Caseys General Stores Inc Q2 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Second Quarter FY 2025 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead.

Good morning, and thank you for joining us to discuss the results for our second quarter ended October 31, 2024. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Board Chair, President and Chief Executive Officer; as well as Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to the potential impact of the Fikes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores. There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including, but not limited to, the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan. The impact and duration of the conflict in Ukraine and related governmental actions as well as other risks, uncertainties and factors, which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced on this call as well as a detailed breakdown of the operating expense increase for the second quarter can be found on our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call to Darren to discuss our second quarter results. Darren?

Thanks, Brian, and good morning, everyone. We're excited to discuss the strong second quarter results in a moment. First, however, I want to thank the Casey's team for delivering another outstanding quarter, in addition to officially welcoming the Fikes team to the Casey's family. Each November we raise funds for two organizations to support veterans and their families, Children of Fallen Patriots and Hope For The Warriors. This year we raised over $1 million thanks to our team members, generous guests and partners at PepsiCo. As a veteran myself, I'm personally grateful for the engagement and response this campaign draws each year. Thank you for helping veterans when you shop at Casey's. Now let's discuss the results from the quarter. Diluted earnings per share finished at $4.85 per share, net income was $181 million, and EBITDA was $349 million. All of these metrics were up 14% from the prior year. Our second quarter results were an excellent example of the strength of Casey's differentiated business model. We were again able to expand gross profit dollars while simultaneously controlling operating expenses. Inside the store, innovation in prepared food continued to drive strong performance, while the grocery and general merchandise category was a primary driver of margin expansion. On the fuel side, the team is doing an excellent job balancing volume and margin with fuel margins over $0.40 per gallon while outperforming the geographic market in same-store fuel gallons. As we discussed at our Analyst Day in October, we are very confident in our ability to execute on our three-year strategic plan and it is showing up in the results both inside and outside the store. I would now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 4% for the second quarter or 7.1% on a two-year stack basis with an average margin of 42.2%. Same-store prepared food and dispensed beverage led the way as sales were up 5.2% or 11.6% on a two-year stack basis with an average margin of 58.7%. Hot sandwiches continued their strong performance up over 60% and cold dispensed beverages also performed well, up nearly 10%. Margin was down approximately 30 basis points from the prior year due to a modest cheese headwind. Same-store grocery and general merchandise sales were up 3.6% or 5.4% on a two-year stack basis with an average margin of 35.6%, an increase of approximately 160 basis points from the prior year due to product mix and the excellent work of our asset protection and strategic sourcing teams. We saw positive momentum in the category, notably in both non-alcoholic and alcoholic beverages, specifically in the energy and liquor categories. Our merchandising team is doing an excellent job optimizing our assortment to meet our guests' needs. For fuel, same-store gallons sold were down 0.6% with a fuel margin of 40.2 cents per gallon. We continue to outperform our geographic region on volume as Opus fuel gallon sold data shows the Mid-Continent region down approximately 5% in the quarter indicating that we are taking market share. Our fuel team is doing a tremendous job balancing volume and margin and the results continue to show it. Operating expense management remains a focus. In the second quarter, we saw an increase of just 2.3% on a same-store excluding credit card fee basis. Our continuous improvement team is identifying areas to be more efficient and our store operations team is executing on those opportunities at a high level. The results speak for themselves. The same-store labor hours were down 1% once again. I'd now like to turn the call over to Steve to discuss the financial results from the second quarter. Steve?

