Good day, ladies and gentlemen, and welcome to Casey's General Stores First Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the conference over to 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 ended July 31. I am Bill Walljasper, Chief Financial Officer. Darren Rebelez, President and Chief Executive Officer, is also here. Before we begin, I'll remind you that certain statements made by us during the 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 related to our possible or assumed future results of operations, business strategies, growth opportunities and performance improvements 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 our ability to execute on the value creation plan or to realize benefits from that value creation plan 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 are 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. This morning, Darren will first take a few minutes to summarize the results of the first quarter and then provide an update on the progress with our value creation plan. We will then open for questions about our results. I would now like to turn the call over to Darren to discuss those results.

Thanks, Bill, and good morning, everyone. Before we get into the results of the quarter, I'd like to start by saying how excited I am to be part of the Casey's team. During my time in the convenience store industry, I've always admired and respected Casey's and felt this would be the ideal opportunity for me given my background not only in the convenience store space, but also the fuel and restaurant industries. I've been on the job now for about three months, and I'm optimistic about the initiatives underway and the opportunities for us going forward. I look forward to hopefully meeting all of you in person at some time in the future. As you've seen in the press release, diluted earnings per share for the first quarter were up 22% to $2.31 a share compared to $1.90 a year ago. The results were driven primarily by a strong fuel margin versus the first quarter last year, continued operating expense control and sale gains inside the store. We executed on several key milestones of our value creation plan this past quarter, setting us up for continued strong performance in fiscal 2020. I'd now like to go over our results and some of the details in each of the categories. During the first quarter in the fuel category we experienced a favorable fuel margin environment combined with our ability to leverage the implementation of PriceAdvantage, which is our fuel price optimization tool. These factors enable us to achieve an average fuel margin of $0.244 per gallon, up nearly 400 basis points from the same period last year. This drove over a 22% increase in gross profit dollars from the fuel category. Same-store gallons were down 2% in the quarter, in line with our expectations for the quarter but lower than…

Thanks, Darren. On the income statement, total revenue in the quarter was up 1.5% to $2.6 billion primarily due to an increase in the number of stores in operation this quarter compared to the same period a year ago and sales gains mentioned previously, offset by lower retail fuel prices. Depreciation in the quarter was up 1.6%, which was below our annual guidance, primarily due to a $4.1 million onetime adjustment related to the useful lives of underground storage tanks. Without the onetime adjustment, depreciation would have been up approximately 8.6%. As we have mentioned, there were several onetime items that occurred this quarter. The net impact of this was approximately a $0.05 adverse impact to diluted earnings per share. The effective tax rate for the quarter was 23.6%, up from a year ago, primarily due to a onetime adjustment last year related to state law changes. We continue to expect our effective tax rate for fiscal year 2020 to be between 24% and 25%. Our balance sheet continues to be strong. At July 31, cash and cash equivalents were $96.7 million. Long-term debt, net of current maturities, was $1.3 billion. Our trailing 12-month debt-to-EBITDA ratio was 2.3 time. We anticipate this moving downward as we continue to execute on our fiscal 2020 operating plan. For the quarter, we generated $178.8 million in cash flow from operations and capital expenditure for $106.3 million compared to $98.3 million a year ago in the same period. Adjusted EBITDA grew 14.5% in the quarter compared to the same period a year ago. Our capital expenditure estimate for fiscal 2020 is $516 million. I would now like to turn the call back over to Darren to update you on our unit growth and the progress with our value creation plan.

Thanks, Bill. Our target this fiscal year is to build 60 stores and acquire approximately 25 additional stores. This quarter, we opened 15 new stores, acquired 4 stores and have 11 additional stores under agreement to purchase. You should expect a relatively even distribution of new store openings this fiscal year. Currently, we have 107 sites in our pipeline, including 35 under construction, which positions us well for future growth. As we grow our store base, we continue to look for ways to increase our efficiency. We're in the final stages of evaluating a location and design for our third distribution center. As a result, we anticipate breaking ground on the new facility this fall. This will alleviate the pressure off of our current distribution centers, enabling our entire network to become more efficient. It will also allow us the ability to efficiently expand into new markets. I would now like to turn provide an update regarding the value creation plan. As a reminder, this is a multiyear, long-term plan comprised of several key programs and value drivers, including a new fleet card program, retail price optimization, new digital platforms for our guests as well as a continued focus on controlling operating expenses and capital allocation. I've had an opportunity to review the value creation plan and feel that all of the components of the plan are the appropriate areas that we should focus our attention on in the near-term. As I reviewed the plan, it was clear that the intent was to deliver strong annual earnings per share and EBITDA growth while increasing return on invested capital. I'm confident that the plan will collectively deliver on this expectation. With this in mind, I'd like to share with you some of the key milestones that we accomplished over the course…

[Operator Instructions] Our first question comes from Chris Mandeville with Jefferies.

