Terry Handley - CEO Bill Walljasper - CFO.

Kelly Bania - BMO Capital Markets Ryan Gilligan - Barclays Capital Steven Taylor - Goldman Sachs Chuck Cerankosky - Northcoast Research Irene Nattel - RBC Capital Markets Ben Bienvenu - Stephens Ben Brownlow - Raymond James Anthony Lebiedzinski - Sidoti & Company Bob Summers - Mcquarie Shane Hagan - Deutsche Bank.

Good day, ladies and gentlemen and welcome to the Fourth Quarter Fiscal Year 2017 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Bill Walljasper, Chief Financial Officer. Please go ahead..

Thank you. Good morning. Thank you for joining us to discuss Casey's results for the fiscal year ended April 30. I'm Bill Walljasper, Chief Financial Officer. Terry Handley, President and Chief Executive Officer is also here.

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 our possible or assumed future results of operations, business strategies, growth opportunities and performance improvements at our stores.

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements 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 reflects our current views as of today with respect to future events and Casey disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.

This morning Terry will first take a few minutes to summarize the results of the fourth quarter. I will then provide some additional details, and then afterwards we will open it up for questions about our results and outlook for fiscal 2018.

Terry?.

Thanks, Bill and good morning, everyone. As most of you have seen in the press release, diluted earnings per share for the fourth quarter were $0.76 compared to $1.19 a year ago. Year-to-date, diluted earnings per share were $4.48 compared to $5.73 in the same period last year.

During our fiscal year, like many others in the convenience and grocery stores sector, as well as the broader food service industries, we have experience downward pressure on customer traffic which adversely impacted same-store sales across all of our categories.

We believe this pressure is related to the agricultural economy and our marketing area, the growing spread in pricing between food away and food at home, as well as the increased promotional activities of other competitors. Same-store sales across all categories during the quarter we're also affected by the leap year comparison.

This impact was approximately 1% to 1.5%. Taking into account the leap year comparison, same-store customer count in the quarter would have been up slightly; although we're encouraged to see that our basket ring inside the store excluding fuel was in-line with the previous quarter.

Despite the more challenging environment we continue to be an industry leader in same-store sales growth in both fuel gallons and inside our stores. Stepping away from the store results for a minute; I would like to give you an update on the progress of the share repurchase program authorized last quarter.

As a reminder, the program authorizes repurchases of up to $300 million of common stock over the course of the next two years. As the press release indicated, as of the end of the fiscal year we have repurchased nearly 444,000 shares for approximately $49.4 million.

We continue to believe the share repurchase is an important tool in providing shareholder value. I will now turn the call back to Bill to go over our results and some of the details in each of our categories..

Thanks, Terry. In the fuel category, same-store gallons in the quarter were down 0.5% which was adversely impacted by about 1% to 1.5% due to the leap year comparison last year. We continue to benefit from the low retail fuel prices and our fuel saver program during the fourth quarter.

Total gallon sold for the quarter rose 3% to $496.5 million, the average retail price of fuel during this period was $2.22 a gallon compared with $1.81 last year. The average fuel margin in the quarter was $0.172 per gallon, down from the same period a year ago; primarily due to lower volatility and wholesale cost throughout the quarter.

Year-to-date, the fuel margin was on goal at $0.184 per gallon. The fourth quarter margin benefited from the sale of renewable fuel credits commonly known as RINs; during the quarter we sold $15.5 million RINs for approximately $7.1 million, this represented nearly $0.014 per gallon to the fuel margin. RINs are currently trading around $0.70 to $0.75.

For comparison purposes, going forward, last year in the first quarter, the average RIN sold was approximately $0.82. Same-store gallons sold during fiscal 2007 were up 2.1% while total gallon sold for the year were up 5.6% to $2.1 billion. Gross profit dollars in the fuel category for the year were $378.3 million.

Total sales in the grocery and other merchandise category were up 4.7% to slightly over $500 million in the fourth quarter. Same-store sales were up 1.5% during the quarter which fell short of our annual goal, primarily due to the deceleration in customer traffic for reasons outlined by Terry earlier.

Also the adverse impact from the leap year comparison was about 1% to 1.5% on same-store sales. The average margin in the quarter was 31.1%, down approximately 100 basis points from the same period a year ago.

This was primarily due to a onetime adjustment to inventory and a switch at the beginning of fiscal 2017 from producing and bagging our own eyes for using a third-party for direct store delivery program. The one-time adjustment represented about 60 basis points of the difference.

As a result, gross profit for the quarter and the category is up 1.4% to $155.4 million. For the year, same-store sales were up 2.9% with total sales up 5.7% to $2.1 billion. The average margin year-to-date was 31.5%.