Thanks, Darren. Good morning. I'm very proud of the hard work of our team during the quarter. We're now halfway through our three-year strategic plan, and we are carrying tremendous momentum into the second half of it. Total revenue for the quarter was $3.9 billion, a decrease of $118 million or 2.9% from the prior year. And that's due primarily to a 14.1% decline in the retail price of fuel, which was nearly offset by higher inside sales as well as higher fuel gallons sold. Results were also favorably impacted by operating approximately 4% more stores on a year-over-year basis. Total inside sales for the quarter were $1.47 billion, an increase of $121 million or 9% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $35 million to $418 million, an increase of 9.2%, and grocery and general merchandise sales increased by $85 million to $1.05 billion, which is an increase of 8.8%. Retail fuel sales were down $232 million in the quarter, driven primarily by a $0.51 decline in the retail price of fuel from $3.62 per gallon in the prior year to $3.11 per gallon in the second quarter. This was partially offset by a 6% increase in total fuel gallons sold as our newer units tend to sell more fuel than a chain average. We define gross profit as revenues, less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $959 million in the quarter. That's an increase of $73 million or 8.2% from the prior year. This is driven primarily by higher inside gross profit of $66.4 million or 12%, while fuel gross profit was higher by $3.4 million or 1.1%. Inside gross profit margin was 42.2% and that's up 110 basis points from the prior year. Prepared food and dispensed beverage margin was 58.7%, down 30 basis points from prior year. The primary driver of the slight decrease was a modest headwind on cheese which was $2.25 per pound in the quarter compared to $2.12 per pound in the prior year. It's an increase of 6% or approximately 35 basis points. The grocery and general merchandise margin was 35.6%, an increase of 160 basis points from prior year. The change was primarily due to favorable mix and good asset protection performance. Fuel margin for the quarter was 40.2 cents per gallon. That's down 2.1 cents from the prior year. Fuel gross profit includes almost $5 million from the sale of RINs and that's down $3.5 million from the same quarter in the prior year. Total operating expenses were up 5.2% or $30 million. Approximately 4% of the total operating expense increase is due to unit growth as we operated 93 additional stores versus prior year. Same-store employee expense accounted for approximately 1% of the increase as modest increases in wages were partially offset by the reduction in same-store hours. Depreciation in the quarter was $96.6 million. That's up $11 million versus the prior year primarily due to more stores. The effective tax rate for the quarter was 24.5% compared to 23.6% in the prior year. That increase was driven by a one-time benefit in the prior year that did not repeat. Net income was up versus the prior year to $180.9 million, an increase of 13.9%. EBITDA for the quarter was $348.9 million compared to $305.9 million a year ago, an increase of 14.1%. Our balance sheet is in excellent condition and on October 31st we had total available liquidity of $1.25 billion. Please note the liquidity calculation excludes the impact of the restricted cash balance which is included within long-term assets as of October 31st. The restricted cash relates to cash held in an escrow account for the acquisition of Fikes which closed the next day on November 1st and that is subsequent to the quarter-end. On October 31st, the leverage ratio of debt to EBITDA was 2.3 times per the covenants in the company's recently amended credit facilities. We still plan to delever to two-times within the first year of closing, and we will reduce spending as originally planned on property, plant and equipment. We likely will not repurchase shares until we achieve the targeted leverage ratio. For the quarter, net cash generated by operating activities of $271 million less purchases of property and equipment of $111 million resulted in the company generating $160 million in free cash flow compared to $145 million in the prior year. At the December meeting, the Board of Directors voted to maintain the quarterly dividend at $0.50 per share. Primarily due to the closing of the Fikes transaction, we are updating our previously communicated fiscal year guidance. For the second half of fiscal 2025 specifically related to the Fikes transaction, Casey's expects to incur an additional $15 million to $20 million in one-time deal and integration costs primarily in the third quarter. EBITDA contribution from Fikes is expected therefore to be modestly dilutive in the third quarter, again primarily due to the previously mentioned costs. EBITDA contribution from Fikes is expected to be modestly accretive in the fourth quarter. Interest expense will be $35 million higher than the original outlook due to the financing of the transaction. For Casey's total fiscal year 2025 outlook including the impact of the Fikes acquisitions, EBITDA is now expected to increase at least 10%. Total operating expenses are expected to increase between 11% to 13% for the fiscal year and that includes approximately $25 million to $30 million in one-time deal and integration costs. While same-store operating expenses excluding credit card fees are expected to only increase approximately 2% for the year. Net interest expense is expected to be approximately $90 million for the year. Depreciation and amortization is expected to be approximately $410 million and purchases of PP&E are expected to be approximately $550 million. The tax rate is expected to be approximately 23% to 25% for the fiscal year. Note that Casey's is not updating its outlook for the following metrics. We still expect to add approximately 270 stores for the fiscal year. We expect inside same-store sales to increase between 3% to 5% and inside margins to be comparable to the prior year. The company expects same-store fuel gallons sold to be between negative 1% to positive 1%. Overall, Fikes is expected to contribute over $200 million of inside sales and approximately 200 million gallons of fuel for the second half of fiscal '25. Of the expected total operating expense increase of 11% to 13%, approximately 5% to 7% of the increase is due to the existing Casey's business and that's a decrease from our previously communicated 6% to 8% expected increase. The Fikes acquisition is expected therefore to contribute approximately 6% of the total increase, over 1% of which is related to the one-time deal and integration costs. Our results for November were as follows. Inside same-store sales were near the midpoint of the annual outlook range. As we enter the seasonally lower time of year for both fuel margin and fuel volume, same-store fuel gallons are near the low end of the annual outlook range and CPG is between the mid to high 30s. Current cheese costs have improved, but are still modestly unfavorable versus the prior year by several hundred basis points. Our third quarter total operating expense expectation is an increase of approximately 20% and that's primarily due to the Fikes acquisition and the $15 million to $20 million of one-time deal and integration costs. As a result of these closing costs and the incremental interest expense, Fikes will be dilutive to our earnings in the third and fourth quarters as we expected. I'll now turn the call back over to Darren.