Bill, if we could start off just with the comments on rising cheese prices, did you proactively take any pricing to offset this pressure in the quarter? And maybe if so, to what extent? And then how much did that maybe influence consumer elasticity in the quarter, if at all?

Yes. No, to answer your question, Chris, we didn't proactively take any price increases to offset that. As you know, we're certainly in a competitive pricing environment in that particular area of the business, and so we want to make sure that we continue to offer value proposition to our guests. With respect to the cheese cost from a comparative standpoint, last year, in Q1, it's $1.87 a pound. We're about $1.96 a pound for this quarter. And just as a reminder, about every $0.10 per pound is roughly about 30 to 35 basis points to the overall prepared food margin. Currently, to give you kind of perspective, Chris, we're about $2.07 a pound. We anticipate the -- this declining towards the back half of the calendar year. This has always been a cyclical product for us. And so after these school contracts get in place, we typically see a downward movement and look for opportunities.

Okay. And then as we think about your enhanced fuel procurement practices, can you help us understand what the reasonable assumption to think about when it comes to a gallon transitioning over to short-term contracts versus spot buying by fiscal year-end? And to what extent that may be reflected in guidance today?

Yes. So I'll give you a little bit of directional comments there. And so first of all, fuel procurement had very little to no impact in the margin in the first quarter. We have executed on a multitude of short-term contracts here that you will see start to benefit our company here in the second quarter and then the rest of the fiscal year. Roughly, right now, we have about 11% or 12% of our fuel volume under contract, which is very different obviously than a structure than when we're buying on the spot market. Now where that goes in the future, I guess we'll determine as we kind of progress through the remaining part of this fiscal year. But definitely, we're progressing to have more and more of our fuel gallons to be on a contract basis. We definitely see some benefit moving forward I think with that.

Okay. And then just the last one for me, you've since, you've actually outlined the value creation plan some six quarters ago, you guys are averaging pretty healthy EBITDA growth of around 12% on average. So just based on what lies in front of you with loyalty, fuel procurements, additional price optimization and various marketing initiatives, is there any reason to believe that such growth won't hold? If not, actually maybe improve for the remainder of the value creation time line?

Well, I'd probably fall short of giving you any type of forward-looking expectation in that regard. But I think directionally, you're on the right path. We started thinking about some of the cadence that we have going forward the rest of this fiscal year and the next fiscal year. Darren alluded to this, we kicked off e-commerce platform beginning of the fiscal year, just launched the mobile app. We're seeing certainly online orders to escalate in that area as well. Later this quarter, we'll begin the launch of the loyalty program. And then as I mentioned just previously, that fuel procurement will start to take off in the back half of the year. So we're excited about the direction of the company with all of those to benefit us.

Our next question comes from Bobby Griffin with Raymond James.

I just want to first follow-up on Chris' question on cheese and kind of the cost environment inside the store. When we look at the margin guidance for the year for prepared food and fountain, can you maybe give us a little color on what's baked in there from a general cost environment inflation-wise?

Well, from a cheese cost, I wouldn't have the expectation what the cheese cost environment would be but that's taken in consideration. When we formulate that margin guidance, it's a combination of a lot of things, Bob. It's looking at external and macro issues. Cheese would be one of those issues. You could also be looking probably more, in this case, at our promotional activity that we have forthcoming. And so when you think about some promotional activity that we have coming, as I mentioned, one of the first questions there is a competitive landscape for prepared foods. We want to make sure we offer value proposition. Generally speaking, that's going to be a margin detriment in that regard. However, I would say price optimization might be a benefit for us with respect to maybe kind of boosting the margin.

Bobby, this is Darren. I guess the only thing I would add to what Bill said is the ability of our digital platform to be able to target that promotional activity towards specific guests as opposed to having a blanket approach to promotional activity should help us be a little more effective in that and not have to be as margin degrading as we go on and try to drive more traffic.

