Casey's General Stores, Inc. (CASY) Q4 2013 Earnings Report, Transcript and Summary

A very good day to you, ladies and gentlemen. Welcome to the Quarter 4 2013 Casey's General Stores Earnings Conference Call. My name is Nancy and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Bill Walljasper, Chief Financial Officer. Please proceed.

Good morning and thank you for joining us to discuss Casey's results for fiscal year ended April 30. I'm Bill Walljasper, Chief Financial Officer. Bob Myers, President and Chief Executive Officer, is also here. Before we begin, I will remind you that certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. As discussed in the press release and the 2012 annual report, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from future results, expressed or implied by those statements. 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. We'll take a few minutes to summarize the results of the fourth quarter, the year and our outlook for fiscal 2014. Afterwards, we'll open it up for questions about our results and outlook. As most of you have seen, diluted earnings per share for the fourth quarter were $0.60 compared to $0.60 for the same quarter a year ago. For the year, diluted earnings per share were $2.86 compared to $3.04. As mentioned in the press release, the results in the quarter included about $3.5 million in non-cash charges related to the write-down of an unrecoverable accounts receivable balance, accelerated depreciation impairment or replacement, closed and several underperforming stores. Without these items, diluted earnings per share would've been approximately $0.66. We will go over each category to give more detail on what's driving these results. During the quarter, we experienced a strong fuel margin environment, resulting in an average margin of $0.17 per gallon. The margin benefited from the rise in the value of renewable energy credits, commonly known as RINs throughout the quarter. During this time, we sold approximately 10.3 million RINs at an average price of $0.46. This represented about $0.013 per gallon improvement to the fuel margin in the quarter. Casey's has been processing RINs since 2007. Over the past 3 years we have sold on average, about 43 million RINs each year, at an average price of $0.065. Over the past 3 fiscal years, our average fuel margins had been $0.152 per gallon and the average -- 5-year average is $0.145 per gallon. Same-store gallons sold improved each month in the quarter, resulting in an increase of 1% during the period. The increase was due to continued improvement in the fuel saver program that was implemented in December in partnership with Hy-Vee, a regional grocery store chain. We currently have over half of our stores involved in this program. Same-store gallons sold for the year were comparatively flat from a year ago. For the quarter, total gallons increased 5.2% to 378.1 million. Total gallons sold for the year were up 4% to over 1.5 billion. The average retail price of fuel for fiscal 2013 was down slightly from last year to $3.41. Over the quarter, the average retail price was $3.49 per gallon compared to $3.57 in the same time period a year ago. The Gasoline category's off to a good start in fiscal 2014, with an average fuel margin in May above our annual goal of $0.15 per gallon. Same-store gallons in May were up 2.2%, with an average retail fuel price of $3.64 per gallon compared to $3.46 in May a year ago. Favorable weather a year ago in the fourth quarter allowed the company to achieve the highest quarterly same-store sales in the past 5 years. Unfortunately this year in the same period, we experienced unfavorable weather, resulting in a slight decrease in same-store sales within the grocery and general merchandise category. Total sales in the Grocery & Other Merchandise category were up 2.9% to $340.3 million. However, we have been experiencing incremental gains throughout the quarter in most areas of this category and expect continued growth especially in the cigarettes and packaged beverage areas. The average margin in the quarter was 31.7%, down primarily due to the competitive pricing adjustments we made throughout the year. Same-store sales for the year were up nearly 1%, while growth profit rose 4.4% to $462.7 million. Total sales for the fiscal year were $1.4 billion, up 3.9%. Same-store sales in May increased 3.2%, driven by increased cigarette sales. The Prepared Food & Fountain category continued to perform well. Total sales were up 8.1% to $138.6 million for the quarter, while same-store sales rose 4.4%. The average margin was down 25 basis points to 60.5% from the same quarter a year ago, primarily due to higher cost of cheese partially offset by lower coffee cost. The average cost of cheese this quarter was $1.89 per pound compared to $1.73 a year ago. Currently the cost of cheese is approximately $2 per pound. We recently completed a forward buy of coffee, locking in the cost through July of 2014. The average cost of this agreement is about $0.32 per pound below the cost we experienced during the same time period last year. For the year, same-store sales were up 8.6% with an average margin of 61.8%. Same-store sales continue to be strong in May, up 10.3% on top of an 11.9% increase in May of last year. Approximately 2% of this increase was due to retail price adjustments implemented May 1 on several items within the category. For the year, operating expenses increased 10.4% to $760.4 million. For the quarter, operating expenses were up 8.6%, driven primarily by the increase in operational