Good day, ladies and gentlemen. And welcome to the Casey's General Stores Incorporated First Quarter Fiscal Year 2016 Earnings Release. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conferece call is being recorded. I'd now like to introduce your host for today's Conference Mr. Bill Walljasper, Chief Financial Officer. Sir, you may begin.

Good morning. And thank you for joining us to discuss Casey's results for the quarter end July 31st. I'm Bill Walljasper, Chief Financial Officer. Bob Myers, Chairman and Chief Executive Officer, is also here. Before we begin, I'll 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 in the 2015 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 first quarter, then afterwards we'll open it up for questions about our results and outlook. We are off to a good start towards achieving our goals in fiscal 2016. Diluted earning per share for the first quarter was $1.57 compared to $1.28 for the same quarter year ago. Primary reasons for the earnings increase are due to strong sales throughout the company and margin expansion in our prepared food category. This was offset by lower fuel margin from a year ago. EBITDA for the quarter was p nearly 17% to $147.7 million. Before we go over each category and get more details and what is driving these results, I'll remind everyone that we will release the details of August same-store sales on Tuesday, September 15. Lower retail fuel prices from a year ago benefited same store gallons resulting in 3.4% increase in the first quarter. Our total gallon sold for the quarter rose 8% to $501.2 million. The average retail price during this time was $2.57 per…

[Operator Instructions] And our first question comes from Karen Short from Deutsche Bank. Your line is now open.

Hey, how are you? So I was just curious if you could give us an update on the online delivery. So how many stores you are at now. I guess this is the first question and then maybe some color on what you are seeing on lift to the comps and any data in general because obviously the last quarter it was too early.

Yes. It's still probably little bit too early at this point. We have little over 600 stores that we converted to online at this point. We are on track to complete all of the stores by the end of the calendar year. Right now you are probably not seeing a tremendous amount of impact on comps with the online, simply because we are waiting until the complete rollout of the online ramped all of our stores before we do any type of mass marketing with that regard. We don't want to confuse the customer. I think they can go onto their store do online and not being available.

It will be at all stores by calendar year end or fiscal year end?

By the end of the calendar year.

Okay.

Yes. So one of the things we have noticed in the recent data we've seen not so much of pick up in the number of whole pie sold, but on the add- ons, we are seeing a significant uptick in the add ons with respect to things like bread sticks, buffalo wings and even extra toppings on the pizza. And so we are experiencing a higher win when we people do order in online format than otherwise. And so as we get further down the road we'll certainly give some more color on that area.

And so even now -- even within the stores that you have it -- couldn't quantify how much it might be benefiting the comp? Or don't you think it really is yet?

Yes. I'd hesitate to say that there is a tremendous amount of benefit at this point simply because of the fact that we are not marketing outside just at the store level. So come at the end of the calendar year, you'll start to see us do little bit stronger marketing with respect to social media and doing some other mass marketing where it make sense where we have a higher concentration of stores. And that's why I think you'll start seeing the major benefit from the online is more than Q4 this fiscal year.

Okay. And then in the quarter I noticed that your sale of RINs was up pretty meaningfully this quarter versus kind of the run rate that's been pretty steady out kind of in the 15% range for like 4Q and 3Q. Is that anything that drove the increase this quarter to be slightly higher?

We just had one month where the RINs were little bit higher than what they have been trending in the recent quarters. As I mentioned they are right about $0.40 right now trading and so just have one month the kind of skew that up just little bit about $0.51.

Okay. And then can you just give the dollar amount on credit card fees?

Yes. I can. Actually for this was $27.8 million in this quarter.

Okay. And then last question and then I'll get back in the queue. Any color on what you are thinking in terms of lock in, further locking cheese and dairy beyond December?

That's a good question. We are looking very aggressively at continued locking of cheese as well as coffee. We haven't had anything that developed at that point yet but certainly looking at that, trying to stay and lock the coffee, those two pretty significant commodities within the prepared food category.

Any price ranges that you could point to in terms of what do you think might be reason, what I mean I guess it was $2.05 in the third quarter last year and then $1.89 in the fourth?

The comparison that we are going to be up against going for Q2 of last year was $2.43, Q3 of last year was $2.05 and then in the Q4 that’s when we locked in and show it as $1.89, so we are looking at obviously a favorable locking cost that would benefit us below those levels but nothing to point to at this point.

Thank you. Our next question comes from Irene Nattel from RBC Capital Markets. Your line is now open.