Okay. Appreciate that. That's helpful. I was actually, my next question was right there on some of the exciting things you guys are doing digitally. And can you maybe just expand upon what you're seeing in some of the early learnings from the e-commerce platform or the mobile app that illustrates some of the confidence you have in the same-store sales accelerating through the year either maybe ticket size online versus in-store? Or anything like that to help us get a better grasp on what the opportunity is?

Yes. This is Darren again. And yes, we've seen some pretty positive results so far. And really, across-the-board, we're having good success in conversion rates. And we're seeing transactions accelerate positively versus prior year on our digital platform. We're also seeing some uptick on the average order volume or the average order size. So kind of across the platform, we're seeing that growth. And as I mentioned earlier where about 28% of our orders for pizza are coming online so, or digitally. So we believe that can continue to grow. We're just fairly, very early stages in that process and so we'll continue to move forward with that.

Our next question comes from Pooran Sharma with Stephens.

Just wanted to ask about operating expense growth. How sustainable is OpEx growth at this level?

Yes. I'll start that one off here. So this was one of the lowest increases that we've had in quite some time, and obviously, it's a credit to the store operations team and the continued focus in trying to match our labor hours with the guest experience. And so you noticed that we didn't change anything with respect to the range in operating expense. Obviously, we anticipate going forward an acceleration in comps across-the-board. And with that, we certainly anticipate labor hours increasing to kind of match that guest experience. So when you think about it from a high level, I would probably look at it this way, you look at about a same-store operating expense in that low-single-digit, unit growth in that 4%, so you're getting a high-single-digit is kind of maybe a run rate on a normalized basis that you should be thinking about.

Okay. Great. And then obviously, just wanted to get your take on the cadence of the prepared food and grocery comps. I know you -- expecting prepared food comps to lift off as the e-commerce platform kind of progresses, but I was wondering if you were able to provide us a cadence.

Great. You're going to?

Yes. I'll go ahead and take that. Yes, obviously, we're a little bit soft in the first quarter, but we saw sequential improvements throughout the quarter. And again, in August, we saw another improvement. So the intent all along as you look through the year was that we had growth accelerating throughout the year on prepared food and fountain as we set up the digital platform. So I would think about it just like that. As we continue to get higher penetration of our digital platform and then ultimately, launch our loyalty program, you should expect to see some acceleration in the prepared food and fountain comps as we move forward through the year.

Our next question comes from Bonnie Herzog with Wells Fargo.

This is Patty on for Bonnie. You mentioned your optimism about your inside store price optimization tool in terms of grocery, and I just wanted to ask when do you expect the tool to be fully rolled out? And what kind of lift do you think it could contribute on an ongoing basis to comps? And then more specifically on the quarter, the 3.2% same-store sales that you posted was pretty nicely above street expectations, wanted to ask if it was above your own internal expectations? And if so, how much of that was from category momentum versus price optimization?

Yes. So for price op, I'll try to answer all of those questions. So if we don't hit that, Patty, please circle back with us. But price optimization inside the store, we did our test, our pilot testing, we noticed a couple of things. We alluded to this. We saw definitely an increase in revenue on the control group. But probably more significant, we saw an increase, to a greater extent, on the margin side. And so we're anticipating in the back half of the year to see benefit from price optimization inside the store being rolled out in both of those areas. That's part of the sequential movement of comps moving forward. Now with respect to that 3.2% comp in grocery and general merchandise, one of the things that we weren't quite sure of coming in this fiscal year was we were going to be lapping the JUUL product that rolled out last fiscal year. We weren't sure that momentum will continue in the same trajectory that it did last fiscal year, and so we were certainly pleasantly surprised that the popularity of that product continues to be relatively robust. So do you have some other questions there maybe we can circle back with?

No. Actually, I'll just leave it there.

Our next question comes from Irene Nattel with RBC Capital Markets.

Just continuing with the line of questioning around the grocery category. Bill, I think it was in your prepared remarks, maybe it was Darren, you mentioned that ex cigarettes, it seemed the category was really strong. Can you talk about what you're seeing in beverage and other key inside categories, please, ex cigarettes?

Yes. I'll let Darren take that one.

