oriented, right? So we're a little bit more subject to what's happening in the market. And so certainly, the fall and cheese costs was a modest benefit for us this year, that can give and take away equally, the waste progress we've made has very much been self-help. I think we feel we have more opportunity there. But prepared food is going to be more sensitive to commodity cycles. And certainly, as we continue to lean into new products in there and mix that category a little differently as wings grow and pizza velocity accelerates, certainly pizza velocity will be accretive to that category also.

Our next question comes from the line of Edward Kelly with Wells Fargo.

Congrats to the great quarter. I wanted to ask you about momentum in the business and the cadence, and what from the consumer. Obviously, gallons and inside sales were strong despite higher gas prices. But can you talk about the cadence there? What you saw as you got into April? Maybe more color around May. I'm just kind of curious if consumer behavior has really started to change at all related to this?

And then more specifically, you gave a little bit of color around May. I'm just kind of curious if you could maybe expand upon how you were thinking about the guidance the year in terms of the inside sales guide and the range, which I know is more typical to you. But I'm just curious as to sort of what the puts and takes were around that range?

Yes. And I'll go ahead and talk a little bit about consumer. I'll let Steve talk about guidance. With respect to the consumer, I would say, overall, I think consumers are hanging in there. They're -- they're probably being a little more discerning about where they shop and how they spend their money. But we're seeing growth across all of the income cohorts. And the way we look at that is below $50,000 a year in income is low income. $50,000 to $100,000 a year is mid, and above $100,000 is higher income. And I'd say that all 3, we're seeing growth a little bit less so in the lower income. The other two cohorts, which is 3/4 of our guest base are spending comparably to what they've been spending on.

In terms of specific behaviors, really, we're not seeing a lot of change on the inside store. We are seeing some change in fuel, but it's very minor. And it's all the things that we always talk about. If fuel prices get high, we start to see premium sales dip a little bit. We see sales of ethanol blended fuel go up because it's a little cheaper. We see gallons per transaction drop a little bit. We see fuel transactions themselves go up because people are coming more frequently. So all of those dynamics are happening right now, but in low single-digit percentages. So this is kind of very nuanced behaviors.

The one thing that is a little bit new that we've seen is the gallons redeemed through our Casey's Rewards program were up 23% in the quarter. So people are clearly seeing value in our rewards program in leveraging those points to take some sense off a gallon for fuel. And that's making that fuel value proposition even stronger for Casey's and our guests.

So Steve, I'll let you talk about the guidance.

I think that when we put the guidance out there, we're trying to provide a range at least as it relates to the inside and outside volumes where we feel we have really good prospects to land in the middle of that range for the course of the year. And so within May specifically, what we saw in May makes us feel very good about our ability to land in the middle of that annual range. So I think it's very consistent.

And CPG, we provide the modeling guide to CPG, just sanity check everybody on what it takes to get within that range. And clearly, the margins broadly in the industry are strong at the moment. And so we feel good about our ability to achieve kind of that modeled number that's required to give the EBITDA range.

The one thing I would point out, if you just think of sequencing, right, the strength of the fourth quarter CPG number is great right now. It's obviously difficult comp when we get to the fourth quarter of FY '27. And so we are taking that into account as we kind of think of sequencing. So we're -- strong CPGs as we sit here today. Not necessarily assuming we will have equally strong year-over-year CPGs in the fourth quarter just because of the way the conflict has impacted things.

Our next question comes from the line of Jacob Aiken-Phillips with Melius Research.

Congrats on the strong quarter, and the strong results overall. I wanted to ask about wings. As you've rolled it out more broadly, are you seeing that same incrementality across those markets as you did in the early test stores? And does it vary in any way by geography, store format, daypart, et cetera?

Yes, Jacob, broadly speaking, the wings have performed very well for us so far. Again, it's very early stages. We were rolling out a lot of stores in the fourth quarter. So hard to pin down a lot of results to the overall P&L just from that one area.

From a geographic standpoint, these are all being supplied out of our [ Ankeny ] distribution center. So within that geographic range is where the -- where all the wing stores are. So it's pretty comparable geographies. So not -- there's always a little bit of nuance between DMAs, but for the most part, fairly consistent.

What we're really happy about was the goal was to try to create an incremental occasion per week, so to speak. And where you could get pizza and wings if you wanted to, but you could also -- the wings were good enough that they could stand alone as a separate order. And -- and we are seeing some of that. We're definitely seeing nice attachment with pizza, but we're also seeing guests [indiscernible] on their own. And what happens is when a guest orders wings on their own, they increased their prepared food order frequency by 30%. So that's a really good [ fact ] pattern for us. We really like to see that trend, and we'll continue to try to reinforce that to grow that. But we're seeing the incrementality there.

Our pizza volume, whole pizza volume where we're selling wings is still up high single digits. So is certainly not cannibalized at all, and it is adding a different occasion for our guests.

Our next question comes from the line of Pooran Sharma with Stephens Inc.

Congrats on posting extremely robust results here. I just wanted to maybe understand how you guys were thinking about approaching that $5 level in retail gas prices? I think, on the last call, you mentioned that there were some specific actions that you may take if you get to that level. It seems like we're kicking closer to that level than we were on the last call. So maybe just wanted to get a broader update on just how you're feeling there?

And then if you could also provide an update on how -- on hedging your cheese cost?

Yes. [indiscernible] with respect to the retail price of fuel, we have historically started to see a little bit of demand destruction as you get closer to that $5 a gallon range. We're sitting around the $420-ish average retail price right now. So we still have a ways to go.

And when we look back to the beginning of the Ukraine Russia war, we're -- if you take on an inflation-adjusted basis, we're about $1 per gallon lower today as we sit here today than we were at the peak during that conflict. So I think we still have quite a ways to go before we start to get to where we might see some demand destruction. And again, when you start to see that, you see some of those consumer behaviors.

I'm not sure that there's much that we would do on our side to change the play we're running. We tend to price at the lower end of the competitive set as it is. And so we would certainly strive to maintain that posture in the marketplace. And we think, ultimately, in a higher price environment that accrues to our benefit as we get more people coming to our stores versus somewhere else. But that's about all we would plan to do on the fuel side.

Our next question comes from the line of Chuck Grom with Gordon Haskett.

On store growth, can you speak to the decision to accelerate growth? And I guess, how this speaks to the acquisition opportunities that are out there and your opportunities to continue to consolidate stores?

Yes, Chuck, I'll talk about the store growth for this year, and I'll let Steve talk about M&A opportunities.

This -- I guess I would wouldn't necessarily characterize our target for this year is so much an acceleration over a course of time as it is an acceleration just versus prior year. And typically, our growth algorithm will call for about 4% new units every year. That's what 120 new units gets us is right around that 4% range. It is an acceleration from last year. But last year, remember, we had just acquired the CEFCO chain, and so we are integrating that business. [ And so ] we pulled back a little bit on new store growth. to give our team a chance to absorb the CEFCO acquisition and start working on the remodel.

So it's really more a timing and sequencing thing. So I would say the guidance for store growth for this year is much more getting back on track from a historic standpoint and really more consistent with our growth algorithm.

And as it relates to just forward visibility around, kind of, the M&A environment, I think we feel very bullish on it. I know we feel [indiscernible] very bullish on it. As you know, there is a very long tail of small players in the industry, the majority of stores in the industry are owned by small players, and a lot of those are under significant operational pressure beyond just kind of noncourse generational change. And so I think the outreach that Brian leads for us here, I think we've -- we're on tagging and having more conversations than we ever had.

I think there's a lot of receptivity to what Casey's can bring to an owner of a business as a steward of that business going forward. And I think we feel highly confident in, broadly speaking, what's happening in the industry from a consolidation standpoint prospectively and certainly, our ability to play a role in continuing to pursue those opportunities in a way that makes sense for us and our shareholders.

Our next question comes from the line of of Bonnie Herzog with Goldman Sachs.

I just had, I guess, a question on your EBITDA guidance this year. Your 8% to 10% growth expectation is quite impressive. So hoping to hear what gives you the confidence to be able to generate this growth, especially considering the tough comps from last year?

And then what are the key drivers of this growth between fuel and inside performance? And I guess, what might drive upside to guidance as well, as what could possibly cause you to fall short of guidance?

Bonnie, I'll take a crack at that. I appreciate you acknowledging that. We know that, listen, it's a big number on an absolute basis. We are very sensitive to that reality and the strong finish to the fourth quarter makes the absolute number a little bit bigger. But fundamentally, right, our mousetrap we are highly confident that mousetrap continues to work, and we believe it is strategically differentiated. And so our algorithm for this business generally is that half of our EBITDA growth is going to come from what we would call the mothership and half is going to come from new units.

The prior question, we addressed our confidence in new unit contribution, both building and buying them. So we feel very good about the 120 units, and about a flow-through of the new units we've added in fiscal '26. And then from a mothership perspective, right, the strength that we addressed earlier, just the inside store performance that the margin tailwinds that we have broadly in the store. And the differentiated offer that we have both in grocery and prepared food, the velocity we've had in the units and just with the platform expansion in the wings, specifically on prepared food and a lot of the momentum on pizza.

We need -- if we need 4% EBITDA growth from the mothership, I think between the grocery business and the margin accretion, the assortment that we have and just the platform expansion and the velocity on the prepared food business, we feel really good that there's a path that is largely within our control. So to land us to that 8%, 10%.

Our next question comes from the line of Corey Tarlowe with Jefferies.

The inside sales have been particularly strong, but I wanted to just double-click on a question that was asked earlier around chicken wings. Could you just provide a little bit more context around, how big do you think this can be in terms of percentage of preferred food sales, or [indiscernible] per box or comp lift or maybe margin? Just to give us some flavor for, no pun intended, for how -- how to think about the ultimate potential of this initiative?

And then, Steve, just a follow-up on the OpEx guide. I think you said for Q1 is up high singles. And that includes credit card fees and seeming that, that doesn't go away, but then the full year guide, I think, is [ 5% to 7% ]. So could you just describe that dynamic as well?

Yes, Corey, I'll talk about the sales and wings. Still very early stages to determine the whole potential for wings, and we really haven't given any numbers. But ultimately, as we think about long term, and I want to emphasize this, this is a long-term comment. So don't go baking it into any models, Corey.

But we think this has the potential to be the size of the pizza business, frankly. Now that -- it took us 40 years to get to where we are today in Pizza. So -- so it's going to take us some time to continue to build that credibility. But everything we're seeing right now would suggest that this can be an incremental occasion, that it's good enough to stand on its own. And what I'd tell you is, even in our Des Moines DMA where we've had it for over a year, we're comping at a 20% growth rate year-over-year from the launch. So we think there's still a lot of upside there.

We still have 2 more years of just rolling it out across the system where we get fully scaled. And once we're fully scaled and -- we'll probably be able to do a little more from a marketing perspective to continue to drive the business. So not really prepared to give a number today, but suffice to say we have a lot of confidence in the team and the plan and the upside potential for that part of the business.

Our next question comes from the line of Irene Natell with RBC Capital Markets.

Let me just add my congratulations to the [indiscernible]. A couple of questions. First of all, I think you mentioned that you're going to complete the conversion of the CEFCO stores this year. So, I guess, first question is how should we kind of be thinking about the cadence of lift in, I guess, inside store sales as and once that's completed?

And then just a follow-up question on something you just said about wings over the long term. Should we be thinking about wings as kind of having multidimensional offerings over time in the same way that pizza got for example? So again, like how that could scale up over time?

Yes, Irene. With respect to the CEFCO remodels, yes, we said that we would be largely complete by the end of this fiscal year, and we are still on track to do that. The team is doing a fantastic job getting those remodels underway. What I'd tell you is it's a little bit choppy in terms of trying to model the impact for those. What I can tell you is post remodel, what we've experienced so far in the 50-ish stores that are remodeled, is that they've exceeded our expectations.

Now having said that, as we go into this next phase of remodel, these remodels are a little more [ complicated ], a little more involved where we have to actually build kitchens in the stores. So the stores are coming off-line or -- or are under remodel for, call it, 4 to 6 weeks. And so they'll take a dip in performance while that construction is going on, then they come out the other end and they accelerate. So -- and we'll have close to 130 of those stores throughout the fiscal year in varying stages of that. So a little bit tough to say what the overall impact is.

Kind of the way I think about it is, it's kind of neutral for this year. We don't see a lot of upside. I don't see really any downside. But it's a process to get through. Going into next fiscal year would be when we're largely clean, the remodels will be done, and then we should be able to experience some of that upside. So I think we still have a lot of dry powder left with the CEFCO conversions for next fiscal year.

[Operator Instructions] Our next question comes from the line of Mark Carden with UBS.

So you guys called out the strength in whole pies. Do you think you're seeing much incremental food away-from-home trade-in coming as a result of fuel price increases? And just how are you thinking about price gaps in pizza today relative to the major national chains?

Yes, Mark, a couple of things on that. We are we are experiencing some great growth on [ whole pie ]. I think it is a combination of the great work our team has done on the innovation front in terms of getting really interesting and unique pizza builds out in the marketplace in conjunction with pulsing in some promotional opportunities to create value for our guests.

But by and large, we are priced anywhere from $1 to $3 below the national brand competitors on whole pizzas, and that's -- that tends towards the $3 range, not so much the $1 range overall. If you look in this past year, the top 4 pizza chains that we track, they've taken about 2.5% price this year, this past year, we haven't taken any. And we haven't taken any for a couple of years while they have continued to do that. So I think that value proposition is just that much stronger for us right now.

With respect to high gas prices, I do think it's interesting because there's been a narrative that pizza velocity in the industry is under pressure because of high gas prices. But we have fuel pumps in front of all of our stores with a big price [ line ], it flashes what the gas price is and our pizza business is up 10% year-over-year. So I'm not sure that gas -- there's a strong correlation between cat prices and pizza performance. But suffice it to say, we feel good about our value proposition, and it seems to be resonating with our guests.

Our next question comes from the line of Chuck Cerankosky with Northcoast Research.

Great quarter. Congratulations. A question about your closed store base of [ 41% ]. How many of those are fits that are in the process of being remodeled? How many will be sold and what kind of cash might that generate and the other, and how many of those are just going to reopen out of the 41 that aren't in [ flight ].

Yes, Chuck. I'll take that. So the [indiscernible] those are not stores that are going to reopen, right? We would consider those permanently divested. Some of those are Fike. The best example I give you is the state of Mississippi. So we acquired 10 or so stores, I think, as part of that total transaction in the state of Mississippi and upon further review, decided that just wasn't the right place for us to fly the flag at the moment given that location and the capital returns that we expected. So we did ultimately sell those stores.

And so you can see total monetization on the cash flow statement. We got about $42 million last year from largely the sale of those 41 stores. There were some other things in there, but it gives you a sense of what the monetization of those were. And there were some other CEFCO stores beyond the Mississippi ones, but there were also stores from prior acquisitions. And then sometimes, we will close two old stores when we build a brand-new store. So it's a variety of things. But CEFCO certainly is contributing there, and Mississippi is probably the highest [indiscernible] decision that we made against [indiscernible].

Our next question comes from the line of Tom Palmer with JPMorgan.

I wanted to ask, and I know Corey touched on this, but on the OpEx growth, running a bit higher to close out the year. It sounds like the start of the year than the 5% to 7% growth outlook. When do we start to see OpEx growth taper off?

And when we think about the drivers, are there new expense initiatives we should be thinking about versus maybe more mechanical items such as lapping nonrecurring costs like the elevated incentive comp?

Yes. Thomas, Steve, I'll take that. So the 5% to 7% for the year, I don't think there's a lot of special new initiatives per se that would be included in that number. We tend to run in the stores, or the majority of our operating expense. I think stores are about 75% of our total OpEx. And so you're looking at a 4% kind of wage rate increase across the store base, partially offset by some hours. But by and large, you've got 4% in most of your base there. We will certainly have new units coming in as well, which would increase that.

