Bob Myers - Chairman, CEO Bill Walljasper - CFO.

Karen Short - Deutsche Bank Chuck Cerankosky - Northcoast Research Bonnie Herzog - Wells Fargo Kelly Bania - BMO Capital Ben Brownlow - Raymond James Ronald Bookbinder - Benchmark Anthony Lebiedzinski - Sidoti John Lawrence - Stephens Stephen Grambling - Goldman Sachs.

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2014 Casey's General Stores Earnings Conference Call. My name is Kim, and I'll be your operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the conference over to your host for today, Mr. Bill Walljasper, Chief Financial Officer. Please proceed..

Good morning, and thank you for joining us to discuss Casey's results for fiscal year ended April 30th. I'm Bill Walljasper, Chief Financial Officer. Bob Myers, Chairman and Chief Executive Officer, is also here.

Before we begin, I'll remind you that certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

As discussed in the press release and the 2013 Annual Report, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from future results expressed or implied by those statements.

Casey's disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. We'll take a few minutes to summarize the results of the fourth quarter, the year and our outlook for fiscal 2015. Afterwards, we will open it up for questions about our results and outlook.

As most of you have seen, diluted earnings per share in the fourth quarter were $0.59 compared to $0.60 a year ago. Year-to-date diluted earnings per share were $3.46 compared to $2.86. The earnings shortfall in the fourth quarter was primarily related to a $3.02 lower fuel margin from the fourth quarter last year.

This represented approximately $0.22 impact on earnings per share. EBITDA for the quarter was up slightly to 76.5 million. Year-to-date EBITDA was up 17.1% to 377 million.

During the fourth quarter we experienced a less volatile fuel cost environment that caused the fuel margin to fall below our annual goal to $13.08 per gallon compared to 17% per gallon in the same period a year ago. During the quarter we sold approximately 12.1 million renewable energy credits, commonly known as RINs for about 5.7 million.

This represented a $1.04 impact to the fuel margin. Last year in the fourth quarter, the average RINs sold were $0.47. Currently, RINs are trading around $0.45. Year-to-date, the fuel margin were $16.08 per gallon, well ahead of our annual goal.

During the year, we sold approximately $29.6 million worth of RINs resulting in the benefit to the fuel margins of about $1.08 per gallon. The Fuel Saver program continued to positively impact gallons sold.

Same-store gallons sold in stores that participated in the Fuel Saver program increased 2.9% resulting in overall same-store gallons in the quarter to be up 1.8%. Total gallons sold in this period increased 6.8%; $403.8 million.

Same-store gallons sold for the year were up 3.1% compared to the same period a year ago, with total gallons sold for the year up 8.5% to 1.7 billion gallons. For the fiscal year, the average retail price was $3.33 per gallon compared to $3.41 last year.

The average retail price of gasoline for the quarter was $3.39 a gallon compared to $3.49 last year. Same-store gallons for May were up 4.8% with an average fuel margin above our fiscal 2015 goal of $15.03 per gallon. Wholesales in the Grocery and Other Merchandise category increased 11.2% in the quarter to 378.3 million.

Same-store sales for the fourth quarter were up 7.2% with an average margin of 32.1%, up 40 basis points from the fourth quarter last year. As a result of the margin expansion and strong sales in the quarter, we experienced double-digit growth profit dollar growth in every major area of this category, including cigarettes.

We believe we're continuing to gain market share in the cigarette area as a result of the price reductions we made last fiscal year. Year-to-date same-store sales in cigarettes were up 7.7%. Same-store sales in the overall Grocery and Other Merchandise category were up 7.4% with an average margin of 32.1%.

This resulted in a gross profit dollar increase of nearly 10% to 507.9 million. Same-store sales in May were up 10.2% with double-digit increases in nearly every major area of this category. Prepared Food and fountain category continued its strong performance. Total sales were up 17.6% to $163 million for the quarter.

Same-store sales in the quarter were up 12.1% with an average margin of 60.1% down 40 basis points from the same time period a year ago. Margin was down due to an increase in input cost, primarily cheese and meat toppings. The average cost of cheese this quarter was $2.58 per pound compared to $1.89 a year ago.

An increase in the contribution of higher margin items in the category help offset a portion of this adverse impact of the rising cost. Also, effective May 1st, we implemented strategic price increases to help offset these pressures. Currently, the average cost of cheese is approximately $2.25 a pound.