We're encouraged about our opportunities in this category as we benefit from the continued roll out of major remodels, replacement stores and new store openings. In the prepared food and fountain category, total sales were up nearly 6.8% to $233 million for the quarter.

Despite the economic environment in our market area, same-store sales in the quarter were up 3.2%. Similar to the other categories of leap year comparison at approximately 1% to 1.5% adverse impact during the quarter.

Also during the quarter we tested several deeper value promotions within the category, primarily in our [indiscernible] lines looking to drive an increase in traffic to these areas. These promotions have approximately 30 basis point adverse impact on the average margin for the fourth quarter which is down slightly to 61.7%.

The margin also was impacted by air supply costs. Our various growth programs continue to perform well above our unchanged store base. Sales in the unchanged store base continue to be challenged which we attribute generally to the pressures being experienced in the broader convenient and food service industries.

In the quarter, prepared food gross profit dollars rose 6.4% to $143.8 million. Year-to-date, same-store sales in the prepared food category were up 4.8% with an average margin in-line for our annual goal at 62.3%. As we mentioned in the press release, we were able to lock-in the majority of our cheese cost at $1.87 per pound.

The warehouse in Anthony [ph] is locked in through December of 2017 and warehouse in Indiana is locked in through August of 2017. We're optimistic about the growth in this category as we benefit from the continued implementation of pizza delivery stores, the major remodel program, as well as new store openings.

For the quarter operating expenses increased 11.4% to $292.6 million. For the year, operating expenses were up 11.2%. Over 50% of this increase in the quarter was due to a rise in the wages and payroll taxes. Also the combination of credit card fees and fuel expense were up $4.2 million.

Store level operating expenses for open stores not impacted by any of the growth programs were up approximately 5.9% in the fourth quarter.

Again, this was up primarily due to wage rate increases including our decision in December to keep our commitment to salary increases for our store managers stemming from the proposed change by the Department of Labor to increase the minimum salaries for exempt employees.

On the income statement, total revenue in the quarter was up 16.7% to $1.8 billion, due to a 22% increase in the retail price of fuel from the fourth quarter last year.

Sales gains due to increase in number of stores and operation this quarter as compared to the same period a year ago and the additional rollout of operational growth programs to more stores. Depreciation in the quarter was up 13.2%.

The deceleration from prior quarters this past year was primarily due to less accelerated depreciation as a result of the time and replacement stores and store closures. The effective tax rate in the quarter was approximately 30.6%, down from the fourth quarter last year due to a reduction in state tax expense.

Year-to-date total revenue was up 5.4% due to sales gains mentioned previously, as well as an increase in retail fuel prices during the year compared to a year ago. We expect our effective tax rate for fiscal 2018 to be around 35.5% to 36.5%.

Our balance sheet continues to be strong, at April 30, cash and cash equivalents were $76.7 million, long-term debt, net of maturities was $907 million while shareholder equity rose to $1.2 billion, up $107 million from the fiscal year.

For the year we generated $459.3 million in cash flow from operations and capital expenditures were $458.9 million compared to $400 million a year ago in the same period. In fiscal 2018 we expect capital expenditures to be between $500 million and $600 million.

More detail on capital expenditures will be outlined in our annual report in 10-K to be filed later this month. I would now like to turn the call back over to Terry to talk about our growth programs, our recent unit growth, and our fiscal 2018 outlook..

Thanks, Bill. I will start-off with giving you an update on our growth programs. For the year we completed 103 major remodels. We also converted 89 locations to a 24-hour format and 161 stores to the pizza delivery format.

Currently, we have almost 1000 stores that are of the 24-hours and 580 stores that deliver pizza and we have completed 464 major remodels. In addition, we are encouraged by the gains in our online ordering program. Subsequent to the rollout in January 2016, total downloads of our mobile app have exceeded 815,000 and continues to grow.

The amount of pizza orders completed online has climbed to approximately 14% and the basket ring of an online order continues to be around 20% higher compared to a telephonic order. We are optimistic this contribution will continue to grow as the number of downloads of the mobile app increases.

As I mentioned in the call, after our third quarter earnings release, we will be taking steps in fiscal 2018 towards enhancing digital engagement with our customers including a loyalty program. We believe we have an opportunity to widen our customer base and increase revenue as a result. We will keep you posted on our progress throughout the year.

This quarter we opened 24 new store constructions, completed 2 replacement stores and acquired 8 stores. We have 5 additional acquisition stores under contract to purchase, and we completed 47 major remodels in the quarter. In addition, we currently have 27 new stores and 21 replacement stores under construction.