I think the sequencing in the first quarter versus the fourth quarter is probably the most impactful from a modeling standpoint. And so yes, high credit card fee, higher credit card fees year-over-year first quarter of this year, for sure, because of higher retail. And if you think of what contributed to the higher OpEx print in the fourth quarter of '26, a lot of that was discretionary or performance-based. So 4% of the increase we had in the fourth quarter of '26 was discretionary charitable contributions and higher performance compensation.

And so the planning assumption is right, we go back to the normal course and incentive comp normalizes, we've kind of prefunded a lot of our charitable giving for the next couple of years. And so by the time you get to the fourth quarter, you actually on a year-over-year basis would have a much lower OpEx increase. And so when you sequence it that way, you can kind of add it back in that 5% to 7% range.

Our next question comes from the line of Mike Montani with Evercore ISI.

Just wanted to ask about two things. One was just a clarification, if I could, in terms of traffic and ticket, and how the comp cadence played out throughout the quarter. And then the follow-up was around EBITDA synergy realization from CEFCO. Are you guys closer to $20 million or $10 million this year? And do you still think $40 million plus is attainable kind of over the next 2 years?

Yes, Mike, with respect to traffic [ in ticket ], we're -- I was really happy with how we performed in the fourth quarter from that perspective. Our [indiscernible] was up about 3%. Our ticket was up about 2.5%, and that's basically what gets you to the 5.5% same-store comps. So I feel really good about the balance that we're striking. We're keeping pricing action at a minimum and largely, that's taking place in the nicotine category. Overall, there's a couple of other areas, candy in particular, that have some price actions, virtually none in Prepared Foods. And we're winning on traffic, which is, I think, more sustainable way to grow the business and our team has done a fantastic job driving traffic to the stores and then building that basket once they get there.

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Great quarter here. I wanted to ask about store growth and different geographies and how you think about the competitive landscape is really the question I wanted to ask, you're moving more into Texas and in Florida. These are not big markets for you today, but obviously, you have tremendous potential going forward. Wondering if you could just touch on any nuances you're seeing from a competitive standpoint in these or any other markets?

Yes, sure, Brad. Certainly, we're getting into some newer geographies for us as you mentioned, Texas and Florida in particular. And even as we've expanded our footprint further east into Ohio, Michigan, Kentucky, Tennessee, we start to run into some different competitors. But overall, we faced some pretty strong [ bettors ] in the geographies we do operate in, in a more concentrated basis, and we perform very well there. So we're very confident that in spite of perhaps a different competitive set than we're accustomed to. We performed very well against really the best in the business. And they do well, what they do well, and we do [indiscernible] we do good at. And so I think our model is a little bit differentiated versus a lot of theirs, and so we compete pretty favorably.

Texas in particular has been a good market for us as we've gotten in there. Florida is a little different with us being in the [ panhandle ], I would probably envision us from a store development standpoint, probably moving more north and west towards the core footprint of our geography as opposed to South and East towards the heart of Florida from that perspective. But that's how we're looking at it today. We feel very confident in our ability to compete in whatever geography we're operating in.

Our next question comes from the line of Kelly Bania with BMO Capital Markets.

Congrats on a strong quarter. Steve, I wanted to just go back to fuel margins a little bit. You talked about it a little bit with respect to your comments on the sequencing there. But I think what sticks out is just clearly how strong the year ended from a fuel margin standpoint, and you're still guiding to your algorithm for fiscal '27. And I think you called out a [ mid-40s ] CPG, which I guess, would call for continued expansion from the [ 42.6% ].

And so I'm just curious what drives that further increase in CPG for next year, is that just given how strong they've already started out? Is there something more structural with what Casey's is doing internally? And do you think that mid-40s is sustainable in future years? Or could we come off of this kind of elevated environment at some point?

Kelly, I'll try to address it. So there's -- I think there's a lot of things in the ball, right? So technically, we're not guiding the mid-40s. We just are telling you at mid-40s is what makes the math work.

Now having said that, for sure, we're starting off the year strong, right? The exit from the fourth quarter flatters our ability to achieve that number for the course of the year. We know that. We're sensitive to having to lap a really strong number in the fourth quarter in this fiscal year. We don't know what the conflict is going to [indiscernible] or how that's going to play out. So we're [ sensitive ] to do that. But structurally, [indiscernible] things on the structural side.

When we do the correlations historically, COVID notwithstanding, CPGs have tended to increase pretty consistently with CPI. And so we do generally feel pretty good about that reality. And so for sure, we don't see that necessarily breaking. And secondly, the cost of doing business in the industry for the small players has only gone up, and the pressure that they feel across other aspects of the business has also only become more acute. And so for most of the industry, right, the 2/3 that are in chains of 10 stores or less, they just have a checkbook. They don't have a prepared food business and a grocery business than a fuel business. They have a checkbook for the store. They have to pay people the same amount that we have to pay people. They don't have the procurement benefits that we have. They're over-indexed on tobacco relative to us.

They don't have any ability to scale or have any kind of a digital platform. The only thing they can do in the short term to help their situation to stay above water is to turn a lever on fuel margin. And so it's very difficult based on the [indiscernible] information for the industry for us to continence resetting for the industry at a much lower level of CPGs than kind of we see right now, again, onfall notwithstanding.

So you put all of that in the full. The structural stuff, the entrance strength that we have because of the conflict, we feel like that modeling guide that we have is imminently achievable also based on what we know right now.

Thank you. I would now like to hand the conference back over to Darren Rebelez for his remarks.

All right. Thank you for taking the time to join us on the call today. We look forward to sharing our next 3-year strategic plan in a couple of weeks. Have a great rest of your day. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q3 FY 2026 Casey's General Stores Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our third quarter ended January 31, 2026. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; 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 Fikes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores. There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including, but not limited to, the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of conflicts in oil-producing regions and related governmental actions as well as other risks, uncertainties and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website.

Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as a detailed breakdown of the operating expense increase for the third 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 third quarter results. Darren?

Thanks, Brian, and good morning, everyone. Before we go into further detail on our outstanding third quarter performance, I'd like to praise the entire Casey's team for their hard work serving our guests. The team's high level of execution across the board is reflected in the numbers I'll share with you shortly.

But before I do that, I want to highlight the positive impact Casey's is making throughout our geography. Supporting the community is core to who Casey's is. And right now, we're activating our Feeding America campaign in partnership with DoorDash. The campaign will benefit over 60 local food banks in our footprint. Thank you to our guests and team members who are engaging in this campaign to combat hunger and food insecurity.

Now let's discuss the results from the quarter. Diluted earnings per share finished at $3.49 per share, up 50% from the prior year. Net income was $130 million, an increase of 49% from the prior year. The company generated $309 million in EBITDA, 27.5% higher than the prior year. Inside the store, prepared food and dispensed beverages remained strong, supported by a compelling value proposition and continued innovation, such as the 2 new specialty pizzas, Twisted Pepperoni and Ultimate Meat. Margin expansion was driven primarily by grocery and general merchandise.

As a result of our joint business planning process, our guests have early access to Monster's Ultra Red, White and Blue Razz flavor, celebrating 250 years of American independence. This product will be sold almost exclusively at Casey's locations up until Memorial Day weekend. In the fourth quarter, our team executed well as same-store gallons grew for the fifth consecutive quarter while fuel margin exceeded $0.40 per gallon.

I'd now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 4% for the third quarter or 7.9% on a 2-year stack basis with an average margin of 42.2%. Same-store prepared food and dispensed beverage led the way, as sales were up 4.3% or 9.2% on a 2-year stack basis with an average margin of 58.3%. Continuing the momentum from the prior quarter, whole pies and hot sandwiches in all dayparts performed well during the third quarter.

Same-store grocery and general merchandise sales were up 4% or 7.4% on a 2-year stack basis, with an average margin of 35.7%. Energy drinks and nicotine alternatives continue to outperform the category with double-digit growth. On the fuel side, same-store gallons sold were up 0.4% with a fuel margin of $0.41 per gallon. The Mid-Continent region saw an approximate 4% decline this quarter according to Opus fuel gallons sold data, indicating that we continue to take market share.

In the third quarter, same-store operating expense, excluding credit card fees, increased 4.6%. Same-store labor hours were down slightly as the organization continues to prioritize efficiency while being mindful of guest satisfaction where scores for the fiscal year are at an all-time high.

I would like to now turn the call over to Steve to discuss the financial results from the third quarter. Steve?

Thank you, Darren, and good morning. Before I begin, I also want to share my appreciation for the hard work and the great results from our team members. Total revenue for the quarter was $3.91 billion. That's an increase of $12 million or 0.3% from the prior year, primarily due to higher inside sales as well as higher fuel gallons sold that was nearly offset by a lower retail fuel price. Results were also favorably impacted by operating approximately 1% more stores on a year-over-year basis.

Total inside sales for the quarter were $1.48 billion, an increase of $80 million or 5.7% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $26 million to $423 million, an increase of 6.5%. And grocery and general merchandise sales increased by $54 million to $1.06 billion, an increase of 5.4%. Retail fuel sales were down $57 million in the quarter as a 2.3% increase in fuel gallons sold was offset by a 4.6% decline in the average retail price. The average retail price during the period was $2.72 a gallon, and that compares to $2.85 a year ago.

We define gross profit as revenue less cost of goods sold, excluding depreciation and amortization. Casey's had gross profit of $1.01 billion in the quarter, an increase of $94 million or 10.3% from the prior year. This is driven by both higher inside gross profit of $51 million or 8.9%, as well as higher fuel gross profit of $46.2 million or 15.3%. Inside gross profit margin was 42.2%, that is up 130 basis points from a year ago.

Prepared food and dispensed beverage margin was 58.3%, and that's up 50 basis points from prior year. Cheese was $2.05 per pound for the quarter compared to $2.12 per pound last year, that's a decrease of 3% or approximately a 20 basis point benefit to margin. Margin also benefited from improved waste, which was partially offset by promotional activity. The grocery and general merchandise margin was 35.7%. That's an increase of 150 basis points from the prior year. The change was impacted by strong cost of goods management, as well as a favorable mix shift within the category. Fuel margin for the quarter was $0.41 per gallon. That's up $0.46 per gallon from prior year.

Total operating expenses were up 4.1% or $27.4 million in the quarter. The total operating expense comparison benefited from $13 million in onetime deal and integration costs that we incurred in the prior year related to the closing of the acquisition of Fikes, which amounted to a roughly 2% year-over-year benefit. Approximately 1% of the total operating expense increase is due to unit growth, as we operated 31 more stores than the prior year. Same-store employee expense accounted for approximately 1.5% of the increase due to increases in labor rates, which were partially offset by reduced same-store labor hours. Snow removal due to unfavorable weather in the geography during the quarter contributed to approximately 1% of the increase. And finally, higher variable incentive compensation and charitable contributions contributed to approximately 1.5% of the increase.

Net interest expense was $23.4 million in the quarter. That's down $6 million versus the prior year. That's primarily due to paying off debt associated with the Fikes transaction. Depreciation in the quarter was $114.1 million. That's up $8.9 million versus the prior year, primarily due to operating more stores.

The effective tax rate for the quarter was 24.1%. That compares to the prior year of 19.2%. The increase this year was driven by a onetime benefit in the prior year from revaluing state deferred tax liabilities following the closing of the Fikes transaction. Our financial flexibility remains excellent. On January 31, we had a total available liquidity of $1.4 billion. In our credit facility debt-to-EBITDA ratio ended the quarter at 1.6x. For the quarter, net cash generated by operating activities of $260 million, less purchases of PP&E of $184 million, resulted in the company generating $76 million of free cash flow, and that compares to generating $91 million in the prior year. At the March meeting, the Board of Directors voted to maintain the quarterly dividend at $0.57 per share. Also during the third quarter, we repurchased approximately $76 million in shares.

We are updating our previously communicated fiscal 2026 guidance as follows: Fiscal '26 EBITDA is now expected to increase 18% to 20%. The company now expects inside same-store sales to increase between 3.5% to 4.5% and an inside margin of between 41.5% to 42.5%. Total operating expenses are expected to increase approximately 10%. And the tax rate is now expected to be between 23.5% and 24.5% for the fiscal year. The remainder of our annual guidance remains unchanged.

Now our results for the month of February were as follows. Same-store volumes, both inside and outside the store, were strong, and they are reflected in the updated annual guidance. Fuel CPG was in the low $0.40 per gallon. Current cheese costs are slightly favorable versus the prior year. And we expect fourth quarter operating expense to be up mid-single digits. That's partially attributable to higher expected variable incentive compensation.

I would now like to turn the call over to Darren.

Thanks, Steve. About a year ago, we began a test for chicken wings in our Des Moines market at 225 stores. I'm happy to announce that we've expanded to over 550 stores as of the end of the third quarter. Our culinary team has done a great job getting the flavor profile right with 5 sauces and 3 dry rubs that have resonated with our guests. Our goal with the wings has been to complement pizza and create an incremental occasion within our prepared foods business. While we do not have financial metrics to share on the wings yet, the platform has been largely incremental, as our [ PC ] units in the stores where we sold wings were up high single-digit percentages in the quarter.

Within Casey's Rewards, we crossed a major milestone as we now have over 10 million members. This is a testament to the whole team, from marketing to store operations and everyone in between, providing real value for our guests to earn and use points throughout the store and at the pump. As we continue to grow, we're excited for more guests to join the Casey's Rewards platform.

On the fuel side, our fuel team continues to grow our capabilities. They prioritize business and business relationships, growing our self-supply capabilities and remaining focused on increasing our capacity to haul fuel in Casey's trucks. This, coupled with our strong inside offering, gives us a strategic advantage in the fourth quarter.

And lastly, as we are now in the final quarter of our 3-year strategic plan, I'd like to announce that we have set a date, June 24, for our next Investor Day. We'll hold the event in New York City and plan to release our next 3-year strategic plan at that event. And I'll let you in on a little secret: We plan to serve our famous pizza at the event. We will now take your questions.

[Operator Instructions] Our first question comes from Corey Tarlowe with Jefferies.

Great. Darren, I was wondering if you could comment on the impact of volatility on your business? And any comments on the recent events and some of the impacts that, that might have had on either fuel sales or profitability?

Yes. Sure, Corey. As you well know, volatility is

[Audio Gap]

par for the course in this business. And so these events like what's happening with Iran right now happen from time to time. The most recent history we have on that was a few years ago when the Russia-Ukraine war began. And typically, what happens in a situation like this is the cost runs up on gasoline, and it's driven by crude oil primarily and then flows through the system. Wholesale prices move up. Retail prices move up, but tend to move a little bit more slowly. And so margins get a little bit compressed on the front side of that curve. When there's an ultimate inflection point and costs start to come down, retail prices will come down as well that also tend to come down more slowly and the margin expands. So over the course of the cycle, it historically has ended up being a net positive from a fuel margin standpoint. But it is a little bit of tightening on the front end, a little bit of expansion on the back end.

When we look at the history from the most recent event with the Ukraine war, that's exactly what played out. Margins did get a little bit compressed, but not bad. I mean, the quarter -- our quarter in '22, where we had the first initial shock from the Ukraine war, we printed a $0.36 fuel margin that quarter, then the subsequent 3 quarters were all over $0.40 a gallon. So again, there'll be a little bit of tightening, but this is not a huge deal from a margin perspective.

And then on the volume side of things, with absolute retail prices, we really don't start to see any level of demand destruction until we're approaching $5 a gallon in retail. And we -- as we sit here today, we're right around $3 a gallon in our footprint. So we have quite a ways to go before we would be concerned from a volume standpoint.