Thanks, Steve. I'd like to thank the entire Casey's team for another outstanding quarter and again want to welcome the Fikes team to the Casey's family. We're excited to have you on board and are looking forward to integrating these stores into our network. Our team has done an incredible job executing on the first half of the three-year strategic plan and is looking forward to finishing out the second half strong. Growth is a key pillar of the strategic plan and we're executing on it. Announcing the closing of the largest transaction in the company's history is extremely exciting and right in line with the plan we laid out in June of 2023. We are also committed to maintaining a strong balance sheet and we'll work to delever to our targeted two-times leverage ratio quickly. We believe our ability to execute and integrate acquisitions like these will continue to build shareholder value. Inside the store, we continue to produce excellent results. On the prepared food and dispense beverage side of the business, guests are flocking to our refreshed sandwich lineup as we offer high quality products at a great value. With respect to grocery and channel merchandise, our merchandising team is doing an excellent job identifying the right products and working with our supplier partners to develop effective promotions for our guests. One shining star within the non-alcoholic beverage category remains energy drinks where we had another quarter of over double-digit same-store growth. Overall, we believe our inside offering is a meaningful differentiator in the industry. Enhancing operational efficiencies is the third pillar of the strategic plan. Our continuous improvement team is doing a great job collaborating with store operations to make the organization more efficient. The results are compelling as the second quarter marked the 10th consecutive quarter with a reduction in same-store labor hours. The team has done this with a rigorous process to simplify store operations and get rid of non-value-added work. To sum things up, we've never felt more confident in our team's ability to execute our plan and deliver differentiated results to our shareholders. We'll now take your questions.

Thank you. And our first question comes from Bobby Griffin of Raymond James. Your line is open.

Good morning, everybody. Thanks for taking my questions and congrats on getting the Fikes deal over the finish line.

Thanks.

So, I guess, first for me, I just wanted to kind of dive in a little bit to the grocery and general merchandise margin. Another great quarter. Second quarter in a row over 35%. So, can you maybe talk a little bit more about the puts and takes there? And is this a more structural step up in your view of where the margins in this business, this side of the business could be at, especially with some of the opportunities like we saw out there with the back bar changes coming and some things like that.