Gross profit dollars for the quarter were up 16.7%. Year-to-date same-store sales were up 11.8% with an average margin of 61.1%. We continue to benefit from additional rollout of our operational initiatives mentioned in the press release.

Same-store sales for the Prepared Food category were up 11.4% in May, led by strong gains in pizza and implementation of the price increases I mentioned previously. For the year, operating expenses were up 12.7%. For the quarter, operating expenses increased 10% to $210.1 million.

About 66% of this increase was due to a rise in wages, primarily related to more stores this quarter compared to the same period a year ago, and an increase in the operational initiatives described in the press release. Credit card fees were up approximately $2.6 million as a result of increasing credit card utilization.

Credit card transactions were up 15% accounting for approximately 63% of all sales this quarter compared to 61% a year ago..

Effective tax rate in the quarter was down from a year ago in the same period. The decrease was primarily related to a change in our state local tax structure, which lowered our contingent tax reserve and an out of period adjustment reducing the deferred tax liability on fixed assets.

We expect our effective tax rate for fiscal 2015 to be between 36% and 37%. Our balance sheet continues to be strong. As of April 30th, cash and cash equivalents were $121.6 million. Long-term debt, net of prematurities was $853.6 million while shareholder equity rose to $719.9 million up $117.6 million from fiscal year end.

We generated a $314.2 million in cash flow from operations. For the fiscal year, capital expenditures were $340.2 million compared to $334.8 million a year ago in the same period. In fiscal 2015, we expect capital expenditures to be between 360 and $410 million. This quarter, we opened 18 new store constructions and completed four acquisitions.

For the year, we acquired 28 stores and completed 44 new stores constructions. We also replaced 20 stores during fiscal year. Our store count at the end of this you was 1808 corporate stores. As indicated in the press release, we have 27 new stores and 23 replacement stores under construction.

We also have 38 stores, 28 replacement sites and five acquisition stores under contract of purchase. We're excited about the completion of the Stop-n-Go acquisition, which gives us a stronger presence in North Dakota. We'll continue to expand in both our new state and our core markets.

We're off to a strong start to reach our unit growth goal in fiscal 2015. Let me outline our performance goals for the next fiscal year. They are increasing store gallons sold 1% and average fuel margin of $15.03 per gallon.

The decrease in our goals for same-store gallons and fuel margin from the previous year results is due to a potentially lower RINs benefit and comparing against the full impact of the Fuel Saver program implemented over a year ago. Also to increase same-store Grocery and Other Merchandise sales 5.3% with an average margin of 32.1%.

Increase same-store Prepared Food and Fountain 9.5% with an average margin of 60%. We will acquire between 72 and 108 stores, which is 46% unit growth. In addition to these goals, we plan to replace 25 stores and complete 25 major remodels.

We're encouraged by continued improvement of our remodel stores and feel we have an opportunity to grow this program in the future. Conversion of stores to a 24-hour format continues to go well. We converted 130 stores to this format in fiscal 2014, bringing our total to about 725 of our stores now opened 24-hours.

In fiscal 2015, we plan to convert another 100 stores to the 24-hour format. We typically experience a (indiscernible) sales from a store converted to this format. Pizza delivery programs, the newest of the operational initiatives, we typically experience a 25% to 30% increase in prepared food sales upon the roll out of pizza delivery to a store.

We converted 80 stores in fiscal 2014 and plan to add a similar amount for this program in fiscal 2015. We had a strong track record growing the business while also returning value to shareholders through dividend.

As due board meeting the board cleared a quarterly dividend of $0.20 per share, which is 11.1% increase from the yearend dividend amount in fiscal 2014. The dividend has doubled in the last five years at a compound annual growth rate of over 18% during this time period.

In closing, we are very pleased with performance of our company's fiscal 2014 and are excited about our growth opportunities in fiscal 2015. That completed our view for the quarter; we will now take your questions..

(Operator Instructions) Your first question comes from the line of Karen Short from Deutsche Bank. Please proceed..

Hi, there..

Hi, Karen..

How are you?.

Great.

How are you this morning?.

Good. So a question just about your structure, obviously we saw what happened with Buckner after they created a very successful MLP. And I guess when I look at you guys you have all the criteria for a successful MLP because you have the owned real estate and you have the volume growth.

And obviously you have done a great job of creating shareholder value just through strong execution, but wondering how you think about the potential to create additional value through an MLP?.