That's very helpful. Steve, I just wanted to follow up, as you think about the inside same-store sales of 3.5% to 4.5%. Some of your largest vendors have called out that they're investing in price. How do you think about pricing impacts within the full year guide? And what do you expect to have from a pricing perspective? Because I do believe you also mentioned increased promotions.

Yes, Corey, thank you. We don't -- we don't lean heavily into price as a general manner as a constituent part of our inside sales bridge. As you know, we had a little under 3% pricing, reflecting

[Audio Gap]

in our current quarter, and that's primarily on the nicotine category where we tend to just pass through the manufacturer, price increases that we have. I mean, our -- the strength of our inside offer is very much especially in prepared food, predicated on the value proposition that we've worked very hard to maintain.

We took almost no price. I think actually with the way commodities worked in the quarter, we had negative pricing net within the prepared food category. And so as our QSR competitive set broadly has continued to take price in the last couple of years, that's really helped the velocity of units in that prepared food category, and we will continue to run that play. We like to be a value proposition on that side. And so I would not expect us to lean into price heavily going forward in prepared food. We always have that as an insurance policy if we would need to, but we simply have not needed to do that.

On the grocery side, we do use pricing to preserve margin. That's a contractual business for us annually. And so we will continue to take price in that category, commensurate with the inflation we take from our partners. And the pricing we do receive, to your point on promotion in the grocery category, especially is often largely or completely offset by promotional support from our vendor partners.

Our next question comes from Mark Carden with UBS.

So to start, particularly solid performance in grocery and gen merch. Can you provide a little more color on what drove the strength in nonalcoholic beverages? Would assume the Monster's more of a benefit next quarter, but if you saw a tailwind there, definitely let us know. And then do you think there was a stocking up that sit ahead of the severe winter weather that helped the segment?

Yes, Mark, this is Darren. On the non-alc beverages, it was driven primarily by energy overall. Energy was up about 14% in the quarter. There's also -- we had strong growth in our flavor enhanced waters. And so both of those 2 categories really contributed to the non-alc beverage performance.

In terms of stocking up, I don't think we saw any real change in behavior from that perspective during the quarter. And so -- and I'm not sure what the impetus would have been during the third quarter to for that to happen. So no, we didn't see any of that behavior in the quarter.

Our next question comes from Chuck Grom with Gordon Haskett.

You noted that quarter-to-date sales are strong, yet your implied fourth quarter guide has a pretty big decel on the stack. So I was just wondering if you could reconcile that and maybe just double click on the overall health of your customer based across income cohorts? Any changes we've seen recently?

Yes. Maybe, Chuck, I'll talk about the health of the customer. I'll let Steve talk about the guidance in that bridge. From a consumer standpoint, health of the customer, we're still seeing customers shop at our stores across all income cohorts. For sure, the operating income cohorts are stronger, but we're growing business across the low-income cohorts as well. And what we're seeing in terms of behavior difference, I'd say, the middle and upper income cohorts are performing about the same. They're still shopping at our stores. They're shopping across all categories, very little change in their behavior.

The lower income cohorts are still growing with us. I think that's an important thing to call out. They are growing at a slower rate than the other cohorts. Accepted prepared foods where they're actually growing as strong, if not stronger than the higher income cohorts. And I think that's really a reflection of the value proposition that our prepared foods category offers relative to QSRs and other of our national brand pizza competitors. They're also leaning a little bit heavier on the dispensed beverage side within prepared foods because that typically represents a better value than the bottled and canned beverages on the grocery and general merchandise side.

On grocery and general merchandise, lower income consumers are buying at a little bit lower rate, still growing again. And that kind of holds together logically as they may have opportunities to go to a grocery store and buy in bulk at a lower unit cost than what we would be able to provide. But that's really what we're seeing on the consumer side. Still feel very good about the overall health of consumer and their shopping habits. And Steve, do you want to talk a little bit about the guidance?

Yes. Sure. Chuck, we normally don't give quarterly specific numbers for much at all because we're probably not that precise. But coming into the fourth quarter, we're trying to serve up some [ squeeze math ] for people as best we can. So I think on the inside number, I think year-to-date, we're about 3.8% or so on the inside number. The inside range, the midpoint of that range is right around where we are, maybe a touch higher. So ultimately, I think that [ squeeze math ] would indicate that fourth quarter should look pretty close to what the year-to-date inside experience.

[Audio Gap]

we're not expecting it to be significantly different.

Okay. Great. And then just on the grocery margins up really, really healthy here, right, up 150 basis points, talked about cost of goods management and mix. Maybe dive into the cost of goods management, where you are with your vendors on some of that journey versus how much of it was mix? Just so we can think about the complexion in the next few quarters.

Yes. This is Darren. Yes, on the cost of good management side, I think it's really just a reflection of our joint business planning process. Our merchants have done a really good job of partnering with our supplier partners in creating plans that allow us to manage that cost of goods a little bit more effectively and at the same time, grow the business for all of us. And so I'd say that's really what you see on the cost of goods management side.

The mix is really a couple of different things. The fastest-growing subcategory within grocery and general merchandise is nonalcoholic beverages, and that also carries the highest margin rate and had some margin expansion in the quarter. So that's favorably mixing. The other thing I would call out is the nicotine category, and that's a combination of a couple of things. The combustible cigarette mix has gone down, and that's the lowest margin part of that subcategory. The nicotine alternatives, so I think the pouch business is up 31% in the quarter. [ Vape ] was up another 12 as enforcement actions against illicit vape have improved. And so those both carry more than double the margin rate of combustible cigarettes. So when you throw all that into the mix, that really does favorably impact the grocery and general merchandise category margin rates.

Our next question comes from Kelly Bania with BMO Capital Markets.

Darren, you, I think, made the comment that you typically don't see demand destruction until the retail price of fuel hits closer to $5 per gallon. And obviously, we're still far away from that. I was just curious if you have seen any impact to consumer behavior, traffic ticket, inside sales just in the past few weeks? And if you are making any contingency plans from a promotional perspective if this fuel margin environment remains elevated or continues to increase?

Yes, Kelly, we've seen no signs at this stage of the cycle in terms of any change in guest behavior. Certainly, people don't like seeing gas prices go up. But again, I'll put this in perspective. Right now, after this last week or so's events, retails are up, give or take, on average, about $0.30 a gallon. At that $0.30 a gallon, our -- in the low $3 a gallon range on average. That's still $0.30 below the starting point when the Ukraine war began.

So we -- fuel prices had run down quite a bit over the last year or so. So we were actually sitting in a really low position. So the fact that we moved up a little bit more recently still puts us at a very low absolute retail price relative to recent history. So again, we're still not seeing any sort of behavior change. In the event that we start to get up into that close to $5 a gallon range, we certainly will do some things to encourage demand. But as it stands right now, our traffic to our stores has been positive, and that's a great credit to our merchandising, our food team, our store ops teams who are running great stores every day to get people to come in. And that's worked across the board. And so that value proposition relative to other alternatives is still very strong. And so in a higher price environment for fuel, I think more consumers will be more discerning about where they spend their money. And they'll see the value proposition that we have every day in our stores, and I think that ultimately accrues to our benefit.

Just wanted to also ask about the wings. It sounds like that's now at 550 stores. Can you talk a little bit more about the timing and cadence of additional rollout of that program to more stores? And also, can you tie in just how you think about the pricing of that item? I think what we're seeing is $7.99 for 8 pieces. And just curious how you think about the value proposition of that category to say, pizza or hot sandwiches or some of your other core prepared food offerings?

Yes. So with respect to timing, we're going to have a more measured rollout over time. And we'll do that essentially by distribution center to make sure the supply chain is running efficiently. And keep in mind, this just isn't selling a new product. We have equipment that we need to install in stores to enable that process. We have to do a lot of training. So I would say over the next 2 years would be the cadence where we would roll out the rest of the chain.

With respect to pricing, we intend to approach the pricing similar to how we've done with pizza in terms of keeping a gap relative to any sort of national brand competitor. So we encourage trial and adoption and continue to grow the unit velocity on that business. Our ultimate goal for this platform is really to create an incremental occasion in addition to pizza. And so it certainly can be an add-on to the pizza, but also as a quality and value proposition to stand-alone [ comment on ] as an incremental occasion.

And in the early indications are that we are selling the product to wing-only customers. And we're also seeing that when people are buying our wings, they are increasing their frequency of visit as a result of that. So we feel very good about the progress so far. Still have a long way to go, but things are working well so far.

Our next question comes from Michael Montani with Evercore ISI.

Yes. Congrats on the results. Just wanted to ask if I could, I guess, on 2 areas. One is, if you could discuss a little bit, Steve, any synergies that you realized kind of in the quarter and then what a realistic full year outlook is for synergy from CEFCO? And then just a follow-up on the wings, how should we think about potential CapEx investment, if it's a light touch versus a heavier touch? How do you see that kind of split out over time? And then similarly, on the OpEx side, do you need to add kind of a full-time equivalent worker to be able to deliver the wing value prop?

This is Steve. I'll maybe start on the synergy one, turn it to Darren for the wings. We are right where we expect it to be as it relates to the integration of Fikes and CEFCO is probably the overarching comment I would make. If you go back to the synergy capture that we expected and talked about at the time of the closing of the deal, so a year ago this quarter, the early innings of those synergies were going to be some G&A capture, which were right where we thought we'd be, probably a little bit ahead of that. And certainly some fuel benefit capture both from converging the supply agreements of the 2 entities together, which we just completed actually this quarter, everybody is now on the same kind of time line with the same volume benefit in those negotiations as well as the pricing, which we took over really on day 1 and centralized that pricing. So most of those synergies have all been realized.

We have started to take some synergies inside the store slowly as we put some of our product into some of the proof of concept stores that we converted a while ago, and we're also now in the process, converting another 50 stores that had previously had kitchens in them, we'll have 50 more converted by the end of the fiscal year. Those stores will also start to show prepared food synergies, which is the bulk. About 40% of the total synergies we expected to capture would ultimately be prepared food because we're putting pizza in. That will follow the conversion schedule.

And so long story short, we -- Fikes for sure, as we had communicated at the beginning of the year, will be EBITDA accretive for us this year comfortably. So -- and the synergy capture is right where we expect. And the bulk of the prepared food synergy capture will really start in the first half of next fiscal year, and we'll ramp that up throughout the course of the year.

Yes, Michael, I'll go ahead and take the wings. From a CapEx perspective, it's a pretty light lift. Really, it's just putting a commercial fryer into the stores. We have electrical. We have [ van hoods ] already. There's a little bit of small wares that are required to produce the product. But that's it. It's just -- we got thousands of stores we have to install them into. So it takes a little time. But from a CapEx perspective, it's not a significant investment.

On the labor side, it's not as -- it's a little more scientific in terms of how we add the labor, it's not just adding an FTE. We have a pretty robust labor modeling process that we go through with time motion studies to understand what it actually takes to produce any product in our kitchens. And then the team forecasts the demand in those stores. And based on that, they will get an incremental labor allocation to the stores.

If the volume were high enough, it may warrant an incremental FTE. I would say, for the most part, at this stage, it's warranting incremental hours but not necessarily an FTE at this stage of the game, but every store has their own specific allocation based on that math. And then that ebbs and flows as the volume -- the actual volume experience goes forward. So that's how we approach the labor.

Our next question comes from Bonnie Herzog with Goldman Sachs.

I was hoping you could touch on the durability of your new unit growth, I guess, over the long term? Curious to hear from you what is a sustainable pace, new unit growth? And how many sites do you have in your pipeline? I guess, can you share with us if you're still on track to deliver on your guidance this year and to add, I guess, the 80 new stores, which implies about 60 new store openings in the fourth quarter? And then are you guys also sort of on track to add the 500 new stores by the end of this fiscal year?

Yes, Bonnie, we are definitely on track to open 80 stores this year. I'm not sure what numbers you're looking at for the fourth quarter, but we do not need to open up 60 stores in the fourth quarter to get to our 80. So -- and remember, that's a combination of new store -- new to industry stores and M&A. And so on both fronts, we are well positioned to wrap up the fourth quarter and hit that 80 for this year. And that 80 million for this year will get us to 500 for the 3-year planning horizon, which was originally 350 stores, then we moved it up to 500. So I feel very good about that.

And then on a sustainable basis, we are well situated from a pipeline perspective on NTIs, and we have stores right now, if we're buying real estate, we're really putting that into FY '28 or '29 pipeline at this point because the pipeline is in good shape. And then in the M&A front, I'd say the team feels very good about the small deal M&A and the pipeline there as well. And remember, we like to have both NTIs and M&A working at the same time. And if multiples get a little bit too rich on the M&A side, we can lean heavier on the NTI side to keep that ratable store growth.

And lastly, I'd say just in terms of the pace, our algorithm or growth algorithm at a high level is pretty straightforward. We get about 4% growth from organic, running the mothership. So same-store sales, fuel profitability, efficiency in our operations and then 4% from new units. So give or take, every year, we kind of approach that year with a goal of growing the units by 4% per year. So we pulled back a little bit in this current fiscal year deliberately. So we have the opportunity to integrate the CEFCO acquisitions because there's a lot of work to be done there. But then we'll be back on that 4% unit growth rate.

Our next question comes from Jacob Aiken-Phillips with Melius Research.

So thanks for the clarity on the unit expansion. I'm just curious, as we're approaching the new strategic plan -- I'm not going to ask for numbers, but how should we be thinking about the biggest growth levers from here? And you outlined unit expansion. And you recently talked about how maybe you're going back to adding some labor to the stores as opposed to the constant reduction in same-store hours. So just levers on top line and bottom line that we should be thinking about?

Yes. Jacob, I think first of all, I don't want to share too much about the next 3-year plan. I want you to come to New York City and have some pizza with us, and we'll tell you all about it in June.

But yes. Look, fundamentally, we're still going to grow the business by growing new units, by running the business efficiently, by growing our inside sales. And so we'll have all kinds of details around that. But I mean, those are the things we're going to continue to do to grow our business.

On the labor side, I've mentioned on the last few calls that when we entered into this 3-year strategic planning cycle that we're wrapping up right now, we said we would reduce labor hours by 1% same-store per year over the 3-year period. And we have actually exceeded that goal with great work done by our operations team and continuous improvement team to make that happen. But that's not something that just goes on in perpetuity. And so as I've communicated before, I think we're close to the end of that. There will always be efficiencies that we'll continue to work on, but you should not expect that we'll just continue on a cadence of reducing same-store labor hours.

That being said, as the business grows and volumes increase, there will be a need to add some labor back to meet that need in keep the guest satisfaction scores at the all-time highs that they are currently at. So -- but that all comes with incremental sales, incremental margin, incremental gross profit. So we're happy to add those hours back when the business warrants those additional hours. And that also works the other way. If the business were to go backwards, we would pull back on those hours to rightsize the labor allocation with the business demand.

Got it. And then just on cheese real quick. Can you update us on like what the annual amount of pounds you use in terms of cheese? And then you said cheese is slightly down in 4Q, but can you update us on like how much exposure you have locked in over the next 2 quarters?

Yes. We move about 45 million pounds. Yes. In the quarter, about 11.5 million pounds. For a full year, about 45 million pounds. We're 80% locked on cheese through this quarter and the next couple of quarters. And then -- and that's about where we like to keep it when we can lock in favorability. It's slight favorability, it's not massive favorability, and then we have another 20% we can buy on spot when conditions are favorable.

Our next question comes from Edward Kelly with Wells Fargo.

I wanted to first just follow up on wings. I was curious -- I know you don't want to give too many numbers, but curious as to how you think about the margin implication overall with wings? And then taking a step back, adding fryers, I don't want to get ahead of ourselves, but how are you thinking about potential for other products as it pertains to this category?