Thanks and good morning, everyone. Continuing on the prepared food side, obviously the coffee and the cheese are big tailwind but just wondering about what you are seeing in terms of sale. Are you still running at the rates that you were at last year, or as you get -- as you finessed the program a little better, are you seeing some decline in sales?

We are seeing some moderation in the sales factors that we talked about over the last few quarters. And just we'll always have stales. I'd be more concerned if we didn't have stales or have reduced to a very low level that would indicate that we are probably not matching the customer demand from the sales perspective. But it is something that we talk about every quarter, at our district manager meeting, is an area of focus. And certainly I think we are making some strides and improvement but we'll always have a certain amount of that. And so in this particular quarter, Irene, there was moderation in the stale factor. I think drove that the prepared food margin was two fold. One would be the commodities that we mentioned for cheese and coffee. But we will also keep in mind we did our price increase back in November about 1% price increase also and price increase that we took in May as well that we talked about last conference call. Both of those are not helping in the comp side of it but they are also helping on the margin expansion side as well.

That's great. Thank you. And clearly you are seeing no pressure on pricing as the commodities are coming down.

Yes. No, we've not seen -- we've not seen that. We haven't seen any elasticity at all from the customer and also with those price increases that we took. So from a tailwind perspective the next few quarters should be in our favor.

That's great. Just looking at the OpEx line, you did color out the credit card fees, the transportation cost and kind of 4% on same-store basis, but you also open few stores in the quarter so should we expect OpEx growth to be more significant as we move through the year and you ramp up the new store opening?

The answer it will be depend on the new store openings. Right now we are planning on 40 to 50 new store constructions. I think the variable, Irene, is going to be on the acquisitions. And so you are right on point, part of the downward movement relative to recent quarters and operating expense, it has to do with your cycling over the Stop and Go rollout a year ago. And so we do a less from a store opening perspective. So if we accelerate the acquisition activity, you can expect operating expenses to move forward, little higher than what they were right now.

Okay. That's great. And can you update us on the acquisition pipeline?

Yes, absolutely. The acquisition pipeline has been a little slower here than the recent quarter. And it is a combination of several things. First of all, most of the acquisition activity in our industry happens outside of the Midwest and you probably have been seen that. And just to reiterate the Midwest landscape, it is dominated by smaller operators. Two thirds of the operators of C stores in our market area are operators of 10 stores or less. And so you look at that combined with probably last 10 to 12 months, not only Casey's but most of the C store industry has experienced some very nice fuel margin activity. There is just not lot of incentive from some of these smaller operators to be selling their business when they are experiencing a little bit higher cash flow than what they normally have been. So we will be patient on that. I think that will turnaround and we will be there to make any opportunistic purchases.

That's great. And one final question if I may. You did mention in your comments Bill that your balance sheet is at 2x debt to EBITDA is probably the cleanest in the space. Does that mean that you are considering perhaps introducing sort of an NCIB to have debt creep up just a little bit?

Yes. There is just lot of things that we are looking at. We think right now given the landscape probably the best use for the balance sheet is to grow the units. Even though we've experienced little bit slower opportunity in the last quarter. We do think there is going to be opportunity in the next 12 months for uptick in that area. So probably most lastly use of the balance sheet would be to grow the business in that direction. You know we look at all alternatives. It will depend on what market conditions give us.

Thank you. Our next question comes from Bonnie Herzog from Wells Fargo. Your line is now open.

Good morning, everyone. Hi, so your fuel gallon comps are really strong in the quarter. Could you talk about how that possibly translated to stepped up store traffic and then did you see a lift? And then what about your average basket ring and then I was hoping you could remind us on any new potential fuel saver partnership programs you might have right now.

Okay. I'll try to get those and see if I miss one, Bonnie, keep me honest, all right?

Okay.

First of all, the same-store fuel gallon growth certainly is dictated by the differential in retail which was very typical. I have been here 25 years and anytime when we see a significant differential in fuel either up or down, you'll see movement in the fuel gallons. That really is driving the same-store fuel gallons. And generally speaking that will equate to a little bit higher same-store customer count. And so we over the last quarter, we've seen a nice same-store customer count in a low single digit increase to quicken up another mid single digit. And so as far as the basket ring, when you look at the basket right, it actually is about the same as it was in the previous two quarters. And when I say basket we are talking about excluding fuel. So we've seen a tremendous uptick in the basket ring at that point. And so that something that we are looking at. Now with respect to the online, I did mention that we have seen an uptick in the basket ring when people order online versus them is not. So that is encouraging and certainly we will talk about that in future quarters. You also asked about the fuel saver program. We just renewed the fuel saver program with Hy-Vee. Obviously, that's been a tremendous success over the last three years with us. We continue to look at opportunities outside the market area that we currently have with Hy-Vee. And so we do have some small arrangements down in Oklahoma area looking further opportunities to perhaps do some things independently in areas like that. I can tell you that starting October we will implement what we call Piece of the Pump program. We've done this in the past and very success in Indiana and Arkansas. And you may remember we were talking about that really what that is that you get $0.10 of the gallon of a gas if we buy large pizza and so that will be introduced in October and run through the end of the -- at least the calendar year and states like Nordic some of our outlined states like Indiana and North Dakota, Kentucky and Tennessee and some of those state. That convert successful for us and we are excited about rolling that again.