Yeah. MLP questions have come up periodically over the last probably year and a half subsequent to Setser ruling out their MLP. There are some differences between the Setser MLP and Casey's. One of the things, one of the components that they have to drive the growth of their MLP, Karen, would be the wholesale distribution of fuel.

I believe that a significant part of their growth strategy in the MLP, we do not have that component well within our structure. We have the other components that you mentioned, but that is a component that does plan to growth strategy in the MLP.

We have looked at this and don't believe it currently is the value, the same type of value that Setser has experienced with theirs. So we will continue to look at that in addition to other strategic alternatives as we normally do..

Is there anything about the way you purchased fuel, would that prevent an MLP structure? I mean I know obviously they have longer and have longer term contracts where you guys tend to buy on a daily basis, is that an impediment?.

No, I don't believe that's an impediment. I mean for an MLP to be marketable certainly has to hit a certain level of EBITDA in order to get to that without that wholesale fuel distribution. We would have to put specific amount of real estate into that. And doing so there is some of our older stores which potentially might create a tax leakage.

So best assured, we have looked at it in great detail. We had third-party look at that as well outside of the internal structure. So we will continue to evaluate and see that makes sense going forward..

Okay. Thanks. And then just quickly on house keeping. I guess maybe a little color embedded in your guidance on the prepared food side.

What are you factoring toward cheap prices going forward and then what are you factoring in for price increases given inflation?.

Yeah. The price increase I alluded to in the narrative was about 2% going forward. So we did put out made same-store sale that I am sure almost have seen. So roughly 2% of that number will be those new price increases. As far as the cheese cost, we expect a flat to slightly up cheese cost environment for the fiscal year.

The other component though for those that follow meat toppings; meat has risen dramatically over the last probably three to four months. It's up somewhere between that 20% or 30%. That's another factor that certainly is weighed in on that. So we do have a potentially a little bit of a headwind when it comes to cheese top comparison..

Okay; with no additional price increase factored in your guidance?.

No. I'll say this. The price increase I have mentioned, we are moderating at the environment and looking for potential price increases mid year as well. So if there are opportunities we will certainly take that. I mean I receive on a monthly basis competitive pricing surveys and certainly we are always looking for opportunities in that regard.

And there maybe another mid year price increase potential..

Right. Thanks for taking my question..

Thanks, Karen..

Your next question comes from the line of Chuck Cerankosky from Northcoast Research. Please proceed..

Good morning, everyone.

Hey, Bill, I was wondering if you could sort of talk to us about the health of the economies where you operate whether it's agricultural or manufacturing and how that's affecting your customer in the past quarter and respectively what you are thinking about for the year in terms of changes in product mix you are seeing and ability to accept some of these price increases..

Yeah. That's a great question. We have been foreseeing over the years to have the ability to implement strategic price increases. I will say the economy in the mid western states that we operate is doing relatively well compared to the rest of the country.

And certainly we wouldn't be taking price increases that we felt there was an elasticity issue that would be in effect. So even though we had taken some price increases they are still very competitive within our market area, and albeit we only have one month under our belt with the new price increases that I mentioned.

It appeared as that though they have been accepted very well. And we do some things differently as well, for instance on the pizza slice, that was one of the components that we did increase price. We increased the size of that sliced aggregator value as we also increase the price of that.

So we do some things like that to try to bring value to the customers. So right now I have got to say the economy is relatively solid and relative to other pieces of the country and think we might have some more opportunities going forward in that area..

Right.

With regard to more price increases or taking advantage of a stronger customer?.

I would say both. I mean taking the opportunity for price increases and also continuing inline with that, the strong same-store sales that we have been putting up primarily in Prepared Food category, but also the Grocery category..

Anything to talk about on product mix, has the basket changed in the last 12 months in a more or less favorable way?.

I would say that the basket mix have changed dramatically over the last several months. And we are always looking to add new products. The new stores obviously that we put up emphasize the more in the packaged beverage area and prepared food area.

And so we are seeing a gradual shift to those types of categories, which is good because those are high turning, high margin areas of our business. And that's kind of the intent of that new store is online over the time..

All right, thank you..

Thanks, Chuck..

Your next question comes from the line of Bonnie Herzog from Wells Fargo. Please proceed..

Good morning..

Good morning, Bonnie.

How are you?.