Yeah. Bobby, this is Darren. What I'd tell you is I think there's a few things going on in grocery and channel merchandise. Obviously, we've done a great job in just working with supplier partners on joint business planning and that ultimately translates into some impact there. But really the biggest driver is in mix. And what we're seeing kind of across the board is a mix shift to some of the higher margin items that we have in the categories. I'll give you a couple examples. If you take a look at alcohol as an example, the lowest margin subcategory within alcohol is premium beer. And that's been probably the softest of the subcategories within alcohol. Inside of beer though, the fastest growing part of that is imports and super premiums which tend to come with higher margin. If you go to the other subcategories, liquor and wine, those are both growing at about a 10% clip and those have higher margin as well. So, as we continue to accelerate growth in the higher margin areas and the lower margins are kind of hanging in there, you're just seeing that margin shift. And so that was a 200 basis point improvement year-over-year, primarily driven on mix. You go to the other example would be tobacco and again you have a similar dynamic where cigarettes, combustible cigarettes are the lowest margin subcategory within that category and they're declining and have been declining for a number of years. On the flip side, you have nicotine alternatives and vapor which are growing at the fastest pace. In fact, nicotine alternatives are almost triple digit increases and those tend to come with a much higher margin rate. So, we're actually seeing margin rate expansion in tobacco overall, even though you're seeing that decline on combustible cigarettes. And then lastly, our asset protection team has done a really nice job on shrink and we've done a lot of work over the last year or so with exception-based reporting and some other technology to really identify sources of shrink and root those out. So, when you put all that together, that's where you end up with a 160 basis point improvement in margin. And so, I would say to your other question on is this structural? I'd say to a large extent it is because that mix shift is continuing to go.

Thank you. That's very helpful. And I guess my final one for me is just on the Fikes deal itself. Is there a seasonality aspect to their EBITDA that we should be aware of? I think just some of the investors, we're doing some quick math on the $89 million that was given when you announced the deal and then kind of back it into what's implied for the guidance change. So, I just want to make sure, is there any seasonality aspect we should be aware of? Is that business still trending around $90-ish million, which in EBITDA as it was when you guys announced the deal?

Yes, there is some seasonality with Fikes. It's not as pronounced as it is for the Casey's mothership, mainly because they are located further south. However, the second half of the year for them will not be as strong as the first half. This pattern is generally consistent with our overall business. The $89 million we discussed previously, which included contributions from stores that were not yet fully operational, is a solid starting point for our plans. Keep in mind that about 20 of those stores were either under construction or had not completed a full year of operation, so there are some ramp-up dynamics to consider in that figure.

Absolutely. I appreciate the details and congrats again on a great quarter.

Thanks.

Thank you. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open.

All right. Thank you. Good morning, everyone.

Good morning.

You provided same-store inside sales guidance of 3% to 5% for the year, which indicates some acceleration in the second half compared to the first half. I'm interested in understanding what will drive this change. Additionally, could you share how traffic levels have changed this quarter compared to last quarter? It would also be helpful to get some insights into November and early December, along with your expectations for traffic as you move into the next fiscal year. Thank you.

Yeah. Hey, good morning, Bonnie. Steve, I'll start with that. Traffic was positive in the quarter for us. Our November experience, we were right at literally right at 4% inside same-store sales for November. So right in the middle of the range. And so, certainly, we were obviously below the low end of the range in the first quarter on inside same-store sales. So, we're aware of that obviously. But our current thought is, the second quarter was right on the nose in the middle of the range. November, which is the biggest month of the third quarter, is right on the nose in the middle of the range. We feel pretty good about comparability for some of the exogenous stuff on weather and a lot of the initiatives that the team has to launch various programs, et cetera, as we kind of get into the new part of the calendar year. So, it just felt like that range still felt good to us within the range. We are certainly aware of in the fourth quarter that there's the dynamic obviously of lapping the prior year's leap day, but we know that that's in there already. So, it felt like there was no need really to change that range. It feels pretty safe based on what we know kind of year-to-date through November and what we have going forward.

Okay. Can I just clarify something then? I'll pass it on. Just in the context of what you just talked about then, are you seeing any change behavior, consumer behavior, are you seeing any strengthening with the consumer in the context of all of this?