Okay. I think you touched on all of them but I do want to go back to something you mentioned about the basket ring being constant which I guess is a little surprising as I think about the consumer paying less of the -- more money in their pocket to come into the store which you mentioned, there is stepped traffic but then they are not increasing the spend in the store in total if I am understanding you correctly.

Well, let me clarify that. We spend in the last -- prior to this quarter and in Q4 and Q3 and especially Q3 is when the retail price really started to make a move.

Yes.

We did see a significant uptick in the basket ring inside a store, maintain that uptick. We just haven't seen an uptick Q1 sequential to Q4 of any meaning. We haven't seen that one.

Yes. I am sorry. That makes more sense. And then I had a question on your premium cig business which you certainly called out again as being very strong, very consistent with what I am hearing from the major tobacco manufacturers and what they have been reporting also with a lot of the other retailers are seeing. So clearly a result of the lower gas prices. So I was hoping you could drill down just a little further on your cig business and then the consumer and give us a sense of what you have been seeing just in the past month. And then finally how did your cigs, your business impact your cig business I should say impact your gross margins in the quarter.

Well, obviously our cigarette business has done very well. You are right on point. Over the last three quarters and coincide with the decline in retail fuel price, we've seen a -- we call trade up in the cigarette area. That trade up is coming to the premium brands of cigarettes. And so you look back in the same time period I just mentioned over the last two to three quarters, we've seen a high single digit, sometimes even a double digit depend on a month same-store sales movement within that particular area of grocery and merchandise category. So that dominates the category so obviously it is helping lift the overall category. To your point I think you have alluded to it that is certainly a lower margin I am relatively to the category as a whole so when you look at our goal for grocery and general merchandise this year relative to the prior year is relatively flat. And there lies your reason; it is really hard to drive the overall category. The major component of the category which is a lower margin is taking a more of sizeable shift in that particular real category. So it is holding back the margin a little bit if you want to call that. That's been offset by increases in the beverages like I alluded to and most of the pack of beverages are much higher margin items in the category overall. Hope that answer your question.

Definitely. And then just my final question would be on your remodel stores. Could you remind us what the performances for these remodel stores versus say one of your legacy stores and ROI for the remodel stores and then I am overall curious why you are not necessarily accelerating the pace of the remodels given really I think how powerful they probably are and certainly because you still have the leverage capacity.

Yes. Well, we are accelerating those. We only did about 25 last year and we made a commitment to do at least a 100 this fiscal year. As you can obviously tell by the earlier comments and reading the press release, those 100 may remodel maybe back loaded into the fiscal year, so when you look at for instance same-store sales specifically in prepared food, you know we are in line with our goal as we roll more these major remodels out and bring on more pizza delivery store, you should see an acceleration in those areas because of those particular initiatives been rolled out. That answers your question on performance. What we typically see in a first year of performance when we do a major remodel is about 25% to 30% lift in the prepared food and fountain category and roughly about 10 to low teen lift in the grocery and other merchandise category. And that's where the two areas that we are really focused on. And so as far as the ROI, because there is about $600,000 to $650,000 investment. What we typically see is in second year of the major remodel is a double digit after tax cash flow return. And so we have quite a bit runway on the major remodels and look for us to continue in future fiscal years to have nice pace with respect to that. Lot of that pace might have to do with what we have else going in the business with respect to acquisition of new stores and a number of other things.

Thank you. Our next question comes from Kelly Bania from BMO Capital. Your line is now open.

Hi, good morning. Thanks for taking my question. Just wanted to circle back on operating expenses and it sounds like maybe some benefit from the back half weighted nature of a lot of the initiatives this year. And obviously the fuel and the credit card helping but still seems like the underlying expense progression is really improved this quarter and even last quarter. So are you doing anything different in the stores? Is that more -- should we expect that to reaccelerate later in the fiscal year? And I guess just any comment on your guidance because I think you are still guiding towards kind of double digit increase in operating expenses for the year and just curious if you could update that or any changes that's out there?