Fine, thanks. My first question is on the goals that you set out fiscal year 2015. I guess they are broadly below your fiscal year 2014 performance.

So I would like to hear from you why you are anticipating maybe a slowdown or would you just characterize your goals as conservative?.

Well, I will kind of walk through the goals to answer your questions. As far as the gasoline goes, I mentioned just briefly about that 1% same-store gallon growth. We are cycling against the, I'll say the full impact or full benefit of the Fuel Saver program. And just as a reminder we implemented that back in December of 2012.

So we have cycled that and then some and so we are going to compare it against some strong same-store gallon movement here in fiscal 2015 as a result of that program. We still think there is opportunity to drive same-store gallons, but it will be a little bit more challenging as you cycle through the major piece of that program.

On the margin obviously the RINs benefit is kind of a wildcard there. We experienced certainly a spike in the RIN values last year primarily in Q1 and Q2. For us to predict where RIN values would be going forward will be very challenging, will be challenging for anyone.

So the '15 truly is certainly a step up from where our goal was a year ago if you factor RINs out of the 16.8 gas margin that we had in fiscal 2014, we would have done about $0.15 gas margin. So it is improvement in that regard.

When I step into the Prepared Food category, with respect to the margin being down from the previous year and ago that's kind of alluded to that in the last question with cheese top and other input costs, and we are looking to offset that obviously with some things in our business, one would be price increases.

The hope would also would shift in contribution to sales and we are starting to see some of that and I alluded to have a shift in high margin items, for instance, pizza and the beverage or the fountain and coffee become a little bit higher contribution to the overall sales within the category. That should help offset some of the input cost pressures.

The same-store sale goal prepared food is at 9.50, a very strong goal. I'll remind everyone that there is only one month in the last 13 months that we have been below double-digit sales increases in the Prepared Food category. So this category has been doing extremely well and we continue to cycle over those kind of linear stack basis.

And it becomes a little more challenging to maintain double-digit same-store sales growth. But we still think that we have an opportunity to grow that Prepared Food category in the very high single digit. We are obviously off to a great start in May during the double-digit same-store result.

With respect to the Grocery General Merchandize category, as you know buying in this category is dominated by cigarettes is about 35% of the category. And cigarettes is no secret, it's a declining category. It has been since has started the company 24 years ago.

And so we are looking to offset some of the pressures that may come about in the cigarette categories in other areas of our business, for instance, the packaged beverages that I alluded to. And so, we are hopeful that we can offset those types of pressures.

With respect to the same-store sales, if you go back and look at mostly the same-store sales last fiscal year, we had very strong same-store sales in the Q1 and Q2. That was primarily related to; we had not cycled over the price decreases we took in cigarettes in the prior year.

We cycled over those price reductions in November and cigarettes actually moderated to mid single-digit same-store sales subsequent to November of 2013. And so we expect cigarettes to moderate down back into that area on a go forward basis and that obviously will bring down the same-store sales for the category.

And so that's kind of a long explanation of the categories and kind of the high level thought process..

No, that's really helpful. I appreciate you going through all of that. And then just a final question from me is on Walmart. I actually have an opportunity to visit their new Walmart to go store in Buttonville recently.

And then I couldn't help that knows that they are attracting quite a bit of traffic and really at the expense of when you starts up the road. So I would be curious to hear from you what you think about their ability to push further into this industry and how big of a realistic threat could this be.

And then maybe more broadly what are your thoughts on the competitive pressures from other large box retailers as they further expand into smaller formats with more field offerings..

Yeah. That's a great question. And the Walmart concept is a relatively new concept. So it's really probably a little bit too early to tell what type of impact and benefit that are definite that might be. I will say this that stores is still relatively large compared to normal convenient stores.

One of the things that we benefit from is our business model as you know by and we locate primarily in small rural communities in the Midwest and most of our stores are under making about 75% of our stores in population to 10,000 or less, most of which are 3500 population or less.

So I don't necessarily know of the concept that Walmart is rolling out or any other big box retailers that are similar with go down into the towns of 5000 population or less. So it's probably a little bit too early to tell whether there is going to be a potential impact from that type of movement from other big box retailer.

So we are going to have to kind of wait and see at this point, but that is a larger community for us in that regards probably a little bit not typical..

Okay, thank you very much..

Yes..

Your next question comes from the line of Kelly Bania from BMO Capital. Please proceed..

Hi, good morning. Thanks for taking my questions..