Yes, Irene. Yes, that was correct. We did see pretty strong growth ex cigarettes, and it was really somewhat across-the-board. We saw growth in the grocery category overall and saw sequential improvement throughout the quarter in alcohol in particular, but also in packaged beverage as we move through the quarter. So those were really the three main areas that we saw the growth, and then it was somewhat offset by our cigarette performance.

That's helpful. And the strength that you're seeing in both alcohol and packaged, is, are, is that a result of sort of a deliberate strategy, shift in promotional tactics? And were you able to sort of see any correlation between that and the weather trends during the quarter?

Well, first, to answer your first question, I think it was a combination of some deliberate activity, particularly in alcohol. We've expanded through a number of stores with liquor and with wine, and so we're seeing very strong growth in those 2 categories, albeit on a somewhat smaller basis. And then we're seeing momentum as well with the flavored alternative beverages, so like the hard seltzers and that sort of thing within the beer category. On the packaged beverage side, we're just seeing continued strength in energy although not as strong as it had been in years past. And you're going to have to help me, Irene, what was your other question?

My other question was just really around weather in the quarter and what that, what impact that might have had.

Yes. Definitely, May had an impact on us, and you see it in the beverage categories across-the-board, alcohol packaged beverage and in fountain as well. That was our toughest month. And then every month got sequentially better as the weather started to improve, so there's definitely a correlation there.

I was going to add just on your first part of that question with respect to the beer category, we also benefited from a couple of state law changes in Oklahoma and Kansas. They're now able to sell a stronger alcohol content beer, and that has been a nice boost in those 2 states for us.

That's great. And then I was just wondering, if you could give us a little bit more color around the results of sort of the zone pilot. You mentioned some lift to top line, some lift to margin, but which categories in particular do you see it? What kind of differential are you talking about in terms of pricing? And does that make you think a little bit more about perhaps extending to the prepared foods category?

Yes. It's probably a little preliminary for us to maybe give results to the pilot as we now are starting to stand that up. But probably the best way to characterize that, Irene, is, right now, when we did that control group, without mentioning specific items, we definitely reiterate this from a previous answer, definitely saw a much higher impact to the gross margin than we did the revenue side of that. I think this is one as we get more traction, I would expect you to hear from us on this and how that's performing going forward with respect to those zones. So in some of those cases, some of those zones, we'll be moving pricing up in certain key categories. In some cases, we're moving products down. That'll really depend on the competitive landscape there. But we're anxious to get that kicked off and be able to report like we do every quarter on the progress.

That's great. And are you thinking at all about doing something sort of similar with your inside store category, sorry, with your prepared foods category?

Yes. Yes, we'll certainly do that and update you with the progress that, of all the categories impacted.

Our next question comes from Karen Short, Barclays.

First, housekeeping. Just the credit card fees in the quarter? Housekeeping.

$40.4 million.

Okay. So I wanted to just talk a little bit about your guidance on the gas margin front. Obviously, gas margins were stronger than your guidance is for the year this quarter, and you're really only early stage in terms of the percent of fuel that you're purchasing on contract, so wondering kind of what your thoughts are on the conservatism with the gas margins for the year guidance? And then on that, the contract side, just any color you could give on what percent of fuel do you think you'll have on contract by year-end?

Yes. Karen, this is Darren. I think with respect to the fuel margin guidance, we had a combination of factors in Q1 that helped us. Obviously, it's a favorable fuel margin environment. And I think we're better able to capitalize on that because of the price optimization capabilities that we've been building over the past year. So I wouldn't want to take that margin and extrapolate that to the rest of [Technical difficulty]

Ladies and gentlemen, please stand by. Once again, please stand by. Your conference call will resume momentarily.

Okay. Hello. Sorry about that. Karen, are you there now?

I am here, if you can hear me.

It's not intentional, Karen, just so you know.

No worries.

You missed a brilliant answer to the question, by the way.

I think we caught it at wouldn't want to extrapolate for the whole year.

Okay. So yes, okay, so that was on the fuel margin side. So I think you've got that answer. And then with respect our contracted fuel volume, we expect to have about 28% to 30% of our overall volume under contract this year.

Okay. And then my second question was obviously, you've talked about the 28% online, I guess, in terms of purchases. Wondering if you could give a little color on the average ticket online versus in-store and what the attachment rate is now that you, I know it's early stage, but now that you have this ability to cross-sell on the app?