Hey, Bonnie. It's Darren. With respect to the consumer, we're directionally the consumers hanging in there about the same as what we would have talked about last quarter. We're still seeing a little bit of softness on that lower income consumer. But again, we don't have disproportionate exposure to that consumer. For the balance of the consumers, which are about three quarters of them, they're continuing to shop, they're continuing to visit the store at the same frequency, continuing to buy as normal. So, I think getting back to Steve's point this quarter, we're at the midpoint of the guidance. This past month, in November, we were at the midpoint. We think that 3 to 5 is the appropriate range that ultimately we will land on for the year.

Thank you. Our next question comes from Jacob Aiken-Phillips of Melius Research. Your line is open.

Hi. Thanks for the question. I just wanted to go a bit into prepared food and the competitive dynamic there. I'm just wondering what you're seeing in terms of competition with pizza, other QSRs and if you may feel the need to increase like the promotional or invest some of the gross margin there.

Yeah. Jacob, this is Darren. We're keeping an eye on the competition pretty closely and I guess I'd break it into two segments. There's the pizza segment and then there's the rest of the QSRs. With the rest of the QSR, obviously, it's become a much more value-oriented environment. But as we've discussed previously, our value proposition just on a line pricing basis is pretty compelling relative to what a lot of the others are doing. And so, if you think of the sandwich QSR players that have really invested heavily in extreme value, I mean those are typically sandwiches and that sort of thing. And that's where we're seeing the most strength. And so that's more reflective of the innovation and our line pricing value proposition. So, we don't feel the need to have to get any more aggressive than we already are. And those products carry a pretty healthy margin. On the pizza side, I wouldn't say that it's gotten any more competitive than it always is. And we look at our pricing across our geography. And I'd probably remind you that in about half of our stores, we don't even have one of the major pizza competitors. So, we're not under any real pressure at all. From a pricing perspective, in about half of our stores and the other half, we tend to be a $1 to $2 below their standard menu pricing just every day. And then, of course, we layer in a variety of promotional offers via our rewards platform. And so, what you see right now in terms of margin and value proposition is pretty reflective of our normal operating mode. And as long as our sales volume continues to perform like it has been, we don't see the need to get any more aggressive from a value standpoint.

I appreciate that. And then just wondering if you had any updates on the timeline for remodeling the Fikes stores or for incorporating some of their fuel assets into your upstream capabilities.

Yeah. With respect to the remodeling of stores, that's probably the longest pull in the tent. In terms of the overall integration, that'll take a few years. And first, as we discussed before, they had a pretty successful food program, and obviously we have one as well. And so, we're going to quickly remodel a few stores, integrating those two platforms and really understand how they perform together, so we can really have an informed scope of work to apply to the rest of the chain. And so, there'll be a little bit of work to do there. And then the permitting process can take anywhere from 12 to 24 months, depending on the jurisdiction. So, there's a pretty long timeline there. On the fuel side, that integration will happen a little more quickly as we take over pricing and procurement activities and that sort of thing. So, I'd anticipate a little more benefits sooner in the timeline than on the remodel side. But really, you should be thinking three to four years from where we sit here today to the end of that integration process.

Thank you. Our next question comes from Anthony Bonadio of Wells Fargo. Your line is open.

Hey, guys. Nice quarter. So, just wanted to talk a little bit more about guidance. Looks like the back half now implies 8% EBITDA growth, which includes, call it a 4% headwind from one-time cost and that $15 million to $20 million. So, as you guys work through your revision to guidance, I guess has anything fundamentally changed about how you're thinking about the existing Casey's business in the back half? And then any initial thoughts on the fiscal '25 contribution from synergy capture from Fikes. Just trying to better bridge the back half of the year.