Good morning..

Bill, I was just curious if you could comment on operating expense outlook for fiscal '15 including D&A?.

Yeah. To answer your few questions, the operating expense outlook for fiscal 2014, I would plan a low on 2015. I would plan on a low double-digit increase in store operation expenses. That's kind of where we are looking at.

As far as depreciation, depreciation probably would be more of a mid teens type growth as you look back and look at the store growth and we anticipate that you are going to grow, it should be similar to what we had this fiscal year. We had a slight rise in the fourth quarter in depreciation.

That was primarily related to a decision to replace a couple of stores and that accelerated depreciation ran through the fourth quarter.

Does that answer your question?.

That is helpful.

Then just curious if you take a look at your competitive pricing surveys, what does it say about where you are positioned in the cigarette category right now?.

Well, we believe we are positioned very competitively in cigarettes, obviously there can be profits that will be a little bit more competitive than others, but it is definitely the key product for us. I mean gasoline would definitely be the number one destination I have ever seen in store cigarettes would be number two.

And so we are always trying to be as competitive as possible within those categories. So I would say we are competitively priced in all of our markets at this point..

I guess I am just curious if you are seeing any of your competitors trying to catch up to the price adjustments you have made last fall..

I wouldn't say that would be the case, I think we are catching up more with them on the price adjustment than they are now catching up with us. And so I think we have caught up with them and that alluded to my comment about gain market share back..

Got it. And then on the 24 hour locations, I think it's about 40% of your stores now that have that type of model, just curious where you think you can take that longer term, you talked about the small town focus that Casey's has.

I am assuming most of those 24 hour locations now are in some of your big accounts maybe you could just comment on that if that's correct or not and where you think that penetration can go longer term..

That's a good thought process. We have about 725 stores that are currently operating as 24 hour stores looking to do roughly about a 100 in fiscal 2015 and another 100 conversion I should say. Now as far as the number of stores, it's a good question because this is a -- this type of initiative does not have any type of cost associated with this.

So we can push this down to find out where that inflection point is. It's certainly not applicable to all of our stores. We will point out that the vast majority of our stores that we open up now currently tend to be 24 hour locations as well.

So it's not only conversions of existing stores, but it's continuing to open stores right out the gate to 24 hours. So I couldn't give you a number as to where that potentially could be, but I would say that we will continue to push that forward not only this fiscal year, but the following fiscal year..

Great. And then just on your fuel margin outlook, what -- I mean it's obviously difficult to forecast the RINs, but what do you have built into your forecast for the impact of RINs on your CPG margin of 15.3..

We have about $0.14 of RIN value built into the margin goal. And so based on my comments obviously the RINs are trading at a higher level than that currently..

Great. Thank you so much..

Welcome..

Your next question comes from the line of Ben Brownlow from Raymond James. Please proceed..

Hi, good morning. Just a follow up on the last fuel margin, are you still using the language of slightly above, above, that sort of language to indicate the delta between your goal and the actual fuel margin..

That's correct..

Okay, great.

And then can you update us on the return profile that you are seeing with the remodels and kind of the opportunity there?.

Yes. The remodels that we are seeing right now recurrence are in the low double-digit after tax. And the cost is about 450 to 500,000 for that particular initiative. So right now we have about 25 of those later for fiscal 2014. When we start that program, Ben, you might recall that we identified a specific style or a couple of styles at stores.

And we have bought another 600 to 700 of those stores types remaining. So we think there is an opportunity to grow that piece, that initiative going forward after 2015..

Are you waiting through the summer to see kind of a, I guess fine tuned and decide from there. I guess I was trying to get to when do you see or do you see accelerating that program..

Well, right now it's not planned for fiscal 2015. We do have a lot of things on our plate with new store construction, replacement stores, second distribution center that will be kicked off here this fall. We are also expanding the current distribution center here, another 40,000 square foot expansion.

So we had a lot of things on our plate there and certainly don't want to overload any resources that we have..

Okay, great.

And then just the timing of the 27 sites under construction, what's the -- when will those be finalized or up and running?.

Those are under construction which will mean somewhere in the next three to five months, those will be up and operational..

Great. Thanks for taking the question..

Thanks..

Your next question comes from the line of Ronald Bookbinder from Benchmark. Please proceed..

Hi, good morning..

Hi, Ron..

When the Fuel Saver program isn't the impact of the Fuel Saver program quite small like less than a penny on the CPG especially compared to the comp benefit.