We believe we are well positioned for future growth. Currently, we have 116 sites under agreement for new store construction heading into fiscal 2018. As a reminder, we consider a site we term under agreement to be either a site we have a written contract or a verbal agreement to purchase; the vast majority are written contracts.

Please keep in mind that all of our agreements have contingencies that may trigger a site to fall off our list before it gets released to construction.

We will be adding additional resources to the store development area this coming year to sustain our future new store construction pace at a higher level, and we will be further augmented by acquisition opportunities. Our store count at the end of the fiscal year was 1,978.

Now I'm encouraged by the progress we have made over the past several quarters in this area. I would like to now discuss our future fiscal 2018 outlook, and I'll begin the outlook by noting a few changes we are making and how we will describe our outlook going forward to the investment community.

As a reminder, in the past we published very specific annual goals in each of our three main categories. Throughout the year we would then report on our results as it compares to those goals. However, we would not adjust or update those goals to reflect any changes based on our quarterly performance.

Starting this fiscal year instead of providing specific annual goals we will be providing a range in each area as guidance for what we expect to achieve. These ranges will be updated quarterly as necessary throughout the year. With that in mind, I would like to start by outlining our guidance for fiscal 2018.

Increased same-store fuel gallon sales, 1% to 2% with an average fuel margin of $0.18 to $0.20 per gallon. Increased same-store grocery and other merchandise sales, 2% to 4% percent with an average margin of 31% to 32%. Increased same-store prepared food and fountain sales, 5% to 7% with an average margin of 61.5% to 62.5%.

Build or acquired between 80 and 120 stores. We expect operating expenses to increase between 9% and 11% and we expect depreciation to increase between 13% and 15%. In fiscal 2018, we also plan to replace 30 stores, complete 75 major remodels, convert 75 additional stores to a 24-hour format and add 100 additional stores to pizza delivery.

Operating expenses will be an area of focus as we head into fiscal 2018. With this in mind we have created a taskforce dedicated to reviewing improvement opportunities.

We have already taken several steps as part of this effort including the suspension of the $0.25 automatic raise after 90 days, implementation -- implemented revised compensation guidelines establishing a tighter wage and merit budget, and more strategic focus on advertising efforts resulting in a reduction in advertising dollar spent.

We are also reviewing overtime and store level budgeted hours looking for ways to be more efficient. We believe the combination of these factors will have the potential of an eight digit savings to operating expense next year. We will continue to work at other opportunities throughout the year.

We have a strong track record of growing the business while also returning value to shareholders through a dividend. At its June board meeting, the board declared a quarterly dividend of $0.26 per share which is an 8.3% increase from the dividend -- year-end dividend amount in fiscal 2017.

The dividend has increased approximately 55% in the last five years. In closing, we recognize that fiscal 2017 was a challenging year but we are excited about our long-term growth opportunities.

We have taken steps to position ourselves for a higher store growth trajectory and are beginning the early stages of several programs that we feel will sustain our positive same-store results history. We will now take your questions..

[Operator Instructions] Our first question comes from the line of Kelly Bania from BMO Capital Markets. Your question, please..

Good morning, thanks for all the kind of color.

I wanted to just first ask about kind of the environment that you're planning for; in 2018 you mentioned a lot of the -- the pressure is on the Ag environment -- economy, the promotional backdrop -- just curious, how do you see that progressing throughout the year in relation to your guidance?.

Absolutely Kelly, I've got that one. So obviously, you know Kelly that for the last probably three fiscal years we've seen a decline in the farm income which is obviously a big piece of our business.

In our market area, the USDA anticipates either flat to slight decline in farm income in calendar 2017; so we'd anticipate this piece of the challenging environment to continue to at least to the end of the calendar year.

Also I remind you that we -- we do [indiscernible] a large operating expense items that we outlined in last fiscal quarter; that being little cycle over the roll out of the increase in salaries to the managers and starting in November will also cycle over the rollout of the new payroll system starting in October; the combination of those is about $4 million contribution.

And so I would -- I can't frame up a backdrop that way..

Got it.

And when you talked about the promotional activity and some of the deeper -- I think deeper value promotions you did that prepared a few category, I think you mentioned it was 30 basis points to the margin for that category but how did that result in uptick comps for that category; were you pleased with how those promotions worked and what kind of promotions are you planning in that category?.

Yes, the two promotions -- actually there is too many promotions that we undertook in the fourth quarter; the first was in March. We ran a discount on donuts, our cake donuts; normal they are $0.89, we ran it at $0.69; we also ran in the late in the fourth quarter, special $8.99 single topping pizza ordered online.

So both of those had an impact obviously on the margin as indicated; also it had roughly about a 1% impact on the same-store sales.