Yes. On the margin, we like the margin profile in wings. It is obviously a protein versus something like pizza that's a little more dough-based. So it doesn't carry the same margin rate that pizza would. So far, there hasn't been any real margin implications because the mix hasn't been great enough to do that. Over time, if it became a big enough business, that could put a little bit of pressure on margin rate. But it would grow gross profit dollars and improve trips and everything else. So we're okay with that. Our goal isn't margin rate, it's gross profit dollar growth. And so to the extent that, that plays out, over time, we're comfortable with it.

In terms of other products, I guess, the thing we haven't talked about, we rolled out fries in addition to the wings. That was the most commonly requested side item to go with the wing. So we are selling wings or fries right now. We have -- we're cooking some of the other products that we already had in the store in the larger fryers. We'll have to see as time goes on whether we expand that. But for now, we have a long way to go in terms of growing the wing business, and we're more focused on doing that and doing that well and getting that velocity up and creating that incremental occasion per week in that business before we start tackling other products.

Great. And then just a follow-up on the M&A question. I was curious as to where you feel like you are with the integration of Fikes and what that means in terms of your ability to execute on another large deal if something came about? And maybe just thoughts on what the market currently looks like there?

Yes. In terms of the integration cadence, well, by the end of this fiscal year, we will have 50 stores converted. We've got about 25 converted right now. We're on a cadence of about 3 per week. So by the end of the fiscal year, we'll have the first tranche of 50 done. The plan for next year will roughly be to wrap that up in the next fiscal year. There will be some stragglers there, but the bulk of the work will occur next fiscal year.

From a balance sheet perspective, we could do another deal right now. Obviously, our leverage ratio is low. We have ample liquidity. We have the ability to do that. Just practically speaking, with the timing it would take, starting right now to do something of a similar size to a Fikes, it would take time. So we're in a position to be able to execute on a larger deal if the opportunity were to present itself.

As you can imagine, there are -- there are only -- there's a finite number of chains of that size that just exist and then a smaller number than that, that are actionable. We are definitely engaged with potential sellers and working through those processes all the time. But one of the things that kind of narrows the aperture a little bit for us is that we set a pretty high bar on asset quality. Because ultimately, the biggest synergy we bring to any acquisition is our prepared foods. And so the physical buildings need to be able to accommodate adding a kitchen where the real estate has to be large enough that we can bump out a building and add in a kitchen. That has to be a high enough percentage of the total stores that we acquire to make it work for us.

So we're a little bit picky, but I think that pickiness has proven beneficial for us over time. And so we like how the market sets up for us. We just need to have the right combination of timing and willing sellers so that we can act on those opportunities.

Our next question comes from Brad Thomas with KeyBanc Capital Markets.

And let me hand my congratulations on a nice quarter here. I wanted to ask about the competitive landscape, and I know that Casey's remains in an advantageous position relative to your rural footprint. But just curious, Darren, if you could comment any more on what you're seeing out of the other [ Seastar ] players and restaurant competitors of yours?

Yes. We're -- it's a competitive environment. I think when you look at either -- I guess I'll take a restaurant first. I think the restaurant industry at large and QSRs and pizza players in particular are under quite a bit of pressure. The advantage that Casey's holds relative to those folks is that we're in 3 businesses. We're in the fuel business, the grocery business and the prepared food business. The restaurants are in 1 business, and it's the food business. And so they have to absorb all of the increased costs that we've all experienced over the last several years and absorb that within the prepared foods. And so that's translated into menu price increases. I think that's been well documented.

And so that relative gap between restaurant pricing and our pricing has widened over the last couple of years. And so that value proposition for us just gets all the stronger. And so I feel very good about our position relative to national brand QSR chains. And so as a reminder, half of our stores don't even have a national brand pizza competitor. But the other half that do, we have a very strong value proposition relative to them.

And then by the same token, on the convenience store side, I think we have the same thing. We still have a lot of stores in the suburbs. We face some of the best competition that our industry has to offer, and we perform very well there, largely because we have that differentiated food offer that really is unique and represents a great value proposition. It's hard to execute. So a bulk of the convenience store industry doesn't even have a prepared foods program. And those that do are largely in the sandwich business or fried chicken business, something not pizza and certainly not pizza like we do it. And so we really have a unique niche within the industry. And I think our results over the last several years would speak to the fact that, that niche has really resonated with guests, and we performed very well across all environments.

That's really helpful. And maybe if I could just ask a follow-up to try to tie together the question around where oil prices may be going and how that might influence your updated financial guidance in June. Is there a particular price for gas and oil where we could think about or should think about the algorithm changing? Is it that $4 gas number that you referenced earlier, Darren? Just curious about how you think about it from kind of a long-term standpoint.

Yes. Look, Brad, I would say long term, this doesn't change anything. Fortunately or unfortunately, I've been in this industry long enough now to go through a number of these cycles. And every one of them runs its course, like I described earlier where margins get a little bit compressed on the front end of the curve and expand on the back end. So I think from a long-term algorithm, growth algorithm standpoint, what's going on today is not changing anything. It will run its course. Who knows how long that will be? I'd say, we ran a complete cycle in 24 hours yesterday. So it's kind of hard to tell how this will all shake out. But ultimately, it will normalize. And so the long-term algorithm will be the same.

In terms of the quarter, I would just go back to what Steve commented on our experience. We've had a strong start to the quarter that's reflected in the guidance. Our February experience on margin was $0.40 a gallon, and we'll have to see how the rest of the quarter shakes out. But I mean, I don't know how to handicap that. We had a $0.30 cost swing from high to low yesterday. And so I haven't looked at the news in the last hour. So I'm not sure what's going on today, but we'll manage it appropriately and we'll see how the quarter shakes out.

Our next question comes from [ Jack Hardin ] with Stephens.

This is Jack Hardin on for Pooran Sharma. I wanted to ask about labor You've done a really strong job over the past several years at reducing same-store labor hours. And so at this point, how should we think about the runway for further productivity gains? Are we closer to a state of a steady state labor model? And do you see incremental opportunity from here?

Yes, Jack, I commented a few minutes ago about the fact that I think we're probably closer to steady state. And look, we'll -- we have a continuous improvement team for a reason. We will always look to find ways to make the job and stores easier. And sometimes that ultimately results in less labor needed. But by the same token, we're always focused on growing our business. And as you sell more stuff, it requires more labor to produce that stuff, stock that stuff, sell that stuff. So that will ebb and flow. I would not expect to see the types of labor decreases that we saw over the last 3-year period. But again, we'll always focus on managing that expense line tightly and add where we need to and take away where we don't need it anymore.

Our next question comes from Scott Stringer with Wolfe Research.

Appreciate the time. You kept the fuel volume guidance unchanged, but performance has been nicely positive year-to-date as you're taking share. So is that at least fair to say that you're tracking at the high end of your range for the year?

Yes, Scott, I wouldn't say that we're tracking at the high end of the range. I'd say we're tracking in the range, and that's where we feel comfortable guiding everybody at this point. And so we have been pleased with the performance so far.

Okay. Got it. And then there is also some positive commentary around tobacco sales. So specifically on the tobacco alternatives. Is there a potential that these newer products can return the category as a whole back to positive growth?

Yes, I do think there is that potential. What we've seen a little bit more recently is the decline in combustibles has slowed. Albeit, it's still -- from a unit perspective, it's still dropping, but not at the same rate as it was for the last several quarters. So the combination of that decline slowing with the inflation that happens on the combustible side in addition to the growth in alternatives and vapor has actually netted that category out to positive. And that hasn't been that case for quite a while. So we'll have to see how it plays out. But at this point, that is correct. It is actually starting to see some growth in the overall nicotine category.

Thank you. Ladies and gentlemen, we're coming up on the end of our hour long call. I would now like to turn the call back to Darren Rebelez for closing remarks.

All right. Thank you, and thanks for taking time today to join us on the call. And before we go, I just want to thank our team members once again for all their hard work this quarter. Have a great rest of the week.

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

Ladies and gentlemen, thank you for standing by. Welcome to Casey's General Stores Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning, and thank you for joining us to discuss the results from our second quarter ended October 31, 2025. I'm Brian Johnson, Senior Vice President of Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; 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 [indiscernible] transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores.

There are a number of known and unknown risks and 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 of duration of conflicts in oil-producing regions and related governmental actions as well as other risks, uncertainties and factors, which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website.

Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

A reconciliation of non-GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of the operating expense increase for the second quarter can be found on our website at caseys.com under the Investor Relations link.

With that said, I'd like to turn the call over to Darren to discuss our second quarter results. Darren?

Thanks, Brian, and good morning, everyone. Before we dive into our excellent second quarter performance, I'd like to congratulate the entire Casey's team for their hard work throughout the quarter to serve our guests and our communities. In addition, I want to highlight the positive impact Casey's is making with veterans and their families. For more than a decade, Casey's has partnered with 2 veteran focused nonprofits for our annual roundup campaign, children in the fall in Patriots and hope for the warriors.

Each year, it's humbling to see the support from our guests team members and partners at PepsiCo, and I'm proud to share that this November, we raised $1.2 million for these 2 outstanding organizations. As a veteran myself, I'm grateful to those who stand with our military community and support them when shopping at Casey's.

Now let's discuss the results for the quarter. Diluted EPS finished at $5.53 per share and net income was $206 million, both of which earn an increase of 14% from the prior year. The company generated $410 million in EBITDA, a 17.5% increase from the prior year. Inside the store, the prepared food and dispensed beverage category saw guests responding well to our innovation and promotional activity within the and category.

We also saw margin expansion which is primarily driven by the grocery and general merchandise category. This was underpinned by increased guest traffic as effective merchandising, along with solid store level execution is leading to more guests shopping our stores.

Strong execution of our fuel strategy by the fuel team, coupled with our robust store offer, resulted in our fourth consecutive quarter of fuel gallon growth. This was accomplished while also growing cents per gallon margin.

I would now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 3.3% for the second quarter or 7.5% on a 2-year stack basis with an average margin of 42.4%. The 2-year stack was an acceleration from the first quarter. Same-store prepared food and dispensed beverage was quite strong as sales were up 4.8% or 10.3% on a 2-year stack basis with an average margin of 58.6%.

Whole pies and hot sandwiches in all dayparts performed well in the quarter. Breakfast performed exceptionally well with our maple Waffle breakfast sandwich highlighting the innovation our culinary team is bringing to the category.

Margin was down approximately 10 basis points from the prior year as the lower margin from the South Coast stores was nearly offset by improvement in waste and cost of goods management. Same-store grocery and general merchandise sales were up 2.7% or 6.4% on a 2-year stack basis, with an average margin of 36%, an increase of approximately 40 basis points from the prior year, primarily due to a favorable mix shift to higher-margin items such as energy drinks and nicotine alternatives within their categories.

On the fuel side, same-store gallons sold were up 0.8% with a fuel margin of $0.416 per gallon. The cording Gulf's fuel gallon sold data the Mid-Continent region saw an approximate 2% decline this quarter, so we believe we are continuing to grow market share.

Fuel performance remained robust, supported by strong premium and mid-grade demand stable diesel sales, consistent pricing discipline and solid gains in fleet volumes. The organization remains mindful of effectively managing operating expenses while maintaining or improving team member engagement and guest satisfaction.

In the second quarter, same-store operating expense, excluding credit card fees, increased 4.5%, lapping a 2.3% increase in the prior year. Same-store labor hours were flat even as we invested more labor hours to the kitchens appropriately to meet the strong pizza demand during the quarter. I would now like to turn the call over to Steve to discuss the financial results from the second quarter. Steve?

Thanks, Darren, and good morning. Before I begin, I also want to acknowledge the hard work and the great results from our team members. Total revenue for the quarter was $4.51 billion, an increase of $559 million or 14.2% from the prior year due primarily to higher inside sales as well as higher fuel gallons sold partially offset by a lower retail fuel price.

Results were also favorably impacted by operating approximately 9% more stores on a year-over-year basis. Total inside sales for the quarter were $1.66 billion, an increase of $190 million or 13% from the prior year. For the quarter, Prepared food and dispensed beverage sales rose by $50 million to $468 million, an increase of 12% and grocery and general merchandise sales increased by $141 million to $1.19 billion, an increase of 13.4%.

Retail fuel sales were up $273 million in the quarter, as a 16.8% increase in fuel gallons sold was partially offset by a 4.8% decline in the average retail price. The average retail price of fuel during the period was $2.96 a gallon, and that compares to $3.11 a year ago. We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization.

Casey's had gross profit of $1.12 billion in the quarter, an increase of $163 million or 17% from the prior year. This is driven by both higher inside gross profit of $83.8 million or 13.5% and as well as higher fuel gross profit of $65.1 million or 20.9%. Inside gross profit margin was 42.4% and that's up 20 basis points from a year ago.

Prepared food and dispensed beverage margin was 58.6%, down 10 basis points from prior year. Cheese was $2.11 per pound for the quarter, and that compares to $2.25 a pound last year, a decrease of 6% or an approximately 35 basis point benefit to margin. There was an approximate 130 basis point headwind from the SEPCO stores that were partially offset by improved waste accretive mix and the favorable cheese cost comparison.

The grocery and general merchandise margin was 36%, an increase of 40 basis points from the prior year. The change was impacted by a favorable mix shift within the category as well as cost of goods management, and that includes manufacturer funded promotional activity associated with alternative nicotine products. Fuel margin for the quarter was $41.6 per gallon, and that's up $1.4 per gallon from prior year. This is inclusive of an approximately $1.5 per gallon drag from the [indiscernible] stores.

Other income was $40.9 million, that's an increase of $14.2 million or 53.4%. The increase primarily was due to wholesale fuel gross profit from the Fikes acquisition, but it did also include a onetime $8 million benefit, which is the result of a prospective change in the way that we will administer our gift card program. Total operating expenses were up 16.7% or $101.9 million in the quarter.

Approximately 10.5% of the increase is due to unit growth. Same-store employee expense accounted for approximately 2% of the increase due to increases in labor rates, which were offset by flat same-store labor hours. Higher variable incentive compensation contributed to approximately 1% of the increase.

Net interest expense was $24.7 million in the quarter, and that's up $12.1 million versus the prior year, which is primarily from financing the Fikes transaction. Depreciation in the quarter was $109 million. That's up $14.6 million versus prior year, primarily due to more stores. The effective tax rate for the quarter was 24.7%, nearly comparable to the prior year. Net income was up versus prior year to $206.3 million, an increase of 14%. EBITDA for the quarter was $10.1 million compared to $348.9 million a year ago, and that's an increase of 17.5%.

Our financial flexibility remains excellent. On October 31, we had total available liquidity of $1.4 billion. Also, our credit facility debt-to-EBITDA ratio was 1.7x. For the quarter, net cash generated by operating activities of $347 million less purchases of PP&E of $171 million resulted in the company generating $176 million in free cash flow compared to $160 million in the prior year.

In December, the Board of Directors voted to maintain the quarterly dividend at $0.57 per share. During the second quarter, we repurchased approximately $31 million of shares and we now expect to repurchase approximately $200 million in the fiscal year in total, up from our previous expectation of approximately $125 million, and that's due to stronger earnings and higher cash flows.

Consistent with our normal second quarter call practice, we are updating certain full year financial metrics. Fiscal 2026 EBITDA is now expected to increase 15% to 17%. The company now expects inside same-store sales to increase between 3% to 4%, and we expect an inside margin of 41% to 42%.

The tax rate is now expected to be 24% to 25%. The remainder of our annual guidance provided at the beginning of fiscal '26 remains unchanged. Our results for November were as follows: same-store volumes, both inside and outside the store were consistent with our revised annual guidance expectations.