Yes. The conversion rate continues to climb on that. As far as the average order volume over the last probably 6 to 9 months, we've increased that about a full dollar and continue to make strides in that. So we're excited about what the opportunity presents for us as we get fully integrated with all the digital.

And so what would the difference be on the online versus in-store?

For the average order volume?

Yes. Total, what is the actual ticket?

It's about, well, the difference is going to be about $1. The average ticket online is a little over $20, about $21 online.

Okay. And then wondering just, you made some comments on areas of expense management opportunities. I was wondering if you could elaborate on that a little bit, and then also just give a little color on what kind of greater efficiencies you plan to be able to accomplish at the new DC? Like, what's changing with that new DC specifically?

Yes. I'll start with the operating expense, and Darren and I can dovetail on the DC question. So one, probably one of the things that stands out as far as an initiative that we're undertaking is finalizing the time and motion study. And so this will provide an opportunity because all of our tasks are very replicable across the 16-state chain. And so once we have a better understanding of the time it should take to make a pizza, to take out the trash so forth and so on, we'll be able to take that information and sit it on top of the scheduler and then be more efficient in the scheduling of our labor hours on a site-by-site basis to match that particular activity of that store. We think that's going to provide a, probably a better guest experience from a staffing perspective of labor hours on a site-by-site basis. So that's one of the things that would stand out in that regard. Now with respect to the third distribution center, I'll let Darren take that.

Yes, Karen, on the distribution center, essentially, what we've got today with our 2 distribution centers, we started to develop further south in our network. And what, what's resulted from that is a bit of inefficiency as we try to self-distribute into that geography and as we measure that by the cost per pound to distribute. And we started to see that cost per pound going up because we're driving further to support those stores. So as I mentioned in my script that we're looking towards the southwest part of our geography to place the third distribution center. And that will essentially just create more efficiency as those deliveries to those stores will be far more efficient and take some of the inefficiency off of the other distribution centers, particularly in Ankeny. The Ankeny distribution center is overcapacity right now, so we've had to lease some extra space to be able to support the stores. So once that distribution center gets up and running, it will relieve all of that pressure, and we expect to see cost per pound to distribute go down as well as further enabling our ability to grow more effectively in that geography.

Is there any way to quantify what the cost saving might be?

Yes, but we're not prepared to share that at this point.

Our next question comes from Kelly Bania with BMO Capital.

Just wanted to ask just about general customer traffic trends inside the store, how they compared this quarter to maybe what you've seen in the last couple of quarters? And then also, just on terms of the loyalty program, can you share with us some details about how that will work, what is differentiated versus competitors there? And just remind me on the timing, are you testing that in Q2 and then rolling that out later in the year? Just some clarification on that would be helpful.

Sure. First of all, your first question there, you had multiple questions in there. So with respect to [indiscernible] yes, traffic, so we were down slightly. If you look at customer account, excluding commissions and fuel inside the store, we were down slightly, and they have been down slightly for some time. We, as you know, we're kind of in a environment here in the Midwest that has been pressured due to a continued downward movement of the farm income. However, it has been becoming less of a impact for us. We've been getting better and better with customer account, and that's part of the process that we moved to digital. And so that's the question. With respect to the digital launch, loyalty launch, I'll have Darren take that.

Yes. Kelly, for the loyalty program, I think you asked a couple of things. First, I'll tackle the timing. Like I mentioned in the script, we're about to begin our testing and pilot of that. So that's going to be largely contingent on how everything works in the pilot, but we anticipate that it'll be late Q2, early Q3 when we would launch that loyalty program assuming everything works out. As far as what differentiates the program versus anybody else, I'm not prepared to share that at this point for competitive reasons. But suffice it to say, we believe we have a way in that will resonate uniquely with our guests and provide incremental value above and beyond what they might find other places. So we feel really good about the platform itself and we've just got to get through the pilot process before we can get it launched.

Okay. That's fair. I guess just another follow-up in terms of the distribution now kind of focusing on adding that third DC. I guess, Darren, is there any more thoughts now that you've had a little more time to kind of evaluate just the thoughts around maybe adding more fresh capabilities over time with more frequent deliveries? Just any updated thoughts on that.

Yes. Sure. We have done an assessment on multiple deliveries per week to our stores, and we're continuing to evaluate that as an option. At the moment, given the situation, we're overcapacity in distribution centers. We really aren't in a position to start that at this point. But once we get the third distribution center up and running, then we'll be in a better position to perhaps capitalize on that opportunity.