Yes. You are right. At the beginning of the year we made comment about low teens increase over the course of year and operating expense. And certainly that part of the guidance has to do with new store activity both us and new store construction and acquisitions. So to answer your question about going forward, I mean here some things to think about operating expense. If retail fuel prices continue to benefit on a comparable basis, we should continue to see benefit in the credit card area as well as the fuel expense area. Also another aspect that we saw in the first quarter was advertising. We had a quite a bit of advertising in Q1 of last year. We did the pizza- to-pump promotion last year. I think that was also incorporated into that. But to the extent that we have the ability to increase the unit growth you should see operating expense continue to move up from where we are at now. And so I would still at this point, Kelly, we are going to continue to reiterate that low-teens operating expense but if the acquisition continue to be little slower, it certainly can go below that. And be high single digit like we just experienced.

Got it. That's very helpful and then I guess just kind of same question on the D&A. I think you guided that to a low to mid-teens increase for the year. Would that be still on track or does the lot of that depends on the acquisition activity?

Yes. Pretty much the same answer. I mean obviously depreciation certainly is a big part of that new store and acquisitions coming online. So if we continue to have little bit slower pace on acquisition, the depreciation obviously will come back and continue on a low here. And I'll repeat that I mentioned in the narrative was the replacement store activity. We had much less of accelerated deprecation activity in Q1 relative to Q1 a year ago. And just -- as you know, when we decide to replace a store we need to accelerate depreciation over the new life of that particular asset. And so it did get squeeze in the Q1 last year. And it was about $2.1 million accelerated depreciation difference in Q1 versus Q1. So the take away there, Kelly, is unit growth acceleration you should see depreciation go back to little bit higher run rate. If it doesn't accelerate it will probably in a similar range that we are talking about now.

Okay, that's very helpful. And then I guess just to go back to a comment you made about the smaller change and with the strong retail fuel environment that we've been experiencing that there is just not much incentive for them to sell right now. But I guess that, there is potential for that to turn around. I guess the question is does that kind of mean that you would expect your fuel margins I guess to kind of normalize as well. And is that reflected in your guidance for gas margin or how do you feel about gas margins for the rest of the year? And obviously hard to predict but if you expect that to turnaround for the operators, wouldn't that impact as you well?

Yes. And my intent of the comment wasn't necessarily to indicate that we expect fuel margins to moderate but more the expectations of the seller to become more in line with their assets. So that wasn't a reflection on what I thought the fuel margin would be. Now to answer your question on fuel margin. It is very difficult for us to predict going forward the fuel margin will move forward too. We have experienced lately some nice volatility in the cost structure and that always is a help to us. And so it's really hard for me to say where that fuel margin will go.

Got it, okay. That's very helpful. And then just what was your customer traffic for the quarter and any sense on how much of your customer traffic is being driven from existing customers just kind of increasing their frequency or from new customers, any thoughts on that.

Well, the customer traffic was a low single digit same-store increase. That's kind of what we've been experiencing here for a while. It fluctuates month-to-month obviously and quarter-to-quarter. But as far as incremental customer, I think we are asking -- it is really hard for us to say whether a transaction is incremental customer or other customer coming back for second purchase. We don't have any way to tie those two together.

Thank you. Our next question comes from Ben Brownlow from Raymond James. Your line is now open.

Hi, good morning. Bill on the August same-store sales, I know you are going to release that until Tuesday but any insight into what the calendar shift with the slightly later Labor Day weekend following entirely in September this year. And any insight to how that will impact to the comps for the quarter -- excuse me the month.

Yes. Very intuitive there Ben. You are exactly right, this dynamic happens very frequent when we get to August and September. And so I would encourage everybody to look at where the Labor Day weekend fell last year in relationship to this year. Last year it fell primarily in August, where this year it falls completely in September. So there will be a calendar shift relative in between the months of August and September. It won't affect the quarter obviously but certainly there is a shift. We also had I believe one less Friday in August this year relative to last year. And for a month's time that's I mean you lose a Friday or you lose Saturday or if you lose both, that will have some impact in a month. Yes, there will be a calendar shift.

Is there anyway to quantify that? Would it be 200 to 300 basis points? It that a reasonable range?

I wouldn't be able to quantify now at this point. We'll take a look at that and see if we can get some more color when we file the 8-K next week.