So it resonated in some areas of our business and didn't resonate in some other areas of our business; so that's one of the things that we take away from that that I guess I'll call that kind of an R&D process that we can utilize as we head into the upcoming fiscal year.

So they were adversely impacted; so we look at the prepared food Kelly; I mentioned the prepared -- the leap year comparison but also about 1% on top of that was reflectively deep discounts as well..

And any color on what you're kind of planning for those kind of promotions during fiscal '18?.

We didn't outline that publicly on the promotion side of it but certainly we're trying to take away from that some information so we can better -- you know, maybe a little bit more strategical and laser-focused on how we roll those promotions out; you know, we did it to all of our stores to see how the customer resonate there.

And certainly looking at the data to see if we can kind of scale it back and be more strategic. As we mentioned in our last conference call, our competitors certainly have been a little more competitive in their promotional activity, not only in the pizza side of the business but also big box retailers as well.

So we're looking to be proactive in that regard..

Got it. And then, if I can just ask one more on the operating expenses.

You gave some color on some of the opportunities you have; so I guess I'm curious how much of that guidance for 9% to 11% growth in operating expenses incorporates all of those initiatives already or how much potential do you think there is to kind of do some more work on that front?.

Well, I mean if we did create the task force internally; I mean obviously it's a strong focus for us as Terry mentioned heading into this fiscal year.

We're certainly cognizant of the disconnect between same-store sales softening over this particular fiscal year, at the same time our operating expense is slightly moving in the other direction; so obviously looking to make some impact there and we thought that the first two that Terry mentioned were certainly quick leverage that we could pull, the $0.25 automatic raise that our store employees had, also looking at a tighter budget/merit guidelines certainly will be impactful.

Also I should point out, he mentioned advertising spend as well; lastly we took a significant increase in advertising spend as we head into new markets to develop kind of that brand recognition; we think we've started to establish of that because we are seeing some nice same-store sales growth in the non-core stage, relatively our core stage through this past fiscal year.

And so don't look for us to have a significant increase in advertising spend in fiscal 2018; in fact we may actually be a little more strategic and pull that back. And so I think these are all quick hits in fiscal '18 but some will have compounding effect as we head into the later years after that.

Now the budgeted our piece that Terry alluded to, that's something that we're currently working on. That's a piece that's harder to pull into the equation for operating expense guidance because not exactly sure how that's going to be framed up and when that will be implemented.

And so there might be some further opportunities as we head in the back half of the fiscal year..

Okay, thank you very much..

Thank you. Our next question comes from the line of Ryan Gilligan from Barclays. Your question, please..

Good morning, thanks for taking the question. Hi good morning. Thanks for taking the question.

Can you talk about how comps trended throughout the quarter and maybe where they are now quarter to date?.

Yes, actually we can talk about the quarter, maybe give you a little flavor you know, through the really just one month I think is what you're asking me. First, from a customer count perspective we did see gradual sequential movement downward each month in the quarter, traffic came down.

You know, we have a few weather patterns but we always have weather patterns typically in our third and fourth quarter so I don't think that was anything unusual there.

With respect to how they're trending and to answer your question then, same-store sales as we think are customer account as it falls down, you will see that permeation across all lines of our business and so there you kind of get the same idea there.

As we head into the quarter, definitely we have seen uptakes and same stores sales like for instance the fuel gallons is significantly ahead of where we finished the fourth quarter. The other two categories inside are flat or slightly above kind of where we finished the fourth quarter..

Got it, that's helpful and then I guess are there any differences in comp trends by geography? It sounds like you just said that the newer markets are performing better than the core markets, can you give us a sense for how much?.

Yes and so the newer markets Ryan would be you know, states like Tennessee, Kentucky, Arkansas, Oklahoma, North Dakota, you know, Eastern side of Indiana, and even more recently Ohio and Ohio really is obviously not in the comp Asia when I look at the other stores that they're in the comp based, those stores probably they're small contributors from a dollar perspective but their same store lift is double or triple what we see in the core States right now.

I think that is reflective of the efforts that we've put in the last fiscal year and doing some marketing and promotion campaigns in those areas. .

Got it, that's helpful and then just lastly on the price increases that you guys have taken this year, it doesn't seem like you've gotten the comp lift that maybe you thought you would.

Do you think there's no chance or you think you might need to reverse some of these price increases?.

I don't see a reversal of price increases. I think some of the price increases that we took quite frankly have been masked by the over ergo economic conditions so you may not see the benefit as much you may have seen in the past.

And right now the only price increase that we have in place is when we took back in November and that was about maybe 1.5% price increase. But that's something that we'll have to monitor going forward especially in kind of a tighter consumer environment. .

Got it, that's helpful. Thank you. .

See you, Ryan..

Thank you. Our next question comes from the line of Steven Taylor from Goldman Sachs, your question please. .