Good morning, Anthony. This is Steve. I'll address that. Regarding our assumptions for the second half of the year, nothing has fundamentally changed. Our OpEx performance has exceeded our original guidance, with OpEx growth in Casey's legacy operations projected to be around 100 basis points lower than initially expected, even considering some additional incentive compensation. We are pleased with this outcome. As Darren noted earlier, we have observed strong margin performance in our legacy business within the stores, and we believe this trend will continue. Therefore, we can expect stability in the mothership operations. In terms of our income statement, we are making strategic decisions that will influence cash flow to expedite deleveraging. We are adjusting our capital expenditures on new units that would have otherwise been built, which will lower our tax payments due to some transaction benefits. Consequently, cash flow could be slightly higher than we initially anticipated, allowing us to focus on paying off debt related to the transaction. Regarding synergies from the Fikes transaction, we do not have any specific updates for the next fiscal year yet. However, we anticipate quick fuel synergies as we centralize fuel pricing and procurement, which is already in progress. Some SG&A related synergies will come later as we consolidate that work and gain efficiencies in procurement. The most substantial savings will occur inside the stores when we introduce pizza, but that depends on our remodeling schedule, so realistic implementation won’t happen in the next 12 months. For the second half of this fiscal year, we don’t expect significant contributions from synergies apart from a small amount related to fuel, which won't substantially affect our forecasts.

Got it. That's super helpful. And then just to follow up on fuel. I guess, just any additional thoughts on how you're thinking about fuel margins in the context of that 10% EBITDA growth? And just to clarify that I believe mid to high 30s, you said Q to date includes the new CEFCO stores. And just any thoughts on how those margins blend in?

We do not provide guidance on fuel margins as we don’t have a clearer insight than anyone else. Our experience this quarter suggests margins are in the mid to high 30s. I anticipate that the integration of the Fikes business, which operates in lower margin regions, will create a headwind of approximately a penny per gallon regarding fuel profitability. This factor will be reflected in our EBITDA expectations for the latter half of the year. However, we are not providing a specific number for CPG in the second half, as we prefer to manage our expectations consistently throughout the year.

Thank you. Our next question comes from Michael Montani of Evercore ISI. Your line is open.

Yes. Hey, guys. Congrats on the quarter in getting the Fikes deal completed.

Thanks.

Thanks.

I just wanted to ask on the inside margins, first off, if there's anything to be aware of in terms of timing or headwinds, et cetera, that could kind of impact this improvement that we've seen in grocery and gen merch into the back half of the year. And then secondly, other than cheese spot, any headwinds you'd call out to the prepared food side of the gross margins as well.

Yeah. Michael, this is Darren. On the grocery and general merch side, I wouldn't anticipate any real headwinds. We're not seeing any of that. As we roll over the calendar year, there'll be some cost increases in some categories and we should be able to offset that largely through pricing action. So, I wouldn't anticipate any big shifts there. The mixed evolution is something that I do think will stick. And so, yes, I think that's probably to our benefit on the cheese side. Steve, maybe you can comment on the cheese.

I wanted to add to Darren's comment. There's some seasonality in our typical product mix for grocery. During the coldest part of the year, our sales of ice and other higher-margin products decline. Therefore, I expect that the natural mix in the third quarter will likely be slightly less favorable compared to the summer months. Aside from cheese and prepared food, there isn't anything noteworthy to mention. Currently, cheese is not as much of a challenge for us as it was in the second quarter.

Thank you.

Thank you. Our next question comes from Krisztina Katai of Deutsche Bank. Your line is open.

Hi. Good morning, Darren and Steven, and congrats on nice results. So, I wanted to ask on OpEx, but as it relates to the Fikes stores and now that you've owned them for almost a month and a half, I was wondering if you could just discuss your initial assessment on some of the opportunities at these acquired stores. Just how do you see opportunity to implement many of the same labor hours saving initiatives that were so successful at Casey's? And then what could that general timeline look like over the next 18 to 24 months?

Yeah. Krisztina, this is Darren. Yeah. We feel pretty good about that. Fikes has done a great job operating their stores, so I would say they have a good operation generally. But we've learned a lot ourselves over the last couple of years employing a lot of these different techniques and tactics and technologies to impact our OpEx. So, we feel we still have that opportunity to do that in the Fikes stores. That's going to take some time. I wouldn't anticipate a lot of that for the balance of this fiscal year. We're still pulling together that operation overall, but we'll have some more detailed plans as we go into the next fiscal year in terms of how we might approach that and when we might expect to see some of those benefits. But we definitely have the opportunity there, so we feel really good about that.