initiatives mentioned previously. Over 1/2 of the same-store expenses in the quarter were the result of stores converted to 24 hours, the major remodels and the pizza delivery initiatives. We are optimistic about the long-term earnings growth of these initiatives. Store-level operating expenses for stores without any operational initiatives were up only 2.6%. In addition to this, the results also reflect about $2.2 million in non-cash expenses related to the write-off of an unrecoverable accounts receivables balance and the impairment of several underperforming stores. These 2 non-operational expenses impacted earnings per share in the quarter approximately $0.04. Without these items, operating expenses in the fourth quarter would've been up only about 7.3%. We also incurred about $1.3 million in accelerated depreciation related to replacement store activity. This have had an additional impact of $0.02 in diluted earnings per share in the quarter. Credit card fees during the quarter, were $21.4 million, up 6.8% from a year ago. Based on our growth plans, we expect operating expenses to increase in the low double digits for fiscal 2014. On the income statement, total revenue in the quarter was up over 3.2% to $1.8 billion. Year-to-date, total revenue was up 3.8% to $7.3 billion. The revenue lift in both periods was due to the sales increases in the categories mentioned previously, offset by a lower retail fuel price compared to prior periods. The effective tax rate this quarter was higher than the fourth quarter last year, primarily due to a decrease in federal tax credits. We expect our effective tax rate to be around 37% in fiscal 2014. Our balance sheet continues to be strong. At April 30, cash and cash equivalents were $41.3 million. Long-term debt, net of term maturities was $653.1 million, while shareholder equity rose to $602.3 million. We generated $286.3 million in cash flow from operations. For the fiscal year, capital expenditures were $334.8 million compared to $280.3 million a year ago in the same period. This increase was due to an increase in replacement and remodel activity from the prior year. In fiscal 2014, we expect capital expenditures to be between $313 million and $374 million. This quarter, we opened 13 new stores constructions and completed 5 acquisitions. Over the year, we opened 26 acquired stores and completed 31 new store constructions. We also replaced 6 stores during the fiscal year. Our store count at the end of this quarter was 1,749 corporate stores. As indicated in the press release, we have 15 new stores and 16 replacement stores under construction. We also have 20 stores under written agreement to acquire, as well as 52 locations under contract for new store constructions. We are optimistic about our unit growth in fiscal 2014. Now let me outline our performance goals for the next fiscal year. They are to increasing same-store gallons sold 1.5% with an average margin of $0.15 per gallon. The increase in our goals for the same-store gallons in margin from the previous year is a reflection of the positive impact we anticipate from the fuel saver program implemented in December and the increase in value of renewable fuel credits in the marketplace. We also plan to increase same-store Grocery & Other Merchandise sales 5% with an average margin of 32.3%. Increased same-store Prepared Food and Fountain sales 9% with an average margin of 62%. We will build or acquire between 70 and 105 stores, which is 4% to 6% unit growth. In addition to these goals, we plan to replace 20 stores and complete 25 major remodels. We anticipate nearly all of the 25 major remodels to be completed by the end of our second fiscal quarter. We are encouraged by the continued improvement of these stores. When you exclude the stores adversely impacted by the Cigarette Tax increase in Illinois, the remodeled stores are generating a low double-digit after-tax return in their second year. The conversion of the stores to a 24-hour format continues to go well. Currently, about 550 of our stores are now open 24 hours. In fiscal 2014, we plan to convert another 100 stores to a 24-hour format. 50 of these will be completed during the first fiscal quarter, with the remaining 50 to be converted later in the fiscal year. We typically experience same-store customer account double that of our store base, resulting in a 20% to 30% lift in inside sales from a store converted to this format. The pizza delivery program is the newest of our operational initiatives. Although the results are preliminary, we have been experiencing 25% to 30% increases in Prepared Foods sales upon the rollout of pizza delivery to a store. We converted an additional 50 stores to the program back in April, bringing our total to 274 stores delivering pizza. It is our intent to add another 57 stores to this program in July and another 50 stores later this fiscal year. As you know, we have a strong track record of growing the business while also returning value to shareholders through a dividend. As June board meeting, the board declared a quarterly dividend of $0.18 per share, which was a 9% increase from the year-end dividend amount in fiscal 2013. The dividend has doubled in the past 5 years and has a compound annual growth rate of more than 20% during this time. In closing, despite the challenges this past year, we are very pleased with the performance of the company in fiscal 2013. We're excited about our growth opportunities in fiscal 2014. That completes our review for the quarter and year-end results, we'll now take your questions.