Okay. That's helpful. And maybe last one for me. In terms of the free cash flow outlook, I think, Darren, a couple of months ago you talked about maybe some more efficient approaches to CapEx. And I was just curious if you had any more details that you could share with us on how you may be able to accomplish that goal?

Yes. We're still in the planning phase of all of that. But the things I mentioned last time were just taking a look at how we build our stores today and the opportunity to potentially take cost out without degrading the guest experience. At the same time, we're taking a look at nonfuel sites as a potential fill-in opportunities in geographies where we already operate but we have pockets of unmet demand. And so we're assessing both of those opportunities right now and we'll keep you updated on that.

[Operator Instructions] Our next question comes from Charles Cerankosky with Northcoast Research.

I noticed you closed six stores during the quarter, is that indicative of taking a closer look at the store base or just an anomaly at this point?

Yes. Most of that has to do with an assessment of kind of an overall network capacity, looking at replacement stores where we can better serve the community. For instance, we may close stores, like two stores and build a larger footprint. That's a function more of that, not so much as the performance of the stores.

Okay. And then, Bill, looking at the success of the price optimization in fuel, I'm thinking you're going to have more free cash flow this year, next year. How do you feel about the stock repurchase and the dividend, especially given that the stock prices has moved up? Is that something that you guys think you have to bite the bullet on to buy back shares? Are you looking at, at least offsetting dilution from option grants, et cetera?

I'll let Darren go and take that one.

Yes. Chuck, with respect to share repurchases, we have a $300 million authorization that's available to us. And we always want to keep that option available, so we can opportunistically buy back our stock when that becomes an attractive investment opportunity. But our focus is on growth, and so we're always going to prioritize our growth investments over share repurchases when we're going to get the attractive returns that we're aiming for. So that's really the mode that we're in right now. And again, we have the authorization there. We'll use it opportunistically, but our focus is on investing capital and growth initiatives to drive our greater shareholder return.

Our next question comes from John Royall with JPMorgan.

On CapEx, the 1Q run rate was well below guidance levels, which isn't unusual if I look at 1Q historically. But how should we think about the cadence for the rest of the year to hit the 516, a bit of ramp in 2Q and more rateable in the second half or is it kind of more rateable throughout?

Yes. You're correct. Typically, in the past, we have been a little bit more lumpy in the back half of the fiscal year when it comes to CapEx spend. We opened up 15 stores in our first quarter. And as you know, we have a goal of 60. We expect a relatively smooth cadence the rest of the fiscal year. Now, however, keep in mind, with the third distribution center, I would anticipate CapEx ramping up a little bit more aggressively as we get into that distribution center. We also have an addition going on currently with our corporate facility here as well. So I would expect that to move up. We still think that 516 would be a number. That's one we update every quarter as well.

Okay. Great. And the next question on distribution center and appreciating that you guys aren't disclosing the exact location at this point, but when I look at the southwest of your territory, your expansion of the radius for new stores, should we be thinking about the expansion into new states or would this be more of a further build out in states where you're already operating like Kansas or Oklahoma?

Yes, I would certainly think that the new distribution center will bring about the opportunity of new states. Right now, the State of Oklahoma, we penetrated here in the last year or so, and that state is doing exceptionally well for us. And we have quite a few more sites going up in that area. But definitely, the third distribution center will allow us to efficiently expand in other geographies.

Great. And then just one, last one is more housekeeping. On the D&A, was the onetime adjustment anticipated when you rolled out the guidance. Just thinking about kind of flattish year-over-year and then the double-digit guidance would imply a pretty substantial increase through the rest of the year. Is that, am I thinking about that correctly?

No, it was not contemplated in the guidance. So intuitively, that's probably one of those areas that we could adjust the guidance downward. But as Darren mentioned previously, we felt after the first quarter maybe wasn't prudent for us. So look for us to comment on that after the December call.

Our next question comes from Damian Witkowski with G Research.

I have a question on fuel and profit optimization there because I think that's the most advanced program that you have in that initiative. And where are we in terms of just rolling it out and testing it, and obviously, getting the feedback necessary, so meaning is there still room on the upside in terms of optimizing price by geography? And have you had to roll back any geographies just from a competitive response perspective?