Hey good morning guys, thanks for the question. .

Thanks, how are you doing Steven?.

Doing good. So just to start, you mentioned in the prepared remarks that there's higher supply costs on the prepare side and I wondered if you could just flush that out a little bit and maybe some comments on kind of how that's been moving around..

Yes. Typically we see supply cost increase roughly at the end of the calendar year so we discussed this a little bit in the last conference call so we're still seeing that on a comparative basis; so these are [indiscernible] straws, napkins those types of items..

Got it. So not food per se..

No, not so much the food side of it, yes..

Okay.

And then you know there's been some changes to the compensation structure in the 8-K and I wonder if you would insert the say maybe at the midpoint of the all plan - midpoint of the target for the all plan versus the new plan is there an anticipated net savings in that change or how would you frame that?.

I'm not sure that I would necessarily frame like a net savings perspective. Obviously we're very cognizant compensation around here and we look at most of those increases, they were pretty modest increases. I think that's reflective of the conditions that we experienced during the fiscal year.

Now we will be framing up the long term incentive plan which will be a little bit different this coming year. Looking at taking the RLI component out of the short term and put it into a more of a long term perspective. And so they'll appear the next several weeks to a month as we go forward we will report on that accordingly..

Got it, okay.

And just lastly from me you know, the gas margin outlook is a bit better than I think we were thinking and I'm trying to sort of understand the puts and takes there and can you give us a little flavor for that or maybe what assumptions you have in there for RINs as well?.

Yes, you're referring to our fiscal '18 outlook I'm there so you know, historically what we have done Steven is that don't have any crystal ball as to where the fuel margin may go, I'm not sure anybody does but what we've typically done in the fuel margin is use our three year average fuel margin which would include RIMs benefit and so the RIMs benefit - and so look at our three year average comes in roughly about $0.19 over the last three years.

That includes maybe a penny and a half or so of RIMs into that. I will say this that and if that's the stance we've taken for many many years and in the last ten years only once we've been below that goal. So it seems to be a pretty close parameter but things obviously as you know can ebb and flow with the fuel margin..

Got it. Okay, that's helpful. Thanks a lot guys. .

Your next question comes from the line of Chuck Cerankosky from Northcoast Research, your question please..

Good morning everyone. Bill, if we if we look at the guidance ranges for the each segment, is it proper to think about a tradeoff between margin and comps so that if the margins higher you're leaning towards lower comps and that would get you to similar operating profit..

Yes actually that's how we managed the business to grow profit dollars. So I mean we will give up margin to drive revenue or vice versa if we see opportunities so that's a fair statement. .

And then when you want to clarify something you talked a little bit about the comps impact of the doughnut promotion; was that a 100 basis point negative impact to comps?.

That's correct..

Alright. Now for looking at the store opening cadence for the current fiscal year, looks like a few fell off at the end of the year just completed.

Does the first quarter start out relatively high because of that?.

It starts higher than probably the first quarter year ago but I would not we start out high. When we look at the cadence of new store construction, it will be back loaded this fiscal year. .

Could you describe how much please?.

I would say for at least plus 50% of the stores that we have planned open will be in the back half of the year. And right now it's kind of a minimum you know, we're looking for you know, 80 new store constructions this coming fiscal year. .

And so acquisitions would be additive to that..

Yes definitely and that was the both we spent a lot throughout the year. .

How do you - how are you seeing, better said, what's your ability for new hires into the new stores and expanded dollars all that, what kind of labor market you're seeing right now. .

Well I guess it's tight labor market and I think if you would take a look at you know, kind of similar industries or related to see store space, it is very tight. It's not uncommon for people to jump shifts for you know, $0.25 raise here or there and so that's been a challenge and Terry mentioned about wage rate pressures, wage rate increases.

We've definitely seen that throughout our market and some of these wage rate pressures for us to remain competitive around some of the non-core hours of the 24 hours stores, the pizza delivery, things of that nature just to make sure that we -- you know, we at the end of the day we want to make important choice and so part of that you know, has to be being competitive not only in our ways but also benefits.

It's a continued challenge for us..

Okay. And last question is on the task force that's looking at reducing operating expenses.

I think you and Terry mentioned an eight digit decrease, are you talking about fiscal '18 or fiscal '19 where we would see that show up?.

We were talking about fiscal '18. I think there's some compounding effects that go into fiscal ‘19 and beyond especially on that merit piece, as we kind of short and tighten the comp guidelines; you know a 1% change in a merit increase compounded over several years is a big compounding number and so [Technical Difficulty] fiscal '18 opportunities..

Alright, thank you very much..

You're welcome. .