[Operator Instructions] We have our first question from the line of Irene Nattel from RBC Capital.

I was just wondering, could you give us a little bit more color on the margin trends in the Grocery segment? In other words, if we remove the impact of tobacco, what are you seeing in the rest of the categories?

I can tell you, cigarettes over the last 2 quarters of fiscal 2013, Irene, have been off about 250 basis points so and that's directly related to the retail price adjustments that we took down throughout the fiscal year, most of those occurred in October and November. So as we look forward into fiscal 2014, we're going to obviously cycle over that towards the end of the second quarter, first part of the third quarter. So the margin differential impact will be a little bit less at that point but also keep in mind, I'd like to remind everybody, that in the first quarter of last year, we did receive a $3.5 million benefit to the margin from the Illinois state tax and that had to do with the fact that there was not a tax on the inventory of cigarettes at the stores and therefore, we did receive a one-time benefit.

That's great. And so backing that out, it implies that the balance of the categories are seeing some nice margin delivery.

Yes, typically that's the case. Sometimes, we'll do -- be a little bit more promotional in certain aspects of the Grocery and General Merchandise. For instance, beer and beverages, this time of year, we tend to be a little more promotional, which does impact the actual margin but at the end of the day, we're trying to drive gross profit dollars. So we're certainly anticipating some strong gross profit dollars movement in those 2 particular areas for fiscal 2014.

That's great. And you mentioned where you stand on the coffee hedging. Could you tell us where you stand on cheese at this point?

Right now, we're not locked in on our price of cheese. We're buying on the market, spot market. As I mentioned, the cost is roughly at about $2 a pound right now. So we look forward, Irene, from a comparative standpoint, in the first quarter of last year, we're comparing against a $2.11 per pound. In the second quarter, it's $2.14 last year. So right now, it's a little favorable comparison relative to a year ago.

That's great. And just one final one, if I might. Are you seeing much if any, impact from the dollar store cigarette initiative in your region?

Right now, there's not necessarily a discernible difference. Certainly, the dollar stores are our competitor with respect to cigarettes. We certainly monitor them from a competitive landscape but we haven't seen anything at this point.

We have a next question from the line of Kelly Bania from Bank of America Merrill Lynch.

I was wondering if you could touch on the remodels. I think you said you're planning for 25 this year. When are those scheduled to roll out and if you could just remind us what the comp impact from -- I think you ended up with more like 70 or 80 for the current year, what the comp impact was overall from these remodels and I think the returns -- it sounds like the returns are coming in better now. Just kind of give us an update over all on the remodels.

Yes, the remodel -- the 25 stores that we plan to do in fiscal 2014, all of those will be completed by the end of the second quarter, our fiscal quarter. So many of those are under construction currently. Last year, as you may recall, we did 75 remodels and we are certainly gaining traction with respect to the improvement in the returns. In Illinois, it's kind of a little bit of a wrench into it with that Illinois state tax that impact it. So as I mentioned, if you back out the stores, and there's like about 10 of them, that we remodeled in the state of Illinois, the returns collectively of the remaining stores are in the low double digits after-tax. So we're encouraged by that. That will be in line with the returns in the second year of an acquisition. That was the intent coming into the program, to have at least that type of return in the second year. And so as far as the comps, we don't necessarily -- I don't think we've ever broken out specifically the comp lift at the remodels but collectively, if you look at the 24 hours, the remodeled stores and the pizza delivery stores, those represent a little over 1/2 of the same-store sales lift that we had in fiscal 2013 and collectively, we anticipate the same in 2014.