Fuel CPG was in the low 40s, and current cheese costs are slightly favorable versus the prior year. As a reminder, we will now have lapped the closing of the Fikes' acquisition, and therefore, the third quarter will have Fikes' results in both periods. As such, we expect third quarter operating expense to be up mid-single digits. I'd now like to turn the call back over to Darren.

Thanks, Steve. Throughout the quarter, we built on the momentum from the summer months and our inside comps accelerated to your stack basis. OPIS are performing exceptionally well as we saw a very strong response to our Thin Crust Thursdays in our college football Saturdays promotions. OPIS grew faster than the prepared foods category. While the category also printed a strong margin, which shows we can be creative with our promotional activity and balance margin performance.

We also saw positive traffic to the stores as guests continue to believe Casey's has a strong value proposition. In the forecourt, we continue to gain market share as our same-store GALNS growth outpaced OPUS data in our region again. Our ability to drive guests to the pump with our strong inside offering remains a strategic advantage for the company.

I would again like to express my gratitude to the entire Casey's team for an excellent quarter. As we look to close out our 3-year strategic plan, I cannot ask for a better team to execute the plan and deliver industry-leading results. We will now take your questions.

[Operator Instructions] And our first question will come from Ed Kelly with Wells Fargo.

I wanted to just start on fuel. I mean, obviously, the backdrop has been challenging. You've been outperforming. Can you just maybe talk a bit about the sustainability of that. And then Q3 is off to a good start. I mean, it seems like rack prices have helped.

Do you expect margins to just kind of revert back in short order. And then stepping back on all this, has anything changed fundamentally either with your approach here or the competitive backdrop that we should be aware of?

This is Steve. I'll maybe start on a couple of those. Certainly, nothing has changed with our approach. Maybe start with that. I think some of the results that the team has had so much success delivering or directly related to how consistent we have been with our approach of trying to balance profitability and volume to the pad.

They've done an excellent job of having consistent offer available to guests. And we firmly believe that contributes for sure, to the success that we've had. Our fly track around our performance relative to the rest of the market begins with the store.

And so the fact that the vast majority of our guests are coming to the store to go inside the store, 3 out of 4 of our transactions don't involve the purchase fuel gives us a lot of stickiness with those guests. Our guests, we believe, are a little less elastic than the average guest because they're already coming to the pad for the inside and store offer.

So that has certainly helped our outperformance relative to the market that we're in. As it relates to the seasonality of margins, I guess, is how I would address the question. Generally speaking, the winter for us, the third and fourth quarters, we're going to have seasonally lower margins than we do in the first half of the year.

That's been the case for a while. We don't have any reason to expect that, that would be significantly different. But beyond the recognition of what happens seasonally, we really don't prognosticate around what's going to happen with forward-looking margins and beyond what the November experience has been.

And then maybe just a quick follow-up on OpEx, up 4.5% on a same-store basis, which is a little higher than maybe what we expected. Can you just maybe speak to that quickly and how we should be thinking about the back half?

Yes. Listen, our full year round expectations, full year expectations are unchanged. We did not change the 8% to 10% expectation for full year total OpEx. And so we are pretty much where we thought we would be exiting the first half of the year related to OpEx.

The timing of lapping the Fikes transaction is going to naturally step down the year-over-year change that we'll experience in OpEx in the second half of the year, and we're trying to give some visibility into that with the third quarter expectation of mid-single digits. We've been -- we've had a very long success run here quarter-wise of reducing same-store labor hours.

In the store they were flat this year -- or this quarter, I'm sorry. That's very consistent with our expectations as eventually, we were going to come to the end of that multiyear effort to literally drop hours to the bottom line with the promotions that we had in the store, especially the pizza promotions on Saturdays, we prudently added some labor back into the store.

And so it's kind of how we ended up flat with the same-store labor hours. But total OpEx, very consistent with our expectation beyond what we enumerated in the press release. There were some miscellaneous things higher insurance costs, higher utility costs, legal is a little bit higher for us. Advertising was a little bit higher.

But by and large, I think total OpEx performance very consistent with expectations.

And the next question will come from Chuck Grom with Gordon Haskett.

This is [ Ryan Bulger ] on for Chuck here. Good to talk to you today. My question was going to be on the mix dynamic as you see these [ Setco ] stores roll into the base the comp base next quarter.

Obviously, we've been talking about the impact on margins for a while, but I was just wondering if you could speak to anything you would expect to see in terms of how that would play out with the mix differences there, traffic can take out, et cetera? And any impact that could have on comps as they roll into the base next quarter?

Yes, Ron, this is Darren. Clearly, the [ Seco ] stores are carrying a lower margin than the Casey stores, both in prepared foods and in grocery and general merchandise. And that's because they're still [ Setco ] stores. They're not Casey's stores yet. Now that effort in terms of rebranding will start to kick off in earnest at the beginning of the calendar year.

We'll start converting the -- their larger stores, they have kitchens in them already. Those are a little bit easier from a conversion standpoint. And then we'll once we get those done, then we'll start to convert the other stores. So we would expect that, that trajectory will change a bit on the prepared food side, in particular, once we get those kitchens in and the rebranded to Casey's and they get our full assortment with private label and all the rest.

So we expect that margin to accrete over time. But as it stands right now, their margin rate in Prepared Foods is about half of what the mothership Casey's, Prepared Foods margin is. So it is going to have an impact. I was really proud of the team this quarter in terms of managing the rest of the business whether it's through cost of goods management, waste management and overall execution so that we mitigated that impact from the [indiscernible] stores onto the overall Casey's portfolio.

Yes. No, I was just curious if there would be anything on the comp side as they roll into the comp base next quarter.

Well, as we roll through, I mean, we haven't done that math yet, but I mean, there will certainly be an impact so when they blend it in, the blended in there was an impact to the margin. So as we cycle over that, we'll see that. It should blend up a little bit, but we'll have to see when we get there.

And the next question will come from Bonnie Herzog with Goldman Sachs.

All right. I had a question on your guidance. You did update your EBITDA guidance for this fiscal year, which is great to see, especially considering the strong results in the first half, but your guidance does still imply a sequential deceleration in EBITDA growth in the second half.

So just hoping to hear some of the drivers that? And then as you mentioned, you lapped the Fikes acquisition in November, but is there anything else contributing, I guess, to the implied deceleration in growth?

Bonnie, this is Steve. I mean, I'll just start with that. It's obviously been a very strong first half of the year for us and that played a part in this. But as it relates to the second half, specifically, we've tried to be pretty clear with people just mechanically, the way the math has worked, right?

We're not going to -- we do not expect the same absolute level of year-over-year EBITDA growth in the second half that we had in the first half just because we already have pikes sitting in the base now.

There's really no change in expectation for us from the mothership performance per se. And the FICs performance is generally on plan as well. And so I don't -- we're not trying to message any different expectation for kind of second half experience vis-a-vis first half experience other than mechanically, but the math is naturally going to come down just because we have a higher number in the prior year second half period.

Okay. And then maybe just a quick follow-up just because Fikes' acquisition has been a year. Can you just remind us your M&A strategy, where you're at and sort of what the market's like right now? Obviously, it's still very fragmented. Just any color there would be helpful in terms of what you're seeing and how actively you're potentially pursuing further M&A?

Yes, Bonnie, this is Darren. We really haven't had any change in our strategy or our approach to M&A. As you know, we focus on a small deal kind of tuck-in acquisitions and that's sort of normal course. We have our dedicated M&A team that is on that full time.

And we're seeing good results from that group and very consistent with what we've expected. The larger type of M&A is more opportunistic and those are fewer and further between typically. And for us, it's not just a matter of buying something for the sake of buying it. If we need the right level of asset quality that we can we're able to put our kitchens into those stores and really run our play.

So while we do see a lot more out there than we are willing to buy because they're just not the right quality for us. There is some activity out there. We are participating in some of those processes, but again, we set a fairly high bar for ourselves in terms of the asset quality. So we'll probably say no to more things than we ever say yes to.

And our next question will come from Bobby Griffin with Raymond James.

And congrats on a solid half. Darren, I just wanted to maybe circle back on the OpEx side, in particular, the same-store OpEx. And you guys, as you noted, have done incredible work on the hours basis, but maybe that's in the later innings.

So when we look at like the year-to-date same-store OpEx of, call it, averaging out around high 3s, is that the right level for this business going forward with the store growth plans and kind of the expansion opportunities you have across Texas and whatnot? Or do you still think there are opportunities to maybe push that down to closer to 3 or high 2s on a same-store basis?

Well, Bobby, we haven't guided beyond this year, so I'm not going to really try to forecast that right now. I would say that, like I said the last couple of quarters, I think a lot of the hour reduction work has largely been completed.

Now having said that, that work is never done, to be clear. We have a team that's dedicated to looking at in-store processes and always striving to become more efficient. But I would say at this stage, a lot of that will be fine-tuning and tweaking as opposed to larger reductions in labor hours.

The other thing I'd remind everybody about in this quarter in particular, our traffic was up 1.5%. Our whole pie sales were up 8% in units. And so as we grow the business on a same-store basis, there's natural -- there's a natural inflection point where some more labor needs to get added into the stores to meet the demand.

At the same time, we've had the highest overall satisfaction scores from our guests than we've ever had in this most recent quarter. So I don't want to get overly fixated on the labor number or on the OpEx number per se.

We certainly manage it and we keep it close. But I think the combination of driving traffic, delivering outsized growth in our highest-margin categories and having a really great overall satisfaction scores from our guests is a really winning combination and very hard to do in retail, and we're doing it right now.

And so that's what we're really focused on. And when our gross profit dollar growth is growing at the pace it is our EBITDA growth is growing at the pace it is. That's how we know we're doing it the right way. And so we're very comfortable with where we are at this point from an OpEx perspective.

Understood. Very helpful. And then maybe just as my follow-up on a different subject. Alternate nicotine, there were some obvious manufacturer promotions during the quarter.

But just curious, as you and the team have set out on the new calendar year, what are your expectations from promo activity in that category? Do you continue to expect it to be growing from a promotional basis or see higher promo potential going forward?

Yes. Not sure about the promotional activity going forward. We'll still have more work to do with the manufacturers to understand how they're thinking about that as well.

What I would say though is that overall, that category has been growing really fast over the last few years as volumes in combustible cigarettes go down. And so we would expect that, that trend will continue. And as combustibles continue to erode and more people seek other nicotine alternatives for them.

And right now, that business is working well for us. I think we shared a couple of quarters ago that we reset all of the back bars in our stores to reduce the space allocated to combustible cigarettes and increase the space available for those nicotine alternatives really to meet the guest need where they are. And that play is working well for us. So we expect that longer-term trend to continue.

And our next question will come from Chuck Cerankosky with Northcoast Research.

Good morning, everyone. Great quarter. Could you talk about the declining cost of the gallon of gasoline and your customers' behavior in store? You said earlier that to the fourth store visits don't include gasoline, but is there an interplay between declining cost of fuel and say, more prepared food store visits and bigger prepared foods purchases? And also, how about the influence of lower gas prices on your in-store promotions.

Yes, Chuck. Clearly, any time we have lower absolute fuel prices that leaves guess with more discretionary income in dollars to spend. So we always like that scenario. But what I would say more broadly is that I think guess in general, are just being a little more discerning about where they spend their money because there's a lot of other cost pressures outside of our stores that folks are dealing with right now.

And so what we're seeing is people are appreciating the value proposition that they experience at Casey's. And we see it in a couple of different areas. When you look at our whole high business, as an example, when we run promotions, we get great uptake on the promotions, which would speak to the value, but we also see that people are trending more towards higher-priced items.

So specialty pizzas as opposed to single topping pizzas. So those are more expensive, but they're getting the right value equation, the quality of the product and the price. Same with our bakery category where people are trading up to multi packs versus single items. Those costs more, but on a per unit basis, those are less.

So we think that people are really picking and choosing where they're going to spend their money and where the best intersection of quality and value come together where people are really spending their money.

And so low fuel prices certainly help, but I think a more robust in-store offer and getting that value equation right is probably the bigger driver of the results inside the store.

And our next question will come from Pooran Sharma with Stevens.

Maybe just wanted to peer, more into cheese. Could you maybe update us on how much you have hedged? I think last quarter, you said you were about 70% locked up for the year. Just wondering if there's any update to that?

Yes, this is Steve. We continue to chip away at locking in favorable rates -- favorable prices for ourselves, but the team has really doing a good job of staying on top of that and being advantageous for us. So as we sit here today, we're about 80%, 80% [indiscernible] for the next 4 quarters or so the second half of this fiscal year in the first half of what would be our fiscal '27.

And we only lock something and if it's either favorable on a year-over-year cost basis or neutral. And so we're generally neutral or favorable on 80% of what we think we need to buy here for the next 4 consecutive quarters.

Great. I appreciate the color there. I guess on my follow-up, maybe just wanted to peer into guidance here and understand that seasonally second half does step down from first half. But just given your commentary earlier on how November is trending fuel margin-wise, would it be fair to assume kind of more of a 3Q weighted split for the second half? So like maybe, let's say, like a 55-45 split in 3Q and 4Q, just given the favorability in fuel margins you've seen in November?

Listen, I think it would not be wise for me to go there. I think it's fair to assume that we were low 40s CPG for the month of November, and we'll probably leave it at that. I think historically, you can look at kind of a weighting between Q3 and Q4 and that's probably as good of a crystal ball as anybody would have around kind of how those quarters seasonally will behave.

Yes. Pooran, I would just add that there's a lot that can happen in the fuel market from a commodity standpoint that's 100% out of our control. So what happens in November is really no indicator of what could happen in January. So we kind of play out 1 month at a time.

And the next question will come from Benjamin Wood with BMO.

This is Ben on behalf of BMO. And Kelly Bania. First, we just wanted to start with -- could you give us an update on what the last 12-month EBITDA contribution was from CECO and maybe how that came in relative to your internal plan? And then following up on kind of Bonnie's question.

As we think about the composition of new store growth over the next 12 months, is that more or acquisitions? And then can you just walk us through how you're thinking about the potential returns more recently on your new to industry builds versus your potential acquisitions?

Yes, Ben, I'll go ahead and start with the store growth piece, and I'll let Steve talk about [indiscernible] EBITDA. The store growth, we expect always a balance between new to industry and M&A. And so typically, when we set our new store goal for the year, we'll we kind of go into it planning for a 50-50 split. Now acquisition is going to be a little bit lumpy. So we that number is usually wrong. But we go into it with that expectation in that plan, and we have the ability to do that.

If acquisitions run a little bit hot, then we usually throttle back the new-to-industry builds and get to our target, and then that allows us to land bank for the situations where maybe acquisitions slowed down a little bit, then we have the ability to flex the other way and accelerate new to industry build so we can maintain that consistent ratable growth.

So that's kind of how we view store growth from a return standpoint. We're always looking to achieve that mid-teens return after a few years when the stores start to mature, we have a long track record of achieving that, and we're really format agnostic, meaning whether that's a new to industry or an acquisition, we still have the same return expectations either way. Steve?

Yes. Listen, what I would say on Fikes is we're right where we thought we would be. So their own plan for us. The plan is very consistent with kind of the pro forma assumptions that we had at the time we bought them. LCM Is a little misleading. I'm not going to go there just because if you think of the first 2 quarters that we and Fikes, a lot of deal costs there was -- it was kind of a wash from an EBITDA basis for the second half of last fiscal year. But for this fiscal year, there -- we said that would be EBITDA accretive. Healthy EBITDA accretion it is, would not be EPS accretive because of the interest that is still the case.

We continue to realize synergies primarily from fuel and SG&A as we sit here at this point in time, to Darren's earlier comment, the biggest group of the $45 million of synergies were ultimately trying to get is going to come from inside the stores and that's dependent on the timing with which we can remodel the first.