Thank you, your next question comes from the line of Irene Nattel from RBC Capital Markets, your question please. .

Thanks and good morning everyone. Just looking at the royalty program, wondering if you can give us any color around how you expect to roll that out, what the key features will be and also presumably you're guidance around to Op Ex enclose the incremental cost associated with loyalty..

Yes, I'll start and Terry can chime in but so right now you're absolutely correct on the operating expense piece of that. That does include any estimated cost to increase that it but I would now look for the roll out of any type of new digital engagement to be at the latter part of fiscal '18 so the benefit really will start becoming more fiscal '19.

But we have reached out to a number of third parties; I understand that we may not have the skill set internally to move forward in the path we want to here to want to go get that. And so we sought to several third parties to assist in that area. We're looking at their responses who are at this point.

And so I guess more is to come on that but we definitely recognize that there's a consumer out there that engages with business in a digital arena. We want to make sure that we give them an avenue to engage with us and so we do believe we have an opportunity to gain incremental customers from an increased awareness in this particular area.

And so to that loyalty piece there Irene and I'm not sure how it's going to shape up at this point but as you know currently we do not have a loyalty program. And you know, we certainly see some of the benefits of the fuel [indiscernible] program that we have.

We have for about three or four years and we want to take that and spring board off of that into other areas of our business. So we're excited about this adventure, we don't have a lot of detail at this point but we will keep you posted each quarter in that regard. .

That's really helpful thank you. And I guess that kind of leads me into my next piece which is the whole issue around the performance of the untouched store base.

You know, you've been so fairly very clear that it's those stores are seeing the most pressure so wondering what you're thinking around any programs to improve performance there and how you see the loyalty perhaps playing into that because presumably some of the untouched store base is also amongst some of your loyal customers..

Yes, absolutely so we roughly have about 1300 stores in that unchanged store base, so just by nature of that size it's going to be the biggest impact. And some of things that Terry mentioned with regard to operating expenses, we'll touch that piece right there; so you should see a benefit from those operating expense initiatives going into that.

As I mentioned or Terry mentioned in the operating expense side and the unchanged store base, it was up 5.9%.

If you take the -- if you kind of back out for a minute, the minimum salary that we changed back in November that hadn't taken place, now we're back down to 4.8% and so we're getting back into a level where we were running at prior to this fiscal year which is kind of that 3% to 5%, it does fluctuate in that regard.

And so I think those things will help the unchanged store base. Also as we get into a low program [ph], absolutely that's going to help not only unchanged store base but the entire company. So we're excited about our long-term opportunities..

That's great.

And one final if I might, coming back to the commentary around some of those promotions that you ran and I guess wondering -- obviously, prepared food and fountain is a big category but any learning's that you can take from consumer response or not and thinking around some of your grocery categories, and how you might try and use some of that information with regard to having to drive traffic as we move into FY18?.

Yes, I think one of the things that we learn from that, you know, both of those promotions that I referred to were company-wide and so we are not circling back on that data to see the effects and it maybe more populated areas where we do come across more competitive landscape.

And so I think one of the things that I think will take away from that is when you look at some of these deeper promotions, those promotions may not be needed to be done throughout the entire chain and so for us to be a little bit more focused as to where we will roll those out in the future; so I think that will be a learning lesson for us..

That's great, thank you very much..

Thank you. Our next question comes from the line of Chris [ph] from Jefferies. Your question, please..

Good morning. Bill, just to starting off very quickly, a point of clarification here. So you mentioned that the quarter-to-date trends were a bit better or if not flattish relatively to how you exited the quarter.

I just want to confirm that versus the exit, not the actual average for Q4, correct?.

Well, the Q4 numbers that we report is what I refer to..

Okay.

So the actual -- for instance, 1.5% grocery comp that you put up, you're seeing better trends relative to that quarter-to-date?.

That's absolutely correct..

Okay.

And then actually maybe sticking with grocery, excluding cigarettes could you help us understand the progression from Q3 to Q4 on the sale trends?.

Yes, sales trends were kind of similar to what we reported in Q3.

I mean one of the things that we faced in the cigarette category; we do see an obvious gradual but if he has been continuing for mid several quarters, a movement away from part and the pack purchasing, we've also seen it moving away from full value purchasing to a more discounted brand which could be a generic brand.

And so both of those moves or trends have lower ratings and so that is affecting obviously the overall groceries merchandize category..

Okay.

And then on the guide for the comps themselves; we saw that you recently expanded your online offering to -- I think largely all prepared food that you offer now; are there any national expectations embedded in the guidance? And as it relates to the conversion that you plan on executing for the full year; what's the uplift that you're expecting there? Are you expecting it to be somewhat marginalized that you've alluded to in the past or to see similar uplifts?.