Got it. That's helpful. And then just a follow up, I was hoping you could talk a little bit more about your joint planning process on the prepared food side of things, which I think is a relatively newer development for you. And then just if you could discuss on the type of benefits you and your vendors look to achieve in the upcoming calendar year. Thank you.

You're correct. The joint planning process for prepared foods is relatively newer compared to our grocery and general merchandise sectors. However, what we're experiencing on a larger scale is that the suppliers we've historically collaborated with are quite large and possess extensive capabilities. We've realized that we weren't fully leveraging all their potential to enhance our business. We're now making significant strides in that area, which is beginning to show positive results, particularly in terms of innovation. Many of our ingredient suppliers have advanced culinary teams, and by collaborating with our culinary team, we can achieve exceptional innovation, improve quality, and reduce costs simultaneously. The chicken sandwich platform and the broader hot sandwich platform exemplify this partnership. All the ingredients and components of those sandwiches are new, having been jointly developed with our culinary team and the culinary teams of the ingredient manufacturers to create a higher quality product at a better cost. This collaboration has contributed to the strong performance we're experiencing. We plan to continue this approach with all our suppliers, and we're currently concluding the second year of this process. We are optimistic about the opportunities ahead.

Thank you. Our next question comes from Corey Tarlowe of Jefferies. Your line is open.

Great. Thanks. Darren, I have a couple of questions for you and one for Steve. For Darren, you mentioned that energy drinks have seen some nice momentum. Could you elaborate on what’s driving that momentum? Additionally, I’d like to know how effective the recent promotions have been in supporting inside sales. And for Steve, could you remind us what the typical ramp to maturity looks like for a new Casey store, and how that compares to Fikes? Thank you.

Yeah. Corey, this is Darren. Yeah. On the energy drinks, that category is up essentially 13% year-over-year. And I would say that that is a combination of assortment optimization, assortment management, and promotional activity. So, we've got some new products in the assortment. New Ghost and C4 are all performing very well. And those are newer entrants into the assortment. Red Bull and Monster on the flip side have been stalwarts in the category and continue to grow and accelerate pace. So, I'd say the growth is really being driven in part by the new items coming into the assortment. And then on the Red Bull and Monster side, less of that and more of some different promotional activities and really execution at the stores. And as a reminder, we self-distribute Monster, which is unique in the industry. And I feel like our execution at store level and our in-stock position as a result of that is a differentiator versus others in the industry. And so, I think that really accrues our benefit and that's part of the equation behind the growth in energy drinks.

On the question of ramping, we don't anticipate a significantly different expectation between a new to industry build and an acquisition model. Regarding returns, we expect that they will generate a positive return in the first year and achieve a double-digit after-tax return by the second year. By the third or fourth year, we expect returns on invested capital to mature into the mid-teens after-tax range. Our decades of experience with NTIs support this consistent pattern. In newer markets where the brand is less recognized and customers are unfamiliar with the quality of the pizza, it may take an additional year for ramping. This is largely about the adoption of prepared foods. For Fikes' stores, the situation is somewhat different since we are acquiring an existing business that includes high-performing stores. The returns won't start from zero because we are purchasing an active business. There will be a more immediate impact as we remodel those stores, introducing the pizza business alongside a prepared food segment they currently lack. We will complete the remodeling over a three-to-four-year timeline, depending on permitting. Meanwhile, the benefits from fuel, procurement, and SG&A will contribute to Casey's consolidated financials, even if they do not directly reflect in each store's profit and loss statement.

Great. Thank you so much.

Thank you. I'm not showing any further questions at this time. I would like to turn it back to Darren Rebelez for closing remarks.

Okay. Thank you for taking the time today to join us on the call. And before we sign off, I want to once again thank our team members and wish them and everyone on the call a happy holiday season.

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