So we will certainly not fully realize synergies this fiscal year, and that was never the expectation. But right where we thought it would be well on our way to ultimately getting to $89 million, $90 million of kind of fully synergized EBITDA, but we won't see all of that this fiscal year because of the timing of remodels.

Great. And then just as a follow-up, could you give us an update on what the latest thinking around your wing test and then as you're thinking about timing of broader rollout, what are you guys looking for at this point? Are you still trying to refine the offering or the labor or are there calendar events like the Super Bowl or March Madness that might be a little bit more conducive to a broader launch?

Yes, Ben, with the wings, like we've talked about, we still had some menu refinements that we're working on. some procedural gaps we were trying to close. I think a lot of that work has been wrapped up where we've got some new flavor profiles that we just literally in the last week got back into the test stores, and we've broadened that store base a little bit to make sure we've got that right.

So we're I'd say a lot of the development-type work, we think, is largely done. We're validating that as we speak, and then we would proceed to start rolling out. So we haven't really announced the time line for that just yet. But I think that, that work is well underway. And so I think we're getting closer to the finish line there.

And the next question will come from Brad Thomas with KeyBanc Capital Markets.

Congrats on a strong quarter here. I want to first ask a big picture question about competition. This is something that comes up a lot in our conversations with investors about the growth of many of the private convenience stores it seems like your results are clearly very insulated today, but I was wondering, Darren, if you could talk a little bit more about your confidence level in your installation from some of that competition.

Yes. Look, I think from a competitive standpoint, we have a little bit of a mixed bag. And what I mean by that is, yes, there is certainly some rural areas where we don't face a lot of the larger regional players that you're referring to.

We do have some of those larger regional players that we compete with every single day in some of our larger markets. I'll just use our home market of Des Moines, Iowa, as an example. It's probably one of the most competitive convenience store markets in the country.

And so we face 3 of those regional competitors as we speak in this market, and we performed exceptionally well here. We have that in a number of different markets Texas, in Missouri in Illinois. So I feel very comfortable in our ability to compete at the highest level with the regional players in the industry. And we have a differentiated offer. They do well at what they do, and we do well at what we do and those things aren't always the same.

But I think we can look market-by-market where we have that more intense competition, and we do very well there.

That's helpful. And if I could ask a follow-up on the state of the consumer. This is an unusual quarter with the government shutdown and impact on Snap. Curious if there was anything that you've seen in your business from a consumer perspective.

I shared a little bit before about what we're seeing more broadly with the consumer. With respect to Snap. Snap is a very low percentage of our business. It's a little bit less than 2% of our sales are SNAP eligible. So we really -- the government shutdown, while unfortunately, really didn't have much of an impact on our business at all that we could discern from the numbers.

[Operator Instructions] And our next question will come from Mike Montani with Evercore.

Just wanted to ask if you could unpack a little bit further some color, Darren, on state of the consumer and the K-shaped economy and in particular, I guess, with guide, it seems to imply about 50 bps of diesel for the back half of the year, even though compares get a bit easier optically into the fourth quarter. .

And we thought you could have like 20 to 40 bps of tailwind from SAFCO stores getting into the comp. So just wanted to understand maybe if you could break out how the comp progressed over the quarter, a little more color about what you see in November. And then just some high-level commentary about that consumer.

Yes. I guess, as we saw the comp progress through the quarter, it's really that trajectory was more a reflection of the comps we are cycling. So it kind of stepped down August, September, October, but when you look at the 2-year stack, it really was the other way, it accelerated.

So we had a very tough comp in October, and we cycled that. That was probably our lowest comp sales month of the quarter from an inside perspective. But like I said, on a 2-year stack basis, we were about 6.5% last quarter. We were 7.5% this quarter, so I feel really good about the strength of the business and the trajectory it's on.

From a consumer perspective, again, I think -- and we've done some research on this. there's sentiment out there among consumers and then there's how they behave. And I think broadly speaking, if you look at different income cohorts, the middle and upper income cohorts are feeling fairly good about the economy.

There's some that have a negative view, but the majority would have either a neutral or positive view of the economy the majority in those cohorts would feel at least neutral or more financially secure. The lower income is under more pressure from both of those perspectives. But they also say that they intend to maintain their visit frequency to convenience stores.

So that's encouraging for us. And again, the actual behavior we're seeing in the stores is that they're still coming as frequently as they were as evidenced by our traffic increasing over the quarter.

They're still buying as evidenced by our same-store sales performance relative to others in the space but they are being more discerning about where they spend the money and how they spend it.

And I think for us, with our prepared food proposition, in particular, it represents a really strong value relative to other alternatives out there, particularly in the QSR space. And so we're finding more people gravitate to us because of that strong value proposition and we continue to maintain that. So I feel very good about the spot we're in right now from a guest perspective.

We had just done a deep dive actually on your last point about the share gain potential for prepared meals where you all stood out positively. And I was curious if there's anything you could add that helps to bridge us to the chicken wings in terms of LTOs or other innovations down the pipeline?

Well, we certainly think that the wings have the potential to create another occasion for the guests, and I would expect that from a quality and pricing perspective to really represent a great value proposition for the guests, and that's the feedback we're getting so far in the test market.

So I would expect that to perform well when we go to a broader rollout and again, our pizza proposition has always been there. People are -- people recognize us for that. And as they become more value conscious, they're gravitating more towards us. And so again, relative to comparable quality products out there and we compete more with QSR from a quality perspective, our value is much stronger than most out there and it's resonating with guests.

[Operator Instructions] I show no further questions at this time. I would now like to turn the call back over to Darren for closing remarks.

All right. Thank you for taking the time today to join us on the call. Before we go, I want to thank our team members once again for all their hard work this quarter and wish them and everyone on the call and listening in a happy holiday season.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and welcome to the First Quarter Fiscal Year 2026 Casey's General Stores Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to turn the call over to Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning, and thank you for joining us to discuss the results for our first quarter ended July 31, 2025. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; as well as Steve Bramlage, Chief Financial Officer.

Before we begin, I'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 Fikes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores.

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements. including, but not limited to, the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan the impact and duration of conflicts in oil-producing regions 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 can reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of the operating expense increase for the 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 first quarter results. Darren?

Thanks, Brian, and good morning, everyone. Before we dive into our strong first quarter performance, I'd like to congratulate the entire Casey's team for executing an outstanding summer plan at a high level and delivering a terrific guest experience across Casey's country. I'd also like to highlight the positive impact Casey's is making on our communities.

As students head back-to-school, Casey's is excited to see the impact of our cash for classrooms grants come to life. Last year, we awarded $900,000 to schools throughout our communities. Thanks to the generosity of our guests and team members, along with the support from our supplier partner, Coca-Cola. This August campaign raised over $1 million, fueling our continued commitment to supporting education and enriching the lives of children across our footprint.

Now let's discuss the results from the quarter. Diluted EPS finished at $5.77 per share, a 19% increase from the prior year. The company generated $215 million in net income and $414 million in EBITDA, both of which are an increase of 20% from the prior year. Inside the store, we saw positive traffic growth as guests responded well to our innovation and promotional activity in the prepared food and dispensed beverage category. We also experienced margin expansion driven primarily by the grocery and general merchandise category.

Our fuel team is doing an excellent job balancing fuel volume and margin, achieving positive same-store gallons and margins above $0.40 per gallon. As we work through the last year of our 3-year strategic plan, I'm extremely confident in our team's ability to execute at a high level and continue to grow the business. I would now like to go over the results and share some of the details in each of the categories.

Inside same-store sales were up 4.3% for the first quarter or 6.7% on a 2-year stack basis with an average margin of 41.9%. Same-store prepared food and dispensed beverage led the way as sales were up 5.6% or 10.2% on a 2-year stack basis with an average margin of 58%. Ol pies and bakery performed well in the quarter. Margin was down approximately 30 basis points from the prior year as the lower margin from the recently acquired CEFCO stores was partially offset by modest retail price adjustments, primarily in bakery and cost of goods management.

Same-store grocery and general merchandise sales were up 3.8% or 5.4% on a 2-year stack basis with an average margin of 35.9%, an increase of approximately 50 basis points from the prior year primarily due to favorable mix shift to higher-margin items such as energy drinks and nicotine alternatives within their categories.

Turning to fuel. Same-store gallons sold were up 1.7% with a fuel margin of $0.41 per gallon. According to OPUS fuel gallons sold data, the Mid-Continent region saw an approximate 3% decline this quarter, suggesting we continue to grow market share. The fuel team is successfully balancing volume and margin and the performance shows it. we continue to be judicious managing operating expense with an increase of 3% on a same-store, excluding credit card fee basis, lapping a 0.7% increase in the prior year. Our focus on simplifying the operations once again resulted in reduced training in overtime hours, yielding an overall decrease of 1% same-store labor.

I would now like to turn the call over to Steve to discuss the financial results from the first quarter. Steve?

Thank you, Darren, and good morning. We're clearly starting the third year of our 3-year strategic plan on a really strong note, and I'm extremely proud of the hard work of the team during the quarter. Total revenue for the quarter was $4.6 billion. That's an increase of $469 million or 11.5% from the prior year that is due primarily to higher inside sales as well as higher fuel gallons sold, partially offset by a lower retail fuel price. Results were also favorably impacted by operating approximately 8 million more stores on a year-over-year basis.

Total inside sales for the quarter were $1.68 billion, an increase of $210 million or 14.2% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $53 million to $458 million, an increase of 13.2% and grocery and general merchandise sales increased by $156 million to $1.23 billion, that's an increase of 14.6%.

Retail fuel sales were up $178 million in the quarter as an 18% increase in fuel gallons sold was partially offset by a 9% decline in the average retail price. The average retail price of fuel during this period was $3 a gallon, and that compares to $3.31 a year ago.

We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $1.11 billion in the quarter, an increase of $157 million or 16.5% from the prior year. This is driven by both higher inside gross profit of $91.1 million or 14.8% as well as higher fuel gross profit of $59 million or 18.8%. Inside gross profit margin was 41.9%, up 20 basis points from a year ago. Prepared food and dispensed beverage margin was 58%. That's down 30 basis points from prior year. Cheese was $2.11 per pound for the quarter compared to $2.09 per pound last year. That's an increase of 1% or less than 10 basis points.

There was an approximately 110 basis point headwind from the CEFCO stores that was partially offset by modest retail price adjustments as well as strong cost of goods management. The Grocery and General Merchandise margin was 35.9%, an increase of 50 basis points from the prior year, and the change is primarily due to favorable mix shift within the category. Fuel margin for the quarter was $0.41 per gallon. That's up $0.03 per gallon from prior year. This is inclusive of an approximately $0.015 per gallon drag due to the CEFCO stores.

Total operating expenses were up 14.6% and were $88.7 million in the quarter. Approximately 10% of the total operating expense increase is due to unit growth as we operated 221 more stores than in the prior year. Same-store employee expense accounted for approximately 1.5% of the increase as modest increases in wage rates were partially offset by the reduction in same-store hours. Higher insurance and property taxes contributed to approximately 1% of the increase.

Net interest expense was $26.9 million in the quarter, and that's up $12.8 million versus the prior year, which is primarily due to the financing associated with the Fikes transaction. Depreciation in the quarter was $109 million, and that's up nearly $15 million versus the prior year, primarily due to operating more stores. The effective tax rate for the quarter was 22.7%. That's compared to 24.1% in the prior year. The decrease was driven by an increase in tax benefits that we recognized on share-based awards.

Additionally, as part of the One Big Beautiful Bill Act, our cash taxes will be reduced by approximately $90 million related capital spending over the course of the fiscal year. This will not impact the tax rate for EPS purposes. Net income was up versus the prior year to $215.4 million, an increase of 19.5%. EBITDA for the quarter was $414.3 million, that's an increase of 19.8%.

Our balance sheet remains in excellent condition, and we have more than ample financial flexibility. On July 31, we had total available liquidity of $1.4 billion. Also on July 31, our debt-to-EBITDA ratio was 1.8x as calculated under the covenants in our credit facilities. For the quarter, net cash generated by operating activities of $372 million plus purchases of property and equipment of $110 million resulted in the company generating $262 million of free cash flow, and that compares to $181 million generated in the prior year. At the September meeting, the Board voted to maintain the quarterly dividend of $0.57 per share.

During the first quarter, we repurchased approximately $31 million in shares, and we have approximately $264 million remaining on our existing share repurchase authorization. As a reminder, investing in EBITDA and ROIC accretive growth investments remains our primary capital allocation priority. But consistent with our fiscal year 2026 outlook and given our modest leverage levels of strong cash flows. We repurchased shares during the quarter, and we expect to continue to do so for the remainder of the fiscal year.

Consistent with our past practice, we plan to update annual guidance on our second quarter earnings call when we're through the seasonally largest time of the year. Now our results for August were as follows: same-store volumes, both inside and outside the store are consistent with our annual guidance expectations. Fuel CPG was near $0.40 per gallon and current cheese costs are slightly favorable versus the prior year. As a reminder, the second quarter is the final quarter where we're going to be comping nonownership of Fikes in the prior year. With this in mind, we expect second quarter operating expense to be up mid-teens, as we had previously communicated.

I'll now turn the call back over to Darren.

Thanks, Steve. I'd like to thank the entire Casey's team for an outstanding first quarter. We started our fiscal year off strong and are doing an excellent job of executing on the 3-year strategic plan. The summer months are the busiest inside the store and our team met guest expectations extremely well. Our merchandising plan for the summer was executed at a high level throughout the organization. From those that created the plan to those that the stores carry out the plan, to our supply chain and fuel teams and every team member in between.

This team ever resulted in positive traffic to our stores and strong performance across the entire business. We also brought back our most popular LTO with the Barbecue Brisket pizza and whole pies were a growth driver for the category. Using guest insights and data gathered from our nearly 9.5 million Casey's Rewards members helps us get the right products on the shelves at competitive prices for our guests. All of this resulted in strong same-store results that were primarily driven by positive units in traffic.

At the pump, we continue to gain market share as our same-store gallons growth outpaced OPIS data in our region. We believe our robust inside offering and competitive fuel pricing gives guests or reasons for cases to be the one-stop shop for prepared food, grocery items and fuel. Overall, we're extremely excited about the Casey's business model and have high confidence in our ability to carry this momentum into the future.

We will now take your questions.

[Operator Instructions] And our first question comes from Pooran Sharma with Stephens Inc.

Congrats on the strong quarter here. Yes, I just want to start off with maybe understanding these costs. You mentioned they're slightly favorable versus the prior year. Was just maybe wondering if you could help us unpack that benefit a little bit. And if you could help us understand how much of your needs you have booked for the year.

Pooran, you kind of broke up on that question. Could you repeat that, please?

Yes. Just wondering if you could help us unpack the benefit from lower cheese cost and help us understand how much of your needs you have booked for the year.

Yes. So in the quarter, it was obviously really close to prior year. I mean we were a little less than 10 basis points difference on a year-over-year basis from a cheese cost perspective. As we sit here today, we are about 70%, 7-0 percent locked on our forward these requirements for the remainder of this fiscal year. So Q2, 3 and 4 are all right around 70% locked. And we only lock if we can lock at it comparable or generally slightly favorable rates on a year-over-year basis.

And so we feel pretty good about the certainty of cheese costs going forward. And with the 30% of the strip that's open for us in the second quarter, and the 70% we have hedged. That's why we're sitting here today, we're just a little bit ahead on a year-over-year basis.

Okay. I appreciate that color there. And I just wanted to understand kind of the strength behind the fuel business. I mean, you mentioned it in your prepared comments, you're outpacing the region. You have a strong offering that drives traffic inside the store.