First part of your question, with respect to expanding the delivery to other aspects of repairs, that's absolutely correctly, we just recently started that and we have not been embedded into the cost to reflect anything in that regard.

We're hopeful that obviously it will be positive for us but it's one of those things that as we expand the delivery stores and get a higher brand recognition in some of the non-core states, as well as the opportunities we thought we had to test the waters, to expand that; you may even see it expand into maybe some other grocery items later in the year..

Okay. And then just -- as it related to the expectations on current conversions, are you expecting that uplift on a per slide basis.

Can you kind of marginalize that you moved to second and third choice type of sights?.

I think what you're asking me is the -- when we may clarify that there are Chris.

What you're asking I think is, let me roll out additional delivery to these other products; do you think those will be neutral effect?.

No, I'm thinking more about the 24-hour conversion and how you've, you really just -- you're now rolling them out into fights that already have some type of augmented hours.

So within the guidance is the uplift from those set initiatives, now marginalized or are you expecting kind of the same types of uplift that you've seen historically?.

Got you. Yes, so I mean not only to profit all the growth programs; I mean the sales uplift that we have seen historically in the growth programs, we're seeing a pullback in those as you probably would expect related to the economic conditions that we're in.

I would say that there is a significant difference between the growth program stores and the end changed store base with respect to their same-store sales; so they are still very positive but your point though; they will be slightly less positive as we move forward just because by the nature of -- like in your commentary, that 24-hour stores that we're converting going forward, many and -- not most of those already have modified [ph] hours to begin with..

Okay.

And then the last one for me; just assuming the continued execution on your buyback and the accelerated organic unit growth, is there any assumption embedded in fiscal '18 for additional debt?.

Well, as I look at -- obviously as you look at $300 million share repurchase that's off-price over the next couple of years accelerated growth pattern -- there is going to be a need for additional debt. So at some point in the end of the fiscal year look for us to make some commentary in that regard..

Any ability to possibly quantify that at all?.

Not at this point..

Alright, thanks..

Thank you. Our next question comes from the line of Ben Bienvenu from Stephens. Your question, please..

Thanks, good morning. So on the full year guidance; certainly the execution for accounts are that they are lower than the prior goals that you've set out. They now suggest a stable vision of trends and certainly an acceleration of trends from what we've seen in the last couple of quarters.

Is that a function of easing comparisons or your quarter to date comps that you've seen what ultimately gives you the confidence that you think you can deliver [indiscernible]?.

That's a fair question and a part of its Ben -- a part of it, as we look to for easier comparisons in this fiscal year relative to the comparisons we had in 2017 to 2016 but also when we go ahead and start framing up our guidance with respect to these particular categories, it is a very well thought out cross functional team that we have here that looks at everything from [indiscernible] the growth programs and the contribution on a year-to-year basis.

So if look how they will come into the fiscal year, to look out promotional activity both, in prepared category and merchandize category; and the estimated impact of those -- but look at potential price increases, any legislative issues that may either adversely impact as it will positively impact us.

But also they look at the new stores that have been opened in the prior years as they come into the comp base and that maturation cycle, as well. In addition to total sales, I'll look at the Cadence, the new store is coming in as well. So it's a very well thought out program that gets us there.

Also in the back half of the year as I mentioned one of the earlier questions - hopefully, the far income will start to flatten out and start going in the other direction. USDA seems to think that my doubt point, we'll also comp again some of the OpEx pieces that I mentioned earlier; so I think all those things are factored into the equation here..

So taking under consideration that thoughtfulness or on the guidance, can you think the underperformance last year relative to your initial goals were -- was the function of nine or two as the headwind associated with pharma income kind of hitting middle of last calendar year; that maybe was under anticipated.

And then is fair to say that maybe the way that you have thought about your goals previously is different than how you're thinking about the guidance you're providing now?.

Well, I think to answer the first part of your question; and there's no question that will make me put our goals out for fiscal 2017. I'm not sure we fully anticipated the customer response -- the consumer response I should say in relation to the economic conditions.

Now if we look back in fiscal 2016, we had a pretty good year to fiscal 2016 and actually every quarter in that -- in fiscal 2016 we saw a sequential movement upward in our same-store account as well as there movement up or in our basket running inside a store.

So didn't see any type of indications that there was a potential softening from a consumer standpoint, but -- and so that's why we had put into place those goals.

Now the approach that we took this fiscal year was very similar to last fiscal year, the only difference would be that we are now taking into account the effect of the economic conditions that we are in more so than we did the prior year..

Okay great. Thanks for that.

And then maybe just following on one point of clarification on the quarter to date plans for sales trends would you, is it fair to say that you've seen acceleration relative to the comps in fourth quarter when adjusted for -- as well?.

