William J. Walljasper - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Kelly A. Bania - BofA Merrill Lynch, Research Division Charles Edward Cerankosky - Northcoast Research Ryan Gilligan Anthony C. Lebiedzinski - Sidoti & Company, LLC Keith Howlett - Desjardins Securities Inc., Research Division Damian Witkowski - Gabelli & Company, Inc.

Good day, ladies and gentlemen, and welcome to the Q1 2013 Casey's General Stores Earnings Conference Call. My name is Matthew, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Bill Walljasper, Chief Financial Officer. Please proceed, sir. William J. Walljasper: Good morning, and thank you for joining us to discuss Casey's results for the quarter ended July 31. I'm Bill Walljasper, Chief Financial Officer. Bob Myers, President 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 and the 2012 Annual Report, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from future results expressed or implied by those statements. Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. Let me take a few minutes to summarize the results of the first quarter, then afterwards, we'll open up for questions about our results. As all of you have seen, diluted earnings per share for the first quarter were $1.01 compared to $1.03 for the same quarter a year ago. Results reflect strong gains inside our stores, especially in Prepared Foods. Excluding gasoline, gross profit increased over 13%. I will go over each category to give more details on what is driving these results. Our fuel margin improved each month throughout the quarter as the wholesale cost of fuel declined, resulting in a fuel margin of $0.149 per gallon. Our average gasoline margin for the past 4 years has been $0.143 per gallon. Same-store customer traffic slowed significantly in the quarter due to excessively hot weather conditions throughout a major portion of our marketing territory. As a result, same-store gallons sold in the quarter were down 0.2%. However, total gallons sold for the quarter increased 3.7% to 394.1 million. The average retail price during this time was $3.38 per gallon compared to $3.63 in the same quarter last year. Due to a lower gasoline margin compared to a record margin a year ago, gross profit in the quarter was down 10% to $58.8 million. Same-store gallons sold in August are trending positive. Sales in the Grocery & Other Merchandise category were solid in the first quarter, despite being impacted by the previously mentioned weather and changes in the cigarette environment. Same-store sales rose 2.6% with total sales up 5.7% to $386.1 million. During the quarter, primarily in July, we experienced one of the hottest periods on record, pushing same-store customer count to the lowest level in over 3 years. We also incurred a change in the cigarette tax in one of our largest states, resulting in cigarette carton volume dropping significantly. Excluding cigarettes, same-store sales were up 6.4% during the quarter. The average margin in the quarter increased about 90 basis points to 33.4%, primarily due to a onetime gross profit benefit related to the cigarette tax change. Towards the end of the quarter, we have seen a more competitive pricing on cigarette packs in parts of our marketing territory. Cigarettes are an important destination item in a convenience store industry. We believe it is imperative to remain competitive in this product line to maintain market share and long-term sales growth in other products. In light of this, we have recently adjusted pricing to match this change in about 1/3 of our stores. Overall, we are pleased with the gains in the Grocery & Other Merchandise category and anticipate acceleration in revenue throughout the fiscal year as we benefit from the rollout of additional operational initiatives. That being said, we also expect the same-store sales in cigarettes to continue to be adversely impacted by the challenges mentioned previously. Prepared Food & Fountain category continues to perform very well. Total sales were up 15.2% to $142.7 million for the quarter. Same-store sales in the quarter were up 10.6% with an average margin of 63.5%, up 220 basis points from the same quarter a year ago. This is primarily due to lower commodity costs and a price increase implemented in February. The average cost of cheese this quarter was $1.81 per pound compared to $2.11 a year ago. The average cost of coffee was about $0.90 a pound lower this year compared to the first quarter a year ago. Gross profit dollars in the quarter were up over 19% to $90.6 million. Same-store sales in August are turning ahead of our annual goal. However, commodity prices have been trending upwards so far in the second quarter. Average cost of cheese is currently approximately $2.05 per pound. Operating expenses in the quarter were up 10.5% to $189.4 million. Nearly 75% of this increase was due to a rise in wages, primarily related to operating more stores this quarter compared to the same period a year ago as well as an increase in the operational initiatives described in the press release. Credit card fees and fuel expenses combined were up only $335,000, primarily due to the lower retail price of fuel. Credit card transactions were up about 12%, accounting for approximately 59% of all sales this quarter, which was the same level a year ago. On the income statement, total revenue in the quarter was $1.9 billion, this is even with the year ago in the same period due to lower retail fuel prices. The effective tax rate this quarter was lower than the first quarter of last year, primarily due to a higher net stock-based compensation tax benefit from the prior year. We expect our effective tax rate to be around 37.5% for the year. The number of basic shares outstanding in the quarter was 38,224,608, and the diluted share count was 38,570,298. Our balance sheet continues to be strong. At July 31, cash and cash equivalents were $89.6 million, up from $55.9 million at the end of the fiscal year. Long-term debt net of current maturities was $667.7 million, and shareholder equity rose to $544.7 million, up almost $39 million from the fiscal year end. We generated $106.5 million in cash flow from operations, and capital expenditures for the quarter were $71.8 million compared to $78.6 million a year ago in the same period. We expect capital expenditures to increase as new store construction accelerates, and we close on the acquisitions mentioned in the press release. This quarter, we opened one new store construction to replace 3 stores. We also have 27 written commitments for acquisitions that we expect to close on in the near future. We're optimistic about the acquisition pipeline going forward. Additionally, we have 18 new stores and 16 replacement stores under construction. We anticipate opening 30 to 35 new store constructions by the end of the fiscal year. Our store count at the end of this quarter was 1,698. In addition to the unit growth, we also converted 26 more locations to a 24-hour format, completed 26 major remodels and added 50 more stores to the pizza delivery program during the first quarter. We plan on adding additional 100 stores to the pizza delivery program by the end of the fiscal year. We also converted at least 100 more stores to 24 hours this fall and complete 50 more major remodels by the end of the fiscal year. That completes our review of the quarter. We'll now take your questions.

[Operator Instructions] And the first question comes from Kelly Bania from Bank of America Merrill Lynch. Kelly A. Bania - BofA Merrill Lynch, Research Division: Bill, I was wondering if you could comment a little bit more on your recent actions to adjust your pricing in cigarettes. I think you mentioned a third of your stores would be impacted. Maybe you can help us understand what kind of gross margin impact you would expect there, and how you would expect the other 2/3 of the stores, how those compare pricing, and what the outlook for those are? William J. Walljasper: Well, Kelly, unfortunately, that pricing structure will run the gamut depending on the location where the store is at. There's a number of pricing levels within our cigarette product line that fluctuates by product and by state. But just about 550 of our locations and most of those are in our 3 main states, which are Illinois, Missouri and Iowa, where we adjusted pricing to be more competitive with the product line. Unfortunately, it will fluctuate state by state, area by area and product line by product line. As far as the gross profit goes, certainly, we're not going to get the benefit, the onetime benefit into the second quarter. And it will affect the gross profit margin as well. But we're looking to drive carton movement. I mean, for us, we feel it's imperative to be competitive on this product. It's arguably probably the number 2 destination item of any convenience store. And we feel it's important to maintain our competitive edge in that regard. So it will affect the gross profit margin, but we're hopeful that we'll see unit movement. And we are seeing sequentially, over the course of August, some improvement in the units as we move forward. Kelly A. Bania - BofA Merrill Lynch, Research Division: Great. And then I was wondering if you could also just comment a little bit more on operating expenses. They seem to come in a lot better than expected, at least, versus our model. I was wondering if there's anything onetime there or anything that you're doing really to focus on operating expenses, or is it really just a factor of better leverage on some of your sales-driving initiatives? William J. Walljasper: Well, we -- some of the operational initiatives that we've discussed, we certainly have a lot more data points on, and we have a little bit more history behind us, so I believe we're becoming much more effective in operating those initiatives right out of the chute and as they progress going forward. Now from a sequential standpoint, I would expect operating expenses to sequentially move up a little bit in the second quarter. The retail price of fuel has risen significantly since the end of the first quarter. That should increase. If history repeats itself, our -- not only our fuel expense, but also the credit card fees. It was basically flat this quarter. Also, we did complete 25 major remodels in July. So you will have the impact of all of those running through the second quarter. But I think it's really looking at being more efficient in running the initiatives, and I think we are seeing the benefit as we're moving forward.

Your next question comes from Chuck Cerankosky from Northcoast Research. Charles Edward Cerankosky - Northcoast Research: Looking at the quarter, what kind of unit decline did you see in the cigarette category or the tobacco category? William J. Walljasper: Yes, the Illinois was certainly the lion's share there, but cigarette tax went into effect right about the 1st of July. And what we saw actually -- when we look at the cigarette movement, about half of the downward trend in cigarettes was a result of the State of Illinois moving downward. We saw roughly about a 25% to 30% unit decline in the State of Illinois on carton movement. We're slowly -- we made some adjustments that we discussed here at the last question, so we are slowly getting, getting that unit movement back in the right direction. Charles Edward Cerankosky - Northcoast Research: Do you get any help from your tobacco suppliers when such a large tax goes into effect? William J. Walljasper: Well, I mean they're running businesses as well. And the supply terms from the different manufacturers, certainly, have changed significantly. You might have read some about that from our peers as well. But at the same time, the Illinois state tax went into effect. We also saw some adjustments in manufacturer programs, which lowered retails as well, obviously looking to drive more carton movement, but it does affect the retail. So over the last 3 months or so, we have seen negative same-store movement in the cigarette area. We're addressing that, and we're hopeful that we've made the necessary adjustments to maintain market share in that area. I think that's critical. Charles Edward Cerankosky - Northcoast Research: As you saw the weather cool off a bit, what has been your customers' reaction to that? Are you seeing shopping patterns get back to normal, whether it be normal consumer or construction activity in the neighborhood? What's been happening there? William J. Walljasper: Definitely, that's been an improvement. As you're well aware, being in Cleveland, you probably saw some of that very hot weather in July. Our customer count -- our same-store customer in July actually was a negative 1%. In August, we're back up to about 2.5%. So we are seeing a movement back to increased customer traffic. Construction crews are no longer shutting down halfway through the day. So it's getting back to more normalized traffic pattern. Charles Edward Cerankosky - Northcoast Research: Great. And going back to operating costs, could you give us some waypoints on more efficiently managing store labor costs and other costs as they switch to pizza delivery and extended hours? William J. Walljasper: Yes, as far as some of the -- some initiatives that we're doing, we actually have a little more data points on. But when we look at the operational initiatives and -- like for instance in the 24-hour format, we did a group of stores back in fiscal 2011, and we certainly have data points on those. We also did a group back in February in fiscal 2012. So when we look at the first, say, 4 to 6 months of the group of 2011 compared to the ones in 2012, we see 2 things occurring. We're certainly seeing an increased pickup in revenue across the board in about every category during that same period. But we also see a decrease in operating expense pick up for that same period. So that tells me that we're becoming a little bit more efficient in being able to run these new formatted stores, whether it's 24-hour, whether it's pizza delivery. And I think that's going to be a benefit that we will see as we move forward into the fiscal year.

Your next question comes from Karen Short from BMO Capital Markets.

This is actually Ryan Gilligan standing on for Karen. What was the timing of the major remodel in pizza delivery rollouts in the quarter? And can you quantify the impact they had on comps? William J. Walljasper: Probably a little too early to -- they really didn't have much impact at all, Ryan, in the first quarter. The pizza delivery we rolled out July 1. I can tell you that in the month of July, there was that group of 50 stores we rolled out July 1. We are seeing 45% to 50% increases in pizza sales. Now with respect to the other piece of your question, the major remodels were done mostly in July. So some only have a few weeks under their belt that ran into the first quarter. So you should see those gain more traction as we head into the second quarter.

Okay, that's helpful. And just to clarify, should we still look for an OpEx growth rate for the full year in the mid-teens? William J. Walljasper: I would say yes. And again, my -- going back to the last conference call, the comps I made mid-teens would be 13% to 16%. Certainly, with the retail price of fuel trending downwards in the first quarter, we're certainly off to a good start to getting to the lower end of that. Now sequentially, into the second quarter, I would anticipate, given the dynamics I mentioned earlier in Kelly's question, probably a pickup in the OpEx increase. I still think that's probably a good bogie, a good benchmark.

Would you expect the third quarter to see a growth rate above the full year, too? William J. Walljasper: I'm sorry much -- I didn't catch the last part of that, Ryan.

Would you expect the third quarter growth rate to be above the full year growth rate? William J. Walljasper: I wouldn't necessarily say that, probably more in line with that because we will start -- in that third quarter, you will see us bringing on the majority of those acquisitions mentioned in the press release. So that's when you should see a revenue lift as well as an OpEx impact when those come online.

Okay, that's helpful. And last question, what is your outlook for dairy and coffee costs? And are your coffee costs still locked in? William J. Walljasper: Yes, our coffee is locked in through March. So really, most of this fiscal year, we're locked in on coffee, and you will see a benefit. It's about a $0.70, $0.75 benefit for most of the year that we're going to experience relative to a year ago for coffee. Now cheese right now, as I mentioned, is at $2.05 a pound roughly. It's not uncommon to have cheese cycle up towards the beginning of the school year. It'll be interesting to see how the hot, dry summer is going to affect this market. So I'd keep your eyes on that.

Your next question comes from Anthony Lebiedzinski from Sidoti & Company. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Just a follow-up on the previous questions. Have you locked in any prices for cheese? William J. Walljasper: We have not right yet, Anthony. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. And what is your outlook for some of the other input costs, like some of your meats, for example, other -- I know in the big scheme of things they are not as important as coffee and cheese, but what is your outlook for some of these other commodities? William J. Walljasper: Our outlook for the remainder of our fiscal year, we anticipate meat prices and some of the more secondary cost inputs to rise as well. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay. And could you perhaps just quantify some of the customer traffic metrics for the full quarter? William J. Walljasper: Yes, for the quarter, same-store customer count was up 1.2%. As I kind of alluded to in the narrative, that was the lowest mark in about 3.5 years for a quarter. And we have seen that, as I mentioned, come back a little bit in August as weather kind of moderated to more normalized temperatures. Anthony C. Lebiedzinski - Sidoti & Company, LLC: Okay, that's helpful. And the 27 stores that you have written agreements to purchase, I assume that these are mostly one-store operators? William J. Walljasper: There are a few one-stores. There's one larger piece that's mixed in that. A little bit more information coming on that later in the month. But the majority of those, nearly all of those 27 stores, we anticipate closing on roughly November. So they won't be coming through in the second quarter, but you will see an impact in Q3 and Q4.

We now have another question from the line of Chuck Cerankosky from Northcoast Research. Charles Edward Cerankosky - Northcoast Research: I wanted to ask as well, have you cycled through all the cigarette inventory that gave you that inventory gain in the first quarter? William J. Walljasper: We have, yes. There won't be any impact or benefit from that in Q2.

[Operator Instructions] And the next question comes from Keith Howlett from Desjardins Securities. Keith Howlett - Desjardins Securities Inc., Research Division: I had a question about your entry into Arkansas and what yearly results were there. And if you have any thoughts on the WalMart Express format, or if you have any convenience store close enough to gauge if it has any impact? William J. Walljasper: Well, I'm not aware that we have a store close enough to gauge the impact of that initiative by WalMart. I can tell you that we've been in Arkansas now for almost -- roughly about a year. We have, at least, a half dozen stores. We have a number of stores on the docket. It has been a very good state preliminarily. The stores that we put up there have fired off very, very well, especially our Prepared Food operation. I will also note, we did open our first store in Kentucky, and that store fired off, just like the ones in Arkansas. And we will be opening our first store in Tennessee here in the next several months. So we're excited about the opportunity of penetrating those states and expanding our geography. We think there's a lot of opportunity in those states. So look for more information down the road in that regard.

Your next question comes from the line of Damian Witkowski from Gabelli & Company. Damian Witkowski - Gabelli & Company, Inc.: Question on acquisitions. I mean, are you seeing any changes in the environment? Is it getting more competitive? Are sellers asking for different terms? William J. Walljasper: No, I wouldn't say that. Multiples continue to be, for the most part, Damien, in that 5 to 7x trailing EBITDA range. Now we'll pay outside of that on both ends of the spectrum, depending on the asset quality. But there's not anything that's out there that we have seen from a macro perspective that's saying there's a shift in what sellers are looking for. It's been very active, even though we haven't announced anything over -- until this particular quarter. There's been a lot of dialogue going on. There continues to be a lot of dialogue going on. So we are optimistic about that particular piece of our business. Damian Witkowski - Gabelli & Company, Inc.: And in terms of competition for those deals, any changes there? William J. Walljasper: Not necessarily. The smaller the deal, the less competition, generally speaking. Any time you get into a bit larger acquisition, you do see some competition for those. And it will fluctuate, depending on geography as well. But that really hasn't changed over the last several years. Damian Witkowski - Gabelli & Company, Inc.: Okay. And then lastly, I mean if you came across something that was just the right thing to acquire, I mean, what's the -- is there -- what sort of number of stores could you do in a single bite, do you think? William J. Walljasper: That's a good question, Damien. We're not afraid to look at any size at this point right now. We have a lot of financial capacity. If you just -- if you look at our debt covenants, we have the room to add probably about $400 million to $500 million onto the balance sheet and still be within a really good leverage range. So that will buy a lot of stores, so I think a lot will depend on quality of the assets and the geographic disbursement of some of those assets or how those will be integrated. Damian Witkowski - Gabelli & Company, Inc.: And then lastly, if I could just go back to the cigarettes and Illinois, in particular. Could you just explain to me, because I think I might have missed it. The way I understood the benefit was that because of the increase in taxes on a per pack basis, you basically were selling more single packs, which have a higher margin. Is that the benefit you're referring to or.... William J. Walljasper: No, a little bit different benefit. That is typically a benefit. However, when you see a tax increase, people do tend to shift to be more pack purchasing, and there is a longer tail benefit from that. But the benefit that I'm referring to is when the cigarette tax went into effect, there was not a floor tax on the inventory at the store level. You're able to raise your retails without a corresponding cost adjustment until you cycle through that inventory that creates your onetime... Damian Witkowski - Gabelli & Company, Inc.: And you've already -- as you pointed out, you've already cycled that inventory, okay. William J. Walljasper: That's correct.

Sir, you have no questions at this time. [Operator Instructions] William J. Walljasper: Matthew, we have no more questions?

No more questions, Bill. William J. Walljasper: Well, I'd like to thank everybody for joining us this morning. Just as a reminder, same-store sales for the month of August will be released at 3:00 Central Time, Monday, September 17. Thank you very much.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.