Yes. Damian, I think from the rollout standpoint, we're just about completely rolled out in terms of the execution on price optimization. We still have some technology to put against about 400 stores where we had automated price signs, and that will get done here over the course of the year. But I think in terms of the fuel pricing dynamics, I mean there's a lot going on, it's obviously a very fluid place. So as we continue to optimize our approach to pricing in the marketplace, our competitors continue to adjust their position based on what we're doing and then that causes us to have to react to that adjustment. So I would expect over the course of the next year or so, we're going to see some massaging of that positioning as all of us and our competitors kind of react to the new normal. And so it will be somewhat of a fluid environment I would expect over the next 12 to 15 months or so.

I mean and just in general, your thoughts on, are the competitors happy someone's actually moving the price up and, because they need the gross margin dollars as well? Or are they mostly trying to steal back market share from you?

I have no way of knowing how they feel about what we're doing nor I want to speculate on that. But again, that's going to be competitor-by-competitor, market-by-market. And so we just, we take the position we're going to take, and our position may vary market-to-market depending on the competitive set.

Okay. And then just staying on fuel, the fuel being under contract, does that take away the opportunity to sort of, when fuel goes down and crude goes down in price and you have a typically higher margin. Does that at all affect, how does that affect your ability to sort of capture that margin during those periods of time?

Well, I think there's two different things going on. When we have supply under contract then we're going to get to enjoy the downside of that when commodity prices come down. It doesn't in any way influence our ability to price at retail, so we can continue to manage how we approach those cost decreases from a retail standpoint to capture margin if we elect to do that.

Our next question comes from Chris Mandeville with Jefferies.

Bill or Darren, just looking at a few new items to prep food, you've got that Midwest mystery pizza and then you also introduced or at least replaced fried chicken with the crispy chicken sandwich. How should we think about newness to the menu board, the possibility of maybe further rationalization and how that might influence margin or mix over time?

Yes. Chris, this is Darren. Yes, you called out a couple of new food items that are performing pretty well for us right now. I think what you can expect is we'll continue to innovate around the menu. I do believe we have an opportunity to rationalize our assortment to a certain extent but that work has yet to begin. So we've got a lot of work to do on prepared foods from that standpoint. But I think in the near-term, you should expect that we'll continue to innovate around our core items and look for opportunities to rationalize and get a little more efficient and effective with the breadth of our offering.

Okay. And then Bill, one of your peers recently executed on a debt refi. Can you update us on any possibility of doing something similar and potential timing there?

Certainly, I can give you a little bit of color there. So as you know, Chris, we have a BOL payment, a $569 million BOL payment due next August. We still have a make-whole provisions that we need to contend with between now and then. And so obviously Treasuries have come down and the spreads have remained tight. And so I think we're in a very good opportunity to refinance, and so we'll begin to start looking at that here between now and the end of the calendar year. So more to come there at this point, but I don't see any concern on our refinancing risk.

All right. And then just last one for me, it's on your, just one of your latest filings that you've opted to expand the board size range. Can you maybe just walk us through that thought process? Is that an indication that you actually want to add a few bodies with certain skill sets? And if so, is there any maybe color with respect to what sort of background you're looking for?

Yes. Chris, this is Darren. No, that really wasn't anything around proactively adding more board members to the board. I think you're pretty well aware that we just had a fairly significant board refresh and have 5 new directors within the last, I guess, it's about 2 years. So this was really more of an effort to help facilitate succession planning and transitioning, so because we were at our authorization prior, we're at full capacity from our board. So if we had anybody that was intending to retire off the board, we would have to lose them before we could add another board member. And I think it's a better practice to have some overlap so that those new directors can get up to speed and we can transition more effectively. So that's really what this is all about. It's just getting us the bandwidth to do that at the appropriate time.

Thank you. And I'm showing no further questions at this time. I like to turn the call back over to Darren Rebelez for closing remarks.

Okay. Thank you, and I'd like to thank everyone for joining us this morning and close the call by reiterating our key initiatives are designed to position Casey's for accelerated revenue growth and improve profitability through our long-term value creation plan. This will be accomplished through a disciplined capital allocation strategy that focuses on prioritizing high-return growth and profitable initiatives. So with that, I'd like to thank everybody, and have a great rest of the day.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. Everyone, have a wonderful day.