Yes, I would say that's fair. Simpler category you're looking at..

I'll get back in the queue. Thank you..

Thank you. Our next question comes from the line of Ben Brownlow from Raymond James, your question please..

Hi, good morning.

On the remodels for the 75 just a bit of a slowdown from the prior years, can you talk about what you are seeing in this recent remodels and kind of the cadence of remodels for fiscal year 18?.

Major remodel program is one of those if you do look at ROI because we have about $600,000 - $700,000 investment and we might have talked about this in the past but typically the second third year the major remodel that's when we get to the double-digit after tax return on investment I just mentioned.

Now the revenue looks here as I alluded to in one of the prior questions has slowed down relative to what they were in probably two-three years ago. That's really more of a function of the economic conditions and the consumer reaction here this past fiscal year of - company.

And as far as the 75 number of this point, really we take a look at all of the different initiatives we have going on for capital expenditures, replacement stores major remodels and acceleration of new store construction activity hopefully we'll get more acquisitions coming up in this fiscal years. We try to balance all of that.

So it's really just a function of that. We still have several more fiscal years of roll out of the major remodel program..

Okay, great to hear that.

And that will be fairly evenly spread out through this fiscal year is that what you are saying?.

Yes, hopefully more so than we were last year you. It might get a little bit back-loaded. It depends kind of on some of the other things I just missed it and how it will roll-out this fiscal year as well. But last couple of years we have been back-loaded on major remodels.

I would tend to believe that we're going to be slightly back-loaded in this fiscal year..

Okay, great. And just one last one for me, I think you mentioned that I missed, I think you said something to the effect of August and December of this year you had two different cheese prices locked in.

Can you just give us some color around that?.

Yes. Well the cheese price really is the same cheese price just the duration of the four - hearing Anthony, we are able to execute for by $1.80, roughly $1.87 per pound all in through December of 2017 and in Indiana where we have another supplier there. We're able to execute a buy through August 2017 roughly at that same $1.87 per pound..

Thank you..

You bet..

Thank you. Our next question comes to line of Anthony Lebiedzinski from Sidoti and Company, your question please..

Yes. Good morning and thank you for taking the question. So Bill I just wanted to follow-up on one of the previous questions about the revenue lifts that you are seeing from the major initiatives.

Can you perhaps quantify is what you're seeing nowadays from revenue lifts from whether it's pizza delivery expansion or major remodels and some of the other initiatives?.

Yes, I think I can give little color there. I mean I think it might be a little skewed given the backdrop of the environment that we're in right now.

But if you might recall, we were typically seen revenue less in the twelve months following a roll out one of these initiatives relative to the twelve months prior roughly in that 20%-25% and the cash, prepared food. Right now we're seeing those down probably half of that..

Okay, got it. Okay. Right, that's helpful.

And switching over to the store growth expansion, so which states are you targeting the most? I know you opened a new store in Ohio is that where we'll see bulk of the growth in your non-core states and also was wondering if you could just touch on what you're seeing from acquisition multiples from sea stores out there?.

Yes, stores and new store construction Anthony, when we look at those green that we met 116 sites under [indiscernible] agreement, I would say roughly about half of the sites what I would call new areas. Now and to define that would be Oklahoma, Arkansas, Tennessee, Kentucky the eastern side of Indiana, Ohio. Even we have some sites in Wisconsin.

We've been to Wisconsin for a long time; we don't have a lot of stores there currently. So roughly about 50% percent of those are going to be in those areas, and we're excited about that as I mentioned earlier.

Especially the state of Ohio really has really embraced our stores coming to their communities and they're been firing off really well ahead of some the newer states that we implemented in the past three or four years. So we're encouraged by that, looking for other opportunities in other states like state of Michigan as well.

So continue to leverage that distribution center and continue to expand our presence.

As far as M&A multiples, as you know we typically pay between five and seven times that's not necessarily a barometer of where we'll go we'll pay well outside of that if the asset warrants it using some of the more regional public trends the more double digit multiples but our multiples are still in that high single-digit right now..

Got it. Okay.

And lastly as far as your Terre Haute distribution center, what level capacity is that operating now?.

Yes, we have roughly about 630 stores running out of that distribution center. I would say it's probably roughly about 55%-60% capacity. Now we obviously look at it on a per store basis. We look at opportunities to have miles driven savings.

So when we see an opportunity that we can save more miles, we might look at our third distribution center and probably you'll see that in the not too distant future..

Okay.

And what would be a possible location of that third distribution center?.

That's still to be determined at this point. We're still kind of showing up where the ideal location might be for that..

Okay, all right. Thank you very much..

Thanks, Anthony..