But maybe I was wondering if you could talk about Fuel 3.0. Last quarter, I think you said about 3% of your supply was coming in from this initiative. So I was wondering if you could provide us with an update on that initiative?

Yes, Pooran. With respect to Fuel 3.0, we continue to procure more of our fuel through that vehicle. For the combined business, it's about 8.8% of our total fuel procured and I would say that the majority of that is coming from the Fikes acquisition. As you recall, there's a fuel terminal we picked up, and they have been shipping fuel like this for a while. So the bulk of it is there. We're about 3% of our fuel on the base business is being procured through Fuel 3.0. So making good progress. The team is still integrating, but we like what we see so far on that.

Our next question comes from Chuck Cerankosky with Northcoast Research.

Great quarter. Could you go into a little more detail on price versus volume in store, please? You mentioned bakery, but how about some of the other categories?

Well, just overall, Chuck, we have about 15% in traffic increase and then about 3% coming from price overall. So that will get you to roughly your 4.5%. The majority of that price is coming through the tobacco category with cigarettes. And so has been our practice for years, as those manufacturers pass on cost increases, we pass this on to the guest, and that's what's driving the tobacco side of it.

Outside of that, there's very modest price increases at all in the quarter. And a little bit on candy, just passing on cost increases but very little. And really, what we're seeing is more units purchased in the basket, which is really helping to drive the sales as well.

Darren, would that increase in units be true for both prepared foods and the grocery/merchandise?

Yes, it is. It is, Chuck. I mean, more so in the prepared foods than in the grocery, but I mean, we're seeing really good strength in nonalcoholic beverages in the grocery category and in snacks as well.

Our next question comes from Chuck Grom with Gordon Haskett.

I was wondering if you could just speak to the overall health of your consumer across income cohorts, any incremental evidence of trade down. And then regionally, [ seeing ] the note in the border stores, Texas region?

Yes. I'll first talk about guest strength from an income cohort standpoint. For the rewards members that we have, where we can really track their behavior and have full visibility. We're really seeing relatively strong performance across all income cohorts. And the way we break that down is $50,000 or less in income, 50 to 100 and then everybody above 100. And so the lower income group that $50,000 under are still shopping the stores and still buying at a fairly healthy clip, just not as much as the other income cohorts about 160 basis points lower than the higher income cohorts, but still coming to the store, still buying.

And really, where we're seeing the most strength inside of that is in our Prepared Foods business. I think that value proposition for the quantity and quality of the food that you're getting is really resonating with that group as well as the others. Probably on the other side, the category most pressured by lower income consumer is cigarettes.

But again, our cigarette mix is lower than most of the industry. So I think we're a bit insulated from that perspective.

[indiscernible] originally?

And then you asked about -- yes. Yes, you asked about the Texas stores. There's a little bit more pressure down there than there is with the base business. But keep in mind also, those CEFCO stores are still CEFCO stores right now. They're not Casey's stores. we've converted 3 proof-of-concept stores, but we haven't converted anything else. So they don't have the food proposition that we have in our base business. And so as we start to remodel those stores, we'll start to change the trajectory of that -- those businesses, but it's a -- it's under a bit more pressure than our base business at the moment.

Okay. I appreciate that. And then my follow-up question is just on the CEFCO business, the drag on the Prepared Foods line. In particular, I believe in the back half of last year, it was around 150, 160 basis points you called out about 110 basis points this quarter, which is a really nice improvement. Can we dive into that? What are you guys making progress on? And how should we think about that drag on the total business in the coming quarters?

Yes. We've made a few adjustments to the assortment, really just kind of some basic stuff, just clean up some things where maybe some items weren't selling very well, so we've eliminated those items. And so that's definitely helped. They've adopted a little bit more of our promotional approach, not 100% yet because they don't have all the assortment. But we're evolving in that direction. And so we're starting to see a little bit of benefit.

We won't see the biggest benefit until we convert the kitchens and start selling the full assortment. So at the moment, their prepared foods business runs at a margin rate just slightly greater than half of the margin rate of a Casey's store. So there's going to be that drag until we get those stores converted and fully up speed.

And just as a reminder, realistically, we don't expect significant synergy capture from remodeling the stores until a year plus from now, and that's a function of just timing of us being able to get permitting and construction, et cetera, finished.

Our next question comes from Bobby Griffin with Raymond James.

A great start to the fiscal year. I guess, Darren, first, I just wanted to maybe touch on the wings test, if there's anything more you can share there? I know you guys are still in kind of very early learnings, but we touched on it last quarter. Just curious, anything incremental over the last couple of months.

Not too much. I mean the team is definitely working on it. And we're taking the approach on this that we have with a lot of other product innovations. And I think it's worked to our benefit is that we'll continue to work it, continue to evolve it until we get it right, and it will roll out when it's ready to roll out. And so we've identified a few opportunities with some flavor profiles, with some builds.

We're still tweaking some equipment needs, but we like what we're seeing. We're making progress. And as soon as we feel confident we have it completely dialed in, that's when we'll start to expand.

Fair enough. And I appreciate those details. And then I guess, secondly, it does seem the last couple of quarters, the core prepared food business out of Casey's has really found some nice momentum on the margin side, enough so that you can offset the Fikes dilution. Can you maybe unpack that a little bit more?

I mean, I think you guys mentioned Fikes is a 110 basis point drag. So it implies the core was up nicely. How much is left there? And kind of what do you think that -- does that create a better pricing opportunity for you guys to even push harder on competition? Or how do you think about that if this core margin improvement is sustainable?

Yes. Our -- with our prepared food margin, I think we've got a couple of things. One is we've made some progress on the procurement side from a cost of goods standpoint. So that certainly helped particularly on dispensed beverages.

The -- I think the other big piece of it is the acceleration of our whole pie business. Our whole pie business is the largest -- or the highest margin subcategory within Prepared Foods, and it's the largest. And so when that sorts to grow, everything gets better in our prepared food business when that's growing, and that's what we're experiencing right now. So we like what we see in moving to that momentum to continue.

Our next question comes from Anthony Bonadio with Wells Fargo.

So just to dig in a little bit on that earlier fuel question. A lot of your peers are sort of struggling to just try to water on fuel gross profit dollars. And you guys managed to grow both same-store gallons and fuel margins with the Fikes headwind in there. So can you just talk a little bit more about what you think is driving that dispersion and then what you're seeing out there competitively, just given some of the commentary we're hearing from your peers.

Yes. I'd say there's really 3 things that we think are helping out our fuel volume. The first is really our prepared foods offer. And as we talked about before, Anthony, you fill up your tank once a week or so, but you need 3, 4, 5 times a day. And I think with our food proposition really resonating with people, it's driving more traffic to the stores. So we just simply have more shots on goal. From a fuel standpoint, once you're already on the lot than perhaps some of our competitors do.

The second piece is our value perception. And in the research we do with our Guest Insights team we ask guests to compare us to our largest competitors, we score the highest on offering low prices and on good value for the money. And so I think there's a perception, people are coming to the store anyway for prepared foods, but we also have a great value perception overall with the store.

So there's not a lot of incentive to go shopping around for fuel price and great credit to our fuel team over the last number of years, they've been able to very consistently execute our pricing strategy. And so over time, just build some confidence around the idea that we're always going to be competitively priced. If you're already at the store anyway and you know we're going to be competitively priced, there's just not a good reason to shop around.

And so I think that consistency has helped our fuel business. And it -- and we haven't had to get overly aggressive from a margin standpoint because we've been always competitive and consistently so.

Our next question comes from Michael Montani with Evercore ISI.

Just wanted to ask a 2-parter. First off, I was wondering if you could comment a little bit about the M&A backdrop that you're seeing out there, both in terms of smaller deals and then also potentially the larger kind of 50-plus store deals. So that was one thing.

And then the other one was just on seasonality. I understand you don't want to update the full year guide, but in the past, 2Q earnings power is usually pretty similar to 1Q and then you get maybe a 40%, 50% step down in the back half of the year. So just wanted to understand if there's any puts or takes on the timing side or otherwise, we need to keep in mind when we're thinking about kind of the sequential earnings cadence through the year?

Alright, Michael, with respect to M&A -- and I'll let Steve talk about seasonality. But on the M&A front, I would say on the small deal M&A, it's kind of business as usual. Our team is out in the market. we're seeing a lot of interest from sellers. We think that's a good environment. I'd say it's nothing different than normal. On the larger deal M&A, we're having some conversations with folks. We haven't had anything active at the moment, but we're in the market, and we'll see how things evolve as we get through the year.

And on the seasonality, no changes in our view of kind of how seasonality works and we believe that by the time we get to the second order -- second quarter earnings call, we've got visibility really the first 7 months of the year at that point. And I think those are 7 of the 8 largest pots we have in our fiscal year, and it just allows us to have a pretty high degree of confidence dialing in a refined view of the full year.

So we feel like we've had a good start for sure, to the beginning of this year, but we've got a lot of work in front of us and a long way to go. And so we'll stick with the play that we feel so far around kind of managing expectations.

Our next question comes from Bonnie Herzog with Goldman Sachs.

Maybe just a quick follow-up on this topic just in terms of phasing because I you guys mentioned previously that you expected this fiscal year to be more second half weighted given the timing of the Fikes acquisitions. So I'm just thinking about in the context, the strength in Q1. First, love to hear how the quarter came in maybe relative to your internal expectations? And then I guess if it was a little bit stronger, does it suggest maybe some conservatism to your guidance this year?

Well, Bonnie, what I'd tell you is I kind of reiterate what Steve said, we had a great first quarter. We think we're off to a good start from August results we just shared and we'll update everybody at the end of second quarter when we have a little bit more visibility into the balance of the year.

I mean, the one thing I would reiterate, Bonnie, is that the seasonality dynamic has not changed, I mean as far as I know business. I do think I'd reiterate for body the way the comping on a year-over-year basis, right, Fikes heavily influences that, right? So we're going to have big total changes in the first half of the year because we didn't have hikes in the comparable period.

But if you get to the second half of the year, we obviously have Fikes in that prior year period. And so the total change numbers will look a little bit different because it's just not quite as start of a difference, and that has not changed from any of our guidance expectations at it.

Okay. And then just one other quick question on promos. You did mention that, that really helped drive traffic and strength inside the store in the quarter. So could you maybe quantify your spend levels this quarter versus the prior quarter than maybe year-over-year? I guess I'm just hoping to understand maybe how much your promo spend has increased either sequentially or year-over-year?

Yes. Well, I guess the first thing I would point out is a large amount of the promotional activity that you see in a store from us is in conjunction with our vendor partners, right? And so BOGOs and that sort of thing are very often funded completely or at least partially certainly within the grocery category by our vendor partners. And so that spend per se doesn't show up directly in our financials.

The absolute level of promotion for sure, has continued to increase as the absolute level of business and the number of stores that we have has increased. But the majority of the promotional spending is really not directly being funded by the company.

Our next question comes from Kelly Bania with BMO Capital Markets..

Just wanted to go back to CEFCO now coming up almost on a year, I guess, 10 months. And just curious if there's any more learnings that you can share or even refinements to that original plan for the $45 million in synergies. It sounds like there's some very basic changes that you've been able to make on the inside of the store that's helping margins.

But just as you kind of step back big picture, and can you give us a little more color about how CESCO stores are comping and the competitive environment that they're facing.

Yes. I would say that broadly speaking, Kelly, that the CEFCO integration is on track with what we expected. And I think we've described earlier in the early stages of really any integration. This one's no different. We expect to get more synergy early on from fuel and in this case, some G&A synergies because we acquired the entire the entire business for the back office and that sort of thing. And that is tracking as we would have expected.

But the biggest synergies come from putting our prepared foods in and to get that done, we have to remodel stores and put kitchens in. And so there's a longer lead time on that. We really having gotten that work started in earnest yet, but the team is fully engaged on developing those plans and getting those permits executed so that we can begin that work. But I would say, generally speaking, that it's on track.

In terms of how we're comping with, there's a lot of noise in those numbers. There are some changes in behavior have occurred as we've taken over the operation, particularly on the fuel side, you may recall that they had one person pricing fuel for the entire company, that was our CEO and so we're probably taking a little different approach on that. And so we're seeing some different results, both on the volume and margin side.

So there's puts and takes to that. But I think overall, it's working as we would expect. And as we start the actual integrations and conversions, we're confident that, that performance will accelerate.

Steve, do you have anything you want to add to that?

I think we're sitting here today, we're ahead on fuel for the reasons Darren said expectations were ahead on SG&A from what we had originally set out. I think $45 million is still a good number. But I think we feel very good that the prospects once we remodel the kitchens. We probably will land the plane above that. But because the bulk of the synergies are coming from kitchens, we really haven't started too soon to provide a different number.

Our next question comes from Jacob Aiken-Phillips with Melius Research.

So I wanted to start with thinking about store growth like in the outer years past the 3-year target and especially in the context of there's some larger public competitors making some bigger acquisitions as well as some private players with good prepared food offerings, kind of aggressively expanding geographically.

So is there -- sorry, Jake. Was there a question in there?

How should we think about store growth in like outer years in the context of the competition and like where you'll expand geographically?

Yes. With respect to store growth broadly, I mean, we haven't obviously issued our next 3-year plan, which we will do in June of next year, and so we'll share those numbers. But if I step back, our fundamental growth algorithm is trying to drive 8% to 10% EBITDA growth. And to get to that 8%. We typically get half of that from growing the base business through all of our merchandising and operational initiatives and then half of that through store growth, so think about 4% to 5% unit growth per year. About half of that will come from NTIs that we build and source the real estate for and the other half directionally comes from M&A, typically small deal M&A.

We don't typically build in any sort of assumptions on larger scale M&A because those are more opportunistic as sellers become sellers. So that's how I would think about it more broadly. Our geography that we operate in today can support a large number of new stores in it. There's a lot of towns and a lot of white space that do not have cases that would benefit from one. So we see a really unlimited runway for unit development, just within our geography, let alone in the adjacent states to that.

Got it. And then -- so you've been pretty explicit advanced marketing Casey's against QSRs. So both on valuation and on just like innovation. So how do you measure success on the front? And then what KPIs should we be looking at to track or gauge the progress there?

To me, success would be looking at how our same-store sales performance measures up to theirs. And I would say, even more specifically on prepared food and defense beverage and if you look at this quarter as an example, we were up 5.6% same-store a little over 10% 2-year stack, I think that compares really favorably and that's in Prepared Foods, that compares really favorably to just about any QSR or pizza concept that's out there that we have visibility to.

So I would say that to the consistency of our results and the absolute magnitude of them would put us in pretty good shape right now relative to those peers.

And our last question comes from Corey Tarlowe with Jefferies.

And I guess, Darren and Steve I wanted to ask about the grocery and general merchandise category. What's driving the growth? I'm assuming energy drinks is helping. And then second, on the margin for the category, I think this is the best gross margin that you've had for the category in a really long time in the first quarter. Could you talk a little bit about the drivers of that? And maybe what helped, what -- as we think about what's ahead, maybe what stays in and what comes out? Any color you could provide there would be really helpful.

Yes, Corey. Yes, I would say growth driver in grocery and general merchandise has clearly been nonalcoholic beverages. That's been the strongest growth area, a little over 8%. There's some puts and takes on the rest, modest increases here and there. But I would say that is the big driver. And as you mentioned, energy drinks being the strongest contributor to that grocery or to the nonalcoholic beverage growth.

Really from a margin standpoint, there's 2 things going on. I think our team has done a great job in terms of joint business planning and keeping cost of goods in check and managing retail pricing. And so we've had good margin management there. But you also have a mix dynamic. It's really having an impact. And so if you think about what's going on the tobacco category or nicotine overall, that mix is dropping. It's about 130 basis points lower this year than it was last year from a mix perspective.