That's very helpful. The other question I want to ask was on the fuel saver program it sounds -- with Hy-Vee, it sounds like that's going well. I think you said that impacts about 1/2 the stores. So I'm just curious, any thoughts on how you think that's impacting gallons and if you think you're converting any of that to in-store traffic in that half of stores.

Absolutely and certainly, you probably picked up on the same-store gallon goal that we have for fiscal 2014's a little bullish relative to what we've been producing over the last several years and obviously one of the primary reasons is the fuel saver program that we implemented back in December. And right now when you look it, we have roughly about 1,000 stores that are accepting the fuel saver program but when you look at, from an analytical perspective, what we do is, is any store that has at least 10 transactions in a month, we throw that into the fuel saver calculation. So we have about 1/2 our stores that have at least 10 transactions per month and so just to kind of give you a perspective what that means, for instance in the month, like in the third quarter of our business, these stores that have the fuel saver program, same-store sales were about 3.5% to 4% positive relative to the rest of the stores were down about 1.5%. And so that kind of trends forward here. We're gaining a lot of traction as we go forward in this program. The number of transactions has been increasing steadily since we started the program and so that's one of the reasons we feel very optimistic about the same-store gallon movement for fiscal 2014. Now at this point right now, we're not seeing a significant pickup in inside traffic or sales relative to those stores that have fuel saver transactions but certainly the opportunities are there. I mean for us to get them on our lots certainly is a big deal for us and we want to make sure that we take opportunities to try to convert them into some cross sales.

If I could just squeeze in one last one on the gas margins. Can you just talk about what you're expecting for the RINs, how that's factoring into your goal of $0.15 for the year because it seems like if the RINs continue at the prices they are, it could add more than $0.01, maybe $0.01 to $0.02 to your gas margins for the year. So maybe you could just help us think about how you're looking at that.

Sure and I'll tell you the -- a longer answer than what you're looking for.

That's fine.

I think it's important for the investment community to understand that the processing of RINs is not a new endeavor for us. This all started back when the renewable fuel standards went into effect back in 2005. We started processing RINs -- we developed our own internal accounting process that interfaces with the EPA to process the RINs back in 2008, so we've been doing this for quite a long time. The only reason you've never heard us talk about it is it hasn't been material because the value of RINs. The amount of RINs has been relatively consistent that we have sold over the last 3 years and the range is probably about 42 million in a year to about 43.8 million in a year. So that really hasn't changed tremendously. We do see an uptick however, slightly in Q1 and Q2 as we sell more gasoline during -- in those periods. So we've been processing for a while. Now the value of those RINs has escalated roughly about the start of the calendar year. As indicated in my opening comments, the average cost was about $0.46, $0.47 per RIN currently and each rate -- if you go on the Chicago Mercantile and look at the value, that value is just slightly over double that currently. And so it's something that we believe is here to stay. It's been around for quite a long time. So we anticipate certainly an impact, a positive impact in fiscal 2014. We may not be -- it's hard for us to predict what the value will be for the year but certainly, we are experiencing a strong impact here so far in Q1. We anticipate the impact to continue for basically the most of the fiscal year. We do cycle over some of the increased value in the fourth quarter. So maybe a little bit less impactful in Q4 but certainly prior to that, we anticipate that. Hopefully I gave you some information there, some guidance there.

We have our next question from the line of Bonnie Herzog.

Just have a quick follow-on question on the Hy-Vee deal. What are your plans for either increasing this program or implementing other reward programs during the peak summer selling season?

As far as the Hy-Vee, the fuel saver program partnership with Hy-Vee, I mean we believe we have all the stores that are potentially benefited from that up and operational and to the extent that Hy-Vee continues to grow their business, we'll continue to roll out more stores that may be affected and so from that perspective, obviously we're trying to do and I'm sure Hy-Vee, as well is trying to do as much as they can to promote the program. We have seen a nice increase over the last 5 months in the program and the number of transactions and certainly we anticipate that to continue until we start cycling over that. As far as other rewards programs, we intend to do different programs internally, not quite to this extent but obviously we have programs that try to drive repeat customers in our Prepared Food category.

Are there any specific programs you want to draw attention to or talk to us about as we head into this summer, supposedly?

Nothing has necessarily jumps out. We're always looking to drive but right now, we do have some promotional activity on some sports drinks currently, which is pretty common this time of year. We'll try to drive sports drinks and different other packaged beverages but we certainly, as my comments indicated earlier, certainly anticipate to have a very good year in the packaged beverage area not only with respect to the promotions that we are looking to implement but also in the fact that we're rolling out stores that have larger cooler capacities and the beer vaults [ph] and so that's part of the reason we're optimistic in that area.

And then a question on what appears to be stepped up case of store openings. Could you talk through your thought process on this decision and then the criteria you're going to be using to determine where these stores will be located and then possibly more details on the stores in terms of size and offerings.

Yes, absolutely. All the stores right now, Bonnie, that we are building or replacing will be 1 of 2 store designs. It's either a design that's a 4200-square foot facility or a design that's about a 3200 square foot facility. It's what we call O style store and a P style store. The P style store is really geared for maybe a little lower population, maybe a less traffic count than the O style. Typically we'd only have 4 quads or 4 pump islands out in front whereas the larger store footprint would usually have at least 6 typically 8 pump islands in front year to for higher traffic volume. Now as far as the rollout goes, as we indicated, we have about 52 stores that we have under contract to build going forward. That's in addition to the stores that we have under construction. We have 15 stores under construction right now. So a good share of those 52 will be opened in fiscal 2014. However, some of them will be later in the year that won't have necessarily a strong economic impact. And again, the replacement stores, keep in mind, when we replace a store, that does not come through unit growth. We also take it out of the same-store calculation but it certainly has a significant economic benefit that needs to be considered. We typically see on average, a lift in gallons about 50% after we replace a store. We see a 50% lift in revenue in the Grocery and general merchandise when we replace a store and roughly about an 80% to 100% lift in Prepared Foods sales. You roll that up and you see a roughly 50% to 60% lift in cash flow on the replacement store after we replace it. So it's pretty significant that's why we continue that program. Now to answer the part of your question about geography, a significant piece of these stores are going to be in some newer states. They're going to be all over, not only in the new states, when I say that, Arkansas, Tennessee and Kentucky but also in-fill within the remaining stores and states as well.

And then just my final question is on cigarettes. It's certainly been a drag on your business in a lot of the same stores. So I'm curious how you're handling the recent price increase by the manufacturers? And how you expect this to impact your business near-term and then in the next several months and I'm also curious, how you've changed your tobacco sense, if at all, in terms of stocking other tobacco products and/or e-cigs.

Well, manufacturer increase is very recent here. So I may not have specific information with respect to how we may be configuring the cigarette rack configuration but typically, when you have a situation like that from a manufacturing increase perspective, we try to pass those through on the retail price but as you know, sometimes from a competitive landscape, that's not always the case. Cigarettes are one of those products that's highly competitive. It arguably probably is the #2 destination item within our convenience stores and probably most convenience stores. So we feel it's very important to remain competitive and so we are taking a very strong look at competition to make adjustments accordingly. Now the other piece of your question about the e-cigarettes, we currently are selling those. We've been selling them now for roughly 3, 4 months. A little too early to tell how they are trending out but certainly, we're excited about that new product and selling off of the product and hopefully that will take off in the category. And if it does, we'll certainly call that out as one of the areas, maybe move it in the cigarette category.

Next one is from the line of Ben Brownlow, Raymond James. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Just following up on Bonnie's last question. Will you have an inventory gain on cigarettes there?

Will we have an inventory gain on cigarettes? Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: An inventory benefit from inventory on-hand as manufacturers set the price increase?

Yes. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: And just, when I think about the land bank obviously it's a strong number of assets that you have and can you just give us some color on the acquisition environment at this point?

Yes. Certainly, the funnel's pretty full, Ben. I mean as indicated in the press release, we do have 20 stores under written agreement. We should close on those and some of those will be later in the quarter and then some will trickle into the second quarter. We're certainly under negotiations as we always are, with a number of stores and we really can't talk about in great detail but certainly, we're pretty optimistic about the 4% to 6% unit growth this year. Obviously when you look at what we put out in the press release, in conjunction with stores that we've opened, stores that are under construction, under contract, certainly off to a great start to the fiscal year. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Are those acquisitions, are they in new markets or are they in fill-in markets?

These are fill-in.

Next question is from the line of Chuck Cerankosky from Northcoast Research.

I wonder if you could comment, Bill, on what the product mix is telling you. Any favorable shift in that, more expensive beers, more items, et cetera.

As far as more expensive in the beer category, we continue to see traction like in the craft area of beers and that's still a very small piece of our beer category. Most of ours are the Bud Lite type category but we are still selling more and more larger packs and then as the result of the beer case that we are rolling out and the new store constructions and the replacements, so probably if anything, that's where we're seeing some of our traction. So that helped obviously, it's a higher rating but it's a little bit lower margin item but at the end of the day, gross profit dollars are what we're trying to drive. So I would say that's probably the biggest thing to call out in the beer area. With respect to other packaged beverages, it's kind of all over the board. That's an area that continues to evolve and for us, we want to make sure that we have the appropriate shelf space and make sure that we can be flexible in making appropriate allocations of those products.

You talked about this forward buying coffee. How does that work with regard to all the gourmet coffees you might have. Is that a packaged -- is that a purchase of raw beans that then go through additional processing or do you sort of pre-buy the cross-section of flavors you sell?

It will be the first part of that and so we're fortunate, the coffee price in the company market, that has gone down over the last 1.5 years and we saw an opportunity to lock in that price at a lower cost than what we had in fiscal 2013 and certainly, we want to take advantage of that. As far as the coffee price, it's about $0.32 below what was a year ago and so when you roll that up, you're talking about 10 to 15 basis points in the total Prepared Food margin in fiscal 2014, that's what the benefit would roll into roughly.

Do you anticipate any price reduction, selling price reduction in coffee?

We don't anticipate that. I mean that's one of those key areas, or key products, I should say that we do pricing surveys on and so to the extent if the market were to go lower, we certainly would have to evaluate that but right now our intent is not to lower the cost.

Next question is from the line of John Lawrence from Stephens.

Bill, first of all, would you comment -- to follow that last question, if you look at gross margins a little bit and your margin assumptions for '14, walk us through -- could you give us a little bit there on the coffee, how are you looking at that mix as far as the margin assumptions in relation, you gave us a little bit more on the gas margin thoughts but on your food and grocery, how are you thinking about gross margins?

Yes and I'll walk you through every category. Obviously in the Gasoline side, we're anticipating a tick up on the margins due to the positive benefits of the renewable energy numbers. Now as far as the grocery and general merchandise, when we look at that, I mean probably the biggest aspect that's pulling that margin down is going to be the cigarette category. It's been a highly competitive and seems like the retails have gravitated downward over the last year. I will say though, they have stabilized. We saw, I would say a very strong, same-store movement in cigarettes and in the past several months. We anticipate that continuing to -- as we cycle over some of these price adjustments but certainly, that's pulled the margin down. Right now as I mentioned, over the last couple of quarters, there's been 250 basis points approximately downward movement in the cigarette margin, obviously the big piece of the grocery and general merchandise category. And as we walk through the year, we tend to be a little bit more promotional on some of the packaged beverages in the summer months. So consequently, we're giving up a little bit margin to try to drive gross profit dollars and so if you see a little bit of margin pullback, it's probably related to those 2 areas. At that we cycle out of that in the back half of the year and hopefully, have a little bit stronger margin in the first half of the year. On the Prepared Foods side, I mentioned the coffee benefit. Now to the extent -- I mean right now, cheese kind of stabilizes through the first half, we should have a benefit on the cheese cost. Now in the back half of the year, John, what we're comparing against in Q3 will be $1.93 and in Q4, the average cost of cheese in fiscal 2014 was $1.73 and so we've kind of -- that's kind of how we see that there. Now to the extent that we continue to roll out pizza delivery 24 hours and we increase the contribution of whole pie sales within that category, that will benefit the margin and so that's something that everybody should be attuned to as we proceed throughout the fiscal year and that will benefit -- pizza is a high margin in the category as a whole. Hope that gives you some perspective.

And second question, one of your new markets, I know your Northwest Arkansas, Kum & Go is competing with you head-to-head with a lot of new stores there. Could you tell us about sort of at the edges of the footprint, how are those stores opening and what do you think about the market now? I know you opened a new one last week or so.

We feel really good about that market. In fact, all the new markets and when I say new markets, we're talking about Arkansas, Tennessee, Kentucky and North Dakota. We feel very good about all those markets and the opportunity that those areas present. The stores in specifically in Arkansas, we have the most data on. They are performing at a huge -- had a very strong rate relative to the rest of the store base and so we're encouraged by that -- specially in the Prepared Food area, it seems to be well embraced by our customers down there. And yet we do see Kum & Go in those market areas. That's nothing new. We see them in our market area, or the core market areas as well. So we're excited about that opportunity and to the extent that in next probably 2 to 3 years, or 2 to 4 years, you'll see a second distribution center, not the location, which hasn't been determined, but more than likely, south and east of our current facility. And once that's up and operational, I think that affords the opportunity for us to expand further into those newer markets in an efficient manner. So we're excited about what the future holds for Casey's.

We have our next question from the line of Ronald Bookbinder from Benchmark Company.

It seems that you were blending only about 30% of your fuel, with which you can capture RIN. Could you expand your splash blending to capture more RIN?

Really right now, right now, Ron, I mean for us, it's really primarily the state of Iowa. I mean the state of Iowa right now has the right to blend legislation. So it allows us the opportunity to buy ethanol and clear unleaded gas separately and then as you indicated, splat blend those and that will be the event that would detach the RIN from the ethanol that will allow us the opportunities to sell that in the open market. The other stick that we operate, we're forced to buy the product preblended and so we're not -- we don't have the opportunity there. So the only way to expand any significant would be the fact that like the fuel saver program we talked about earlier, many of those stores in the state of Iowa, as we gain traction in same-store gallons movement in the state of Iowa, certainly that will afford us an opportunity to sell more RINs in that program.

And on the fuel saver program, do you expect fuel comps to be more front-end loaded until we anniversary, the benefit from the Hy-Vee program sort of at the back of the year?

Yes. I would say that's correct. I mean we'll cycle that program. It started in December, it didn't have a lot of -- it took a while for it to gain traction. I still think we'll still see a benefit in Q4 relative to the Q4 a year ago but maybe not as significant as what we've been seeing in the first 3 quarters of the fiscal year.

And lastly on the merchandise comps, can you give us a little color as to traffic versus ticket and how that was trending during the quarter?

Yes, I certainly can. When we look at the customer account, I'll probably give it to you here over the last couple of months, the last couple of months for instance, we were low single digits, April, 1.5%, May was 3.5%, March actually was down but keep in mind, Ron, I think we called this out in the 8-K for the same-store sales for March. We had a very different weather comparison in March. March a year ago was just, I'll say, phenomenal weather relative to probably it couldn't be more extreme this March and that caused same-store customer count to be off significantly. So we're seeing now traction in same-store traffic, getting closer to the mid-single digits and we're hopeful that will continue especially in relationship to the Hy-Vee's fuel saver program that we partnered.

[Operator Instructions] We have a next question from the line of Damian Witkowski from Gabelli & Co. Damian Witkowski - Gabelli & Company, Inc.: I know it's been just a few months but if you look at e-cigs versus a regular cigarette customer, do you actually make more money when you sell one of the e-cigs versus a pack of smokes and then any thoughts on recurring -- buying from those customers?

Yes. We do make, from a gross profit dollar, those are a little bit more profitable. The latter part of your question, might be a little bit too early to tell as far as repeat customers. It depends kind of what kind brands they are purchasing. Some of those are rechargeable. Some of those you can come in and buy a new battery for. So it might be a little too early to give any type of accurate information with respect to the potential impact in that regard but to answer your question, yes, it is a little bit higher ring and more profitable. Damian Witkowski - Gabelli & Company, Inc.: And Bill, is it possible to say if it's incremental customers, or if it's someone who's been smoking and trying to quit regular cigarettes?

It's hard to say. There is some indication that it might be an incremental customer. Many of the areas that we operate, probably similar to you, Damian, in your area, they have the smoke-free an environment. In the state of Iowa, you cannot smoke in public areas and many communities are that way. So this is an alternative for those smokers to do that. So and we have very strong same-store movement in the month of May in cigarettes as part of it's maybe due to some of that but it's a little too early to be too definite in that area though but it's something that we keep an eye on and we'll report on that as we move forward if there's any significant movement. Damian Witkowski - Gabelli & Company, Inc.: And then on your fuel saver program with Hy-Vee, have you said how much -- less you actually make per gallon due to that program or is it about the same?

I can tell you that our cost in that regard -- the for a customer they can fill 20 gallons up with their fuel saver and the cost for us is $0.0175 per gallon. Damian Witkowski - Gabelli & Company, Inc.: And then if you look at RINs again, just going back to that as it's becoming more and more of a benefit to your earnings, does your competition, in the smaller markets, do they have the same capability that you do?

Well 1 or 2 things, well actually 2 things would have to happen for them to see the same type of benefit, Damian. One, they have to have the ability to buy the ethanol and clear separately and then blend that themselves. I hear some of our competition has that ability. That's just 1 piece of it. You also need to have the accounting systems created to interface with EPA to clear the RIN. In other words, you have to get it certified that the RIN is valid before you sell that and we developed that program internally back in 2007 even though it wasn't material at that time, we figured we would do it and get a nominal benefit at that time. And so you got to have those 2 aspects. I would say that in our market area, there are a limited number of competitors that have the ability to process the volume that we do. Damian Witkowski - Gabelli & Company, Inc.: And then just lastly, on the M&A front, I mean as you have more of these -- more of and fuel operators coming in and getting spun off and they're looking for growth, are you seeing anything different on the competition front as you may deals, even smaller deals, more competitors in those and also lastly as well, I know you haven't -- you looked at in the past and you haven't you didn't think it made sense but any more thoughts on a REIT structure?

The first part of your question there, as far as additional competition for acquisitions, we haven't seen anything at this point. Typically, we would see competition for an acquisition when it comes to a little bit larger deal, more stores and probably a little bit larger communities. We don't see a tremendous amount of competition when we are purchasing kind of the smaller chains or the one-offs and in some of the smaller communities. So we have not seen anything in that regard. Now the second part of your question with the REIT, I know -- I think you were the one, Damian, that asked the question a few quarters ago. As far as the REIT structure goes, it's one of those things, I'm not sure if it's necessarily a viable alternative for us. Keep in mind though, the board will evaluate all the strategic alternatives on a periodic basis. It doesn't necessarily we that we're actually pursuing those but certainly as we get questions more and more about like a REITs structure or an MLP structure or even new products that maybe some of our competition has introduced that seem to be working for them, we think about questions about those and so to that extent, we do some due diligence and then looking at those and evaluating those to see if they make sense. So from our perspective, we're not actively pursuing a REIT structure at this point. That doesn't necessarily say that, that would be the case down the road as circumstances change.

[Operator Instructions] We have a next question from the line of Fred Speace [ph] for Speace Tulson Capital Group[ph].

Bill, could you break down the CapEx between acquisition and brick-and-mortar.

The new you construction was about $103 million, acquisitions were about $66 million, replacement stores were $55 million, major remodels were $38 million, transportation division was $15 million, information systems was about another $15 million and the remaining piece would be just kind of a general maintenance.

Ladies and gentlemen, that's all the time we have for questions today. I would now like to turn the call over to Bill Walljasper for closing remarks. Please go ahead.

Thank you. I'd like to thank everybody for taking the time to join us this morning and look forward to talking to you in the future. Have a great weekend.

Thank you, Bill. Thank you, all, for joining ladies and gentlemen. This concludes the presentation. You may now disconnect. Have a good day.