Hey, great. And just one last one for me on the 26 new sites under construction. Any insight to the timing of the opening of those sites?

Mostly 26 that are under construction, you can anticipate over the next several quarters they will be open. We'll have the benefit in the last couple quarters.

Okay. How many do you think will be open by the end of this quarter?

I don't have that information, Ben. I don't have that.

Thank you. Our next question comes from Anthony Lebiedzinski from Sidoti & Co. Your line is now open

Good morning. Thank you for taking the questions. So first just wanted to ask about the Hy-Vee program. So I assume that given that you already had it for a number of years that the comp gallon differential between your Hy-Vee stores and your non-Hy-Vee stores, that differential is probably not overly significant.

That's correct. We now have a Hy-Vee, the fuel saver partnership with them for about three years now. And also recycle over that and then some and we always try to refresh the program with different initiatives. Most of those come through Hy-Vee and the promotion of their products and selection of their products to be items within the program. So we've always try to tweak it, but you are exactly right.

Okay, got it, thanks for that. And I guess as far as just kind of looking at the couple of other questions that were asked ahead of me. The question I guess as far as customer traffic and measuring of the impact of some new customers, I suppose in order to do that you will have to have some sort of kind of loyalty card program I guess perhaps, I mean is that something that you guys however thought of perhaps doing. I know Wa -wa does that here in the North East so just wanted to get your thoughts on that.

You are exactly right. It is very difficult for us to determine whether same-store customer traffic is the same person coming and making two purchases on a week or do we have two incremental customers. And as far as loyalty cards, I have been here a long time, and I know we have consider loyalty cards number of time but you want to make sure you get that program right because once you are through a loyalty program and out there, it is really hard to pull back so there is not one in the works or in the plans at this time and immediate future. We'll continue to look at that especially if we start to create a different type of fuel saver program and some of our outline areas.

Got it, okay. And also could you separate the credit card fees and transportation cost? I know combined they were a $2.3 million of tailwind, is it possible for you to just break that down? Is that a problem?

Yes. No problem, about $1.5 million of that is -- that $2.3 million is the fuel expense.

Got it, okay. And lastly can you give us an update on your second distribution center? Is it still on target to open early next year?

Yes. That's right on target. It'll open -- the first part of February of 2016.

Thank you. Our next question comes from Irene Nattel from RBC Capital Markets. Your line is open.

Thanks. And just a follow up question just to kind of tick this box, Bill. You mentioned that you are always looking at different ways to create value. Clearly, there has been a lot of turmoil in the MLP market but anything you can tell us about any recent thoughts on things like MLPs, REITS, anything else.

Well, the last update with respect to MLPs from our front is less -- was back in first part of this calendar, it was last time we review MLP structure as well as other alternative structures to see if that would add value to the shareholders. We do that, Irene, on a periodic basis just to keep it fresh and make sure we are not missing something. We also do when anytime there is a change potential in those structures when the industry just to make sure that we are looking through that. Last time we did that, we did that, the financial advisor do that independently for us as well just to make sure that we are looking at and checking all the boxes. So from that obviously you can imagine, since we didn't inform MLP, that's not on the strategic landscape, we are selling forward here. We will continue to look at and evaluate.

[Operator Instructions] And our next question comes from Chuck Cerankosky from Northcoast Research. Your line is now open.

Good morning, everyone. Want to ask about cost pressures. Are you seeing any need for any price increases over the remainder of the calendar year and maybe with deflation in some categories, do you see bringing prices down anywhere so I want to look at both ways.

Yes. I'll answer the first part of that or the last little second part of your question. I have not seen in my company us taking price, retail prices down with respect to movement now we are in commodity pressures. So I'd anticipate that continuing or that happening this particular time. With respect to cost pressures, we haven't seen a lot of cost pressures. Right now we don't have any price increases slated for the rest of the fiscal year but that doesn't mean, Chuck, that won't happen. We on a monthly basis do competitive pricing surveys to make sure that we are on line on key products and so we will take price increases where we see strategic opportunity regardless whether there is cost pressures those forces to do that. So we are always trying to stay on top of that. But right now that there are none plan going forward.

Thank you. I am showing now further questions from our phone lines. I'd now like to turn the call back over to Bill Walljasper for any closing remarks.

Thank you. I'd just like to thank everybody for joining us this morning and their interest in Casey's and their support over the years. Just as a reminder, August same-store sales we will release on Tuesday, September 15, 3 O'clock, Central Time. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.