But the margin is increasing as the share of combustible cigarettes goes down and the share of nick alternatives goes up. So you're seeing a little bit higher margin, although on a lower mix. Then you go to nonalcoholic beverages, which is the highest margin subcategory inside of Grocery and General Merchandise that about -- had about 120 basis point improvement in margin rate, but it's also growing in share by about 120 basis points. So you combine those 2 and you're just seeing a natural inflation of the margin just via the mix. So that's really what's going on there.

Got it. That's really helpful. Is there any way to put into context maybe what that could look like more going forward for the [Audio Gap] should we expect to expect something close to 36%. I mean the category has historically been in the low 30s. So I'm just curious how do you think about the trajectory there?

Yes, I'd be careful of doing that, right? I'd remind you what we're not trying to optimize the margin of either grocery or Prepared Food. We're trying to deliver the best inside the store gross profit velocity outcome that we can. And so we -- at times we'll lean into grocery to help provide something in Prepared Foods or vice versa. And it may make a lot more sense for us to reinvest excess margin, as an example, for -- from a grocery momentum into something that drives more prepared food units because that's the highest margin stuff we have in the store.

And so I'd just be real cautious about trying to define kind of the end point of of where margins are because we're trying to manage the whole thing and improve inside margin and inside gross profit velocity in total.

There are no further questions at this time. I'd like to turn the call back over to Mr. Rebelez for closing remarks.

Thank you for taking time today to join us on our call. Before we go, I want to once again express my gratitude to our team members for all their hard work this quarter. Have a great rest of the week.

Thank you for your participation. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to the Q4 Fiscal Year 2025 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 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 for our fourth quarter and fiscal year ended April 30, 2025. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; 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 Fikes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores.

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements. including, but not limited to, the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions as well as other risks, uncertainties and factors 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, and Casey's disclaims any intention or obligation to update or revise forward-looking statements whether as a result of 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.Caseys.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 would 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 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 in food and security. This resulted in thousands of donations to schools, PTOs, for age 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 are 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 Casey's history with the Fikes wholesale acquisition and its 198 [indiscernible] 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 ratable 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 2-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 2-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 2-year stack 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 nonalcoholic beverages as well as containers. Our food innovation team remains 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 fuel margin averaging $0.387 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 [indiscernible] 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 Casey'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?

Thanks, 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 the Casey'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, Casey's had 1 additional operating day due to the leap year. This unfavorably impacted same-store 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 EPS 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 expense beverage sales rose by $34.8 million to $392 million, an increase of 9.7% and total 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, is less than 5% of what we sell inside the store is imported. Same-store prepared food and expense beverage sales were up 1.5% for the quarter. The average margin for the quarter was 57.8%, net 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 [ wave ] and cheese costs, which were also down $0.06 per pound from the prior year to $2.06. Cheese therfore had an approximate 15 basis point benefit to margin.

Same-store 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 nonalcoholic beverages, specifically energy trains. 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 $0.376 per gallon, that's up approximately $0.011 per gallon compared to the same period last year. This is inclusive of a nearly $0.02 per gallon headwind due to the [ SEPCO ] Setco stores.

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 9% 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 onetime deal and integration costs associated with the Fikes 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. This primarily due to the financing associated with the Bikes 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%. EBITDA for 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 30, we had total available liquidity of $1.2 billion. Our debt-to-EBITDA ratio was 1.9x, calculated under the company's credit facilities. The company has been able to delever from the additional debt taken on to the Fikes 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 of 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 Fikes acquisition.

At the June meeting, the Board of Directors voted to increase the dividend of $0.57 per share, a 14% increase marking the 26th consecutive year that the dividend has been increased. Our first priority on capital allocation remains EBITDA accretive growth. However, now that we've arrived at a leverage level a touch below our long-term target of 2x, 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 gallons 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 3-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% for 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 Fikes 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. Fuel CPG margin for May was approximately $0.40, and that is inclusive of the Fikes headwind of approximately $0.02. Current cheese 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 Damon.

Thanks, Steve. I would like to again express my gratitude and congratulate the entire Casey's team for delivering another record year. The hard work and dedication to executing our 3-year strategic plan continues to show up in our outstanding financial results. In June of 2023, we laid out a plan to have 3 pillars: accelerate the food business, grow the number of units and enhanced operational efficiency. We are now through 2 years of the plan and the entire organization of working cards to execute on our commitment. Inside the store, our robust inside offering continues to be a differentiator for Casey's to drive store traffic as approximately 3/4 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% in 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 for most popular limited time offer of all time for our guests to enjoy. In 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 Casey's value proposition as we're able to offer great products at a competitive price, [ pulling ] our Prepared Foods program were single topping pizzas $1 to $2 less than a national competitor, 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 $0.387 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 cases. In 2023, we shared our strategic plan, and our team is executing on that vision. Casey 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 will continue to drive shareholder value.

We will now take your questions.

[Operator Instructions] Our first question will be coming from Anthony Bonadio of Wells Fargo.

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 [ SAFCO ] headwind that I believe you said was around $0.02 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?

Yes, Anthony, this is Darren. I think, again, our team really managed the fuel pricing environment really well during the quarter. And we had a nice run-up in the 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 bikes [ left of ] onetime costs and assumptions around synergies. And then as we sort of stack all those together, can you just speak to the level of conservatism and guidance more broadly?

Anthonie, this is Steve. Specific to the assumptions around bikes from a modeling standpoint. It will obviously, will 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 price incur -- I'm sorry, fuel synergies would be the first where we -- to Darren's point, we started pricing really from day 1, the fuel in the [ SEFCO ] stores. We certainly are looking at overhead rationalization opportunities, as you would expect, as the second bucket.

Both the third and fourth buckets for us, which would be within the inside the store, some of the procurement and mix synergies. There won't be a 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 run the traditional cases play inside the 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 time lines and with the lead times there won't be significant synergy capture in FY '26 for that bucket. And all of that would be totally consistent with how we had expected the deal at the time of closing.

Our next question will be coming from Chuck Grom of Gordon Haskett.

You guided to 41% combined inside margins. I was hoping you could unpack that for us both for the grocery business and Prepared Foods.

Chuck, this is Steve. We obviously are going to stay from a guidance perspective 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 margin, specifically in prepared food to category more so because of their lack of piece of business, most of the prepared food business, they have now is more protein-centric than what we have. And so Fikes all by itself will mix down inside margin and would mix down compared to margin, even a little bit more. We've done a great job on the grocery side, and you've seen that in the fourth quarter of offsetting some of that mix pressure for 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, cigarettes decline and casing alternatives continue to grow strongly. That's a mix enhancement for us. And so long story short progress within the mother ship 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 prudent 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 $0.02 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 profit source for you like it is historically for like, say, the warehouse clubs.

Yes. Chuck, this is Darren. Yes, in terms of the expectations on Fikes for the year, I would still anticipate that $0.02 segment drag to carry through throughout the year. and we'll continue to work on that over the course of the year. But yes, we are looking at it is about $0.02 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 prices 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 you have a little bit of compression on the front end.

Our next question will be coming from Kelly Bania of BMO Capital Markets.

Just wanted to talk about the same-store sales outlook for fiscal '26 in that [ 2% to 5% ] range. I guess it's just a little lower on the low end there than the past several years, I believe. I'm just wondering if that's just some conservatism or if there's anything you're seeing from your customers that suggest 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?

Yes, Kelly, this is Darren. First on the same-store sales outlook, I think we feel really comfortable with the range that we've been giving. The business is performing well, as you heard our May progress and we can get into how -- 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, that's reasonable to have a little bit of conservatism there on the low end. And so we factor that into the guidance. But we 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, 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. And just wanted to ask about the EBITDA contribution from CECO in the quarter and what's embedded in the fiscal '26 outlook from the deal there?

Kelly, this is Steve. We do, as we have said for FY '26, we do expect it to be EBITDA accretive. We talked about at the time we did the transaction. The valuation multiple was based on a kind of a high [indiscernible] pro forma EBITDA number. It's not going to be that accretive for us in the year because that was that was assuming all of their relatively new stores, some of which having an open end at the time of the deal were at full maturity. So it's going to be less about $80 million, but it will be consistently kind of double-digit millions accretive each quarter from an EBITDA perspective over the course of the year. And it was EBITDA to be for us in the fourth quarter as we expected it to be in FY '25.

Our next question will be coming from Jacob Aiken-Phillips of Melius Research. And moving forward to our next question. Our next question will be coming from Bonnie Herzog of Goldman Sachs.

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 FY '25, 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? I'm curious to hear how much illicit vape is possibly negatively impacting traffic and your sales.

Yes, Bonnie, this is Darren. I'd say for the year, we're pretty happy with where we ultimately ended up. And yes, it was a little bit below the original guide and I'd 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. And as you know, our business is heavily skewed towards those first 2 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, and 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 leap day effect 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. So we feel very good about the momentum in the business, and we I'll 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 4 years ago in February of 2021 when we cycled over another leap day. So I think that is very much an anomaly for us and really speaks to the strength of the business.

Okay. That's helpful. And Darren, just in terms of 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.

Yes. We believe it is impacting the vape category. I mean we have seen the same decline as a result of that. And we were talking to the tobacco manufacturers and working on trying to help influence increased enforcement in that space. But yes, 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 Nattel of RBC Capital Markets.

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 -- what is the rewards program telling you about spending? And what kind of promotions are you creating to capture that traffic?

Yes, 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 in there. They are modifying some purchasing behavior. I think what's interesting that as we dug into this, there's 2 types of low-income consumers. I think there's a 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. So think more gen Z and younger millennials. And so the purchasing habits for those folks are very different than what you 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. And just as a follow-on, as you're thinking about your promotional program, for F '26 as we head into the summer months. What -- are there particular elements that we should be looking for and that you're planning on launching to target these different cohorts?

We worked with our supplier partners or 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 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 a 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 funding alternatives in our bakery category to satisfy that need.

Our next question will be coming from Pooran Sharma of Stephens.

Great. Congrats on the quarter. Yes. I just wanted to ask about OpEx and really guidance. I think in the prepared comments, expecting 1Q 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 an even cadence downwards to hit that 9%. Any color regarding OpEx in FY '26 would help?

Yes, pooran, this is Steve. The cadence is almost exclusively driven by just the year-over-year consolidation of hikes. So in both the first and the second quarter of FY '26 it will be in the teens. And that's purely a function of -- we have all of the Fikes OpEx this year in the first and second quarter, and we didn't have any of the Fikes OpEx as we didn't own in the first and second quarter of last year. It will drop quite a bit in the third quarter to a very low single-digit kind of number. And that's a function of in the third quarter of FY '25 we were cycling all of the onetime deal-related costs. And then so we had a bunch of that roll through total OpEx that will not repeat this year. So the first half year in mid-teens, the second half -- as a result, at a are kind of low single digits. And all of that we would expect would land us in the middle of that OpEx range that we have for the guidance.

Okay. Great. Appreciate that color. And just -- I guess my follow-up would be on expansion. Last couple of years, seems that the lever is really more tilted on M&A. And as you look out to FY '26, it looks like you're targeting [ 80 ]. I was wondering if -- do you see any change in the landscape? Is it still kind of high inflation inflationary construction costs? Are you still facing that? Is it better to lean in on M&A. Would just love some color as we look out to FY '26.

Yes. 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 cases and 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 the other half small deal M&A, what we would call single-side 2s and 3s. 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 yes, to your point, it has been a little bit more efficient on the acquisition side. But 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.

Our next question will be coming from Charles Cerankosky of North Coast Research.

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 rapidly you can go during the next few fiscal years because you've got a lot in the pipeline.

Yes, Chuck. In our assumptions, we haven't built in any conversions this year. for our kitchens and a lot of it's driven on permitting time line. 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 at near the end of this fiscal year, if anything at all. and really the next 2 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 to [ SEFCO ] stores have when it expires and what the conversion process to self-distribution will evolve?

Yes. That's I believe that contract ends at the end of '27. And 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 all be more to come on that as we progress through. Well, I'm sorry Chuck, it's been corrected. It's at the end of 2026, not 2027.

And one moment for our next question, which will be coming from Krisztina Katai of Deutsche Bank.

Congrats on the really nice quarter. I wanted to ask on private label. So 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.

Yes, Krisztina. We've got a lot of work going on with our private label products right now. And we first launched our private label several years ago, we really kind of targeted national brand equivalent, and it was really somewhat of a 1 size fits all, and we have 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 of 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. And then just a 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 Fikes team performing?

Yes. The everything has 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 Fikes 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 want to make sure we were able to get our own capabilities solid and then integrate that team. But we have 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.

Our next question will be coming from Bobby Griffith of Raymond James.

I guess -- congrats on a great quarter, too. I guess, first, I just wanted to touch quickly on the OpEx just 2 follow-ups. Do you get the $26 million in onetime integration costs back in FY '26? 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 will probably be somewhere in the neighborhood of [ $5 million to $7 million ] over the course of the year. on integration related costs, and that's probably ratable as a lot of that is kind of ongoing integration work. So not 0, 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 were kind of just flattish labors or even modest growth in labor hours?

Bob, yes, there is a modest labor hour reduction assumption built into the plan. But I'd remind everybody that when we started this fiscal year, we said we would have about a 1% reduction each year over the 3-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 in the last couple of years, but there will still be some improvement over the course of the year.

Our next question will be coming from John Royall of JPMorgan.

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? 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 on the EBITDA guidance range?

This is Steve. When we think about capital allocation, I think it's just -- it's a function of how we prioritize, right? So we -- we've tried to be very consistent with saying that if we have opportunities to make EBITDA and ROIC enhancing investments from a growth perspective, we'll do that first and foremost that the 80 units would be reflective of that in the FY '26 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 consecutive year. And then so that's something that we'll continue to spend. And then the reality is as the company grows, but we're throwing off more operating cash flow. And in a particular year that doesn't have a significant transaction included in it Ali, we will throw off more operating cash flow then we can reinvest within 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 FY '26 assumption. There is no draw from a debt standpoint on that, that would all be funded with operating cash flow on hand. And it would essentially be not dilutive for us for both FY '26 and going back into FY '25 and mopping up dilution from FY '25 when we didn't do any share repurchase either.

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

Yes. Well, last quarter, diesel 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 have a little bit of softness in February with the weather conditions, like I mentioned before. But overall, it's been trending up. And we continue to lean in on that for a source of incremental volume.

Our next question will be coming from Michael Montani of Evercore ISI.

Congrats on the quarter 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 '26?

Yes, 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, tract the weather, it was kind of mid-single digit negative in the month of February because of weather and the positive for us and progressively better in both March and April. But if you're looking at the kind of the total growth for the quarter, it was essentially a 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 how does that inform your view for the year in the 2% to 5% guide? What are the assumptions for that?

Yes, positive traffic is built into that guide for the year. 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 ticket than traffic. And 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.

And our next question will be coming from the line of Brad Thomas of KeyBanc Capital Markets.

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 the second part to that, just wondering as you look at the house spending bill, if there's any items in particular that you might -- you think might affect cases.

Yes, 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 and general merchandise business, outside of tobacco, and almost exclusively Seres, 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, the -- as I mentioned before, the fine behavior of most of our guests has stayed pretty consistent throughout the quarter. And 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 we were to come to fruition. But outside of that, I'm not aware of anything directly consumer related.

Great. And if I could follow up about 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 Casey's 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?

Yes. I'd say with Texas and Florida, they're behaving exactly as we thought they would. And so far, I think in the 3 proof-of-concept stores that we have converted in Texas, they've been really well received, particularly our pizza has performed exceptionally well. markets. And again, while we're in different states, 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 Rebelez, CEO, for closing remarks.

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

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