And is there an opportunity to do a Fuel Saver program in another market like Illinois?.

The answer to your question is yes. We are looking currently at other opportunities for the Fuel Saver program to be expanded outside of the current partnership that we have with Ivy.

And so that is something that we think we have certainly opportunity to do may have the same magnitude in the partnership that we have, but we are up and very actively looking to create a program partner with other similar types of grocery store change in other markets..

Okay.

And can you remind us what the benefit from RINs was last year in Q1 compared to the current $0.45?.

The RIN benefit in Q1 last year, the average RIN was at $1.02 in Q1. And currently I think we mentioned we trade about $0.45 right now..

Okay, thank you..

Welcome..

Your next question comes from the line of Anthony Lebiedzinski from Sidoti. Please proceed..

Yes, good morning. I just wanted to follow-up on previous question as far as the Hy-Vee program.

So how many of your stores currently actively participate in the Hy-Vee program?.

Definitely, about 1200 stores are actually participating in the Fuel Saver program..

Got you, okay.

And you mentioned that cheese costs -- have you locked-in those cheese costs or are you still buying in the spot market?.

We're currently buying in the spot market. Now, coffee, we're locked-in in coffee price through July..

Got it, okay. That's helpful.

And also when you look at your CapEx outlook, I know you gave the dollar amount, but can you just give us a sense of like how much of that is going for your distribution center, how much for stores and how much for other initiatives?.

Yeah. In the distribution center, most of that CapEx will be actually pushed into fiscal 2016.

So I'll now give you a quick breakdown, our -- the range, coming to the 360 million range, about 130 of that will be new stores, about 70 million of that would be for acquisitions, 57 for replacements, about 13 million for the remodels, the 25 remodels we mentioned, 17% transportation, about 15 million will be for the distribution center, the expansion here as well as the CapEx to start the second distribution center, about 18 million for information systems and the remaining 40 million is really what is the general maintenance kind of the ongoing maintenance CapEx..

Okay, that's helpful. Thank you very much..

You're welcome..

Your next question comes from the line of John Lawrence from Stephens. Please proceed..

Hi, guys..

Hi, John..

Yeah, Bill, following that sort of thought process, when you look into '16, I mean because of those CapEx of the second DC etcetera, would you expect earnings to flatten out as you go through that period of time for that second DC?.

Well, I'm not sure the earnings are going through flat now. So I mean we do have some other things that will be coming forward in the upcoming fiscal years. I mean obviously the second distribution center will be up and running about 12 to 16 months after we ground. So that would be -- it's going to be in the 2016.

But also, we have the formal healthcare asset scheduled on implementation January 2015. So we will see a few months of that impact, but most of that impact will be going into fiscal 2016. In the next conference call look to hear us talk about the potential impact of that particular initiative..

Got it.

If you look at the last couple of classes of stores, particularly markets like Northwest Arkansas, where we're at the edge of the distribution reach, some of those three-day routes, can you talk about the success of those classes of stores in those types of markets for the last two to three years?.

Yeah. And some of the new states I think you're referring to, certainly Arkansas, Tennessee and Kentucky are the newer states that we've operated stores in with the new styles stores. Any time you go into a new state, they are probably little bit longer maturation process as you get your brand recognition up and going.

The volumes that we're seeing in those states are very good, very good. Unfortunately, the margin -- gasoline margin environment in those states has been a little bit light in the past year. And so, consequently when we look at the bottom line, it looks -- that's going to be effected by that.

But as far as the traffic, the food traffic coming in, sales volumes overall they're doing very well. We're excited about the increased presence in North Dakota, that state I think has a lot of opportunity. You're going to look for us, John, in this fiscal year to next fiscal year adding more stores in Oklahoma. We had just a few there.

That seemed to be doing exceptionally well. So we're excited about the new state. We're excited about our core states. We're also excited about our second distribution center getting up in operation to be a more effective distribution channel..

And last thought on that is when Murphy and Wal-Mart decide to go longer periods of time with their gas give away, even with Hy-Vee; do you see any prolonged effect when they go on that discount program for longer period of time?.

Yeah, any time a competitor gets to be a little bit more competitive on the retail price of fuel. Our gas pricing philosophy is we're going to match our competition. And certainly that does point to it a little bit..

And just the last point on guidance, and obviously from last year you brought out those basically 200 basis points on Prepared Food margin and that was those headwinds you talked about and I'd assume that's correct and on the comp, it's hard to put a goal above the 10% anyway.

Is that the bottom line?.

Yeah, the first part, definitely the headwind and the input cost going forward as far as the 9.5% same-store sales goal. I mean obviously we have a strong bit of that due to the operational initiatives that we've talked about.

Yeah, you're exactly right to continue at a double-digit on a two-year stack over and over again, it's a little more challenging, but certainly we're off to a great start in May..

Great, thanks for your help. I appreciate it..

Thanks, John..

(Operator Instructions) Your next question comes from the line of Stephen Grambling from Goldman Sachs. Please proceed..

Stephen Grambling - Goldman Sachs:.

:.

What would the hurdles? Well, obviously in order to increase our transportation will be one of those. I mean the CapEx associated with probably more tankers and drivers would certainly be one of those. Creating and starting up the wholesale distribution and that take some time.

There certainly would be a maturation process to get to a strong in a wholesale distribution level to make it worthwhile. Then secondly you do have couple of different operating systems.

You have a corporate and a wholesale and certainly we can overcome that, but it is something that -- like I mentioned in Karen's question, it's something that we have looked at in the past, we'll continue to look at that along with other initiatives that might generate shareholder value..

Okay, that's helpful.

And then, I guess second on the operating expenses, you did mentioned that you have some more detail on healthcare cost next quarter, but can you maybe expand on the drivers of the low double-digit operating expense growth? And how we should be thinking about some of the initiatives that you have in place to mature?.

Yeah, I mean the biggest driver of that double-digit operating expense growth will be the wage component. As I mentioned in my narrative, about two-thirds of the increase was due to wages in the fourth quarter.

As we add more stores, and as we change stores format to 24-hours or remodel the format, we do add staff, and we do add wages, and so that is the reason. That really is the big driver for that..

But I guess there are some opportunities as they mature to size, and I'd say right size in the sense that better labor management or other things that can make it more efficient?.

Yeah, absolutely. I probably misunderstood your question there. Absolutely. As we get further into these types of programs, I think we're doing a much better job of shortening the maturation process, the learning process of the new store format. And definitely I think we have some opportunities to gain some leverage in that regard.

You might be seeing little bit of that ran through in the fourth quarter..

All right. Then one last one, if I may, which is just -- I think there was a question of Fuel Saver program expanding into other areas.

Is there an also an opportunity to create your own?.

Yeah. That's exactly right. That will be part of the evaluation we're currently doing, looking to partner and also looking to create our own..

All right, great. Well, thanks for taking the questions..

Thank you..

Your next question comes from the line of Ronald Bookbinder from Benchmark. Please proceed..

Thank you, just a quick follow-up on that last MLP question.

Couldn't you just buy a jobber or wholesale company in your market to gain those assets to begin the process of entering the wholesale market and helping to drive your overall fuel purchases helping to drive your cost down?.

Yes, you're right. That would be an option. It's not one that we're currently looking at though, Ron..

Okay.

And going back to the second DC and entering the south and more eastern markets, so are you looking to ramp up store growth in the south and east a bit such that you have a larger base for the new DC to work off of?.

Eventually that will be the game plan. I mean when the second distribution center becomes operational, there will be a shift of truck routes. We'll eliminate our two-day truck routes with that shift. And then as -- we will get up and running at the second distribution center.

Certainly the idea is the opportunity to expand further east and further south leveraging that distribution center location..

Well, would you look to accelerate that a lit bit ahead of opening -- in anticipation of opening the second DC, so while it might have -- they might have added expense ahead of time, but when the DC opens up it will be running at a very nice capacity?.

Well, I guess the answer to that question more globally is that we're always looking to accelerate and looking for opportunities to grow our unit growth. And we are going to do it efficiently though. We're not going to accelerate -- just to accelerate for capacity purposes.

They need to make financial sense, so whether we have a second distribution center up and coming or not, we would always look to accelerate unit growth that made financial sense to the shareholders..

Okay, great, and good luck in that Q2 -- Q1. Sorry about that..

Thank you, Ron. Okay..

Okay. Ladies and gentlemen, this concludes our question-and-answer session. I'll now turn the call back to Mr. Bill Walljasper..

I'd like to thank everyone for joining us this morning, and wish all of you an excellent week. Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for participation. You may now disconnect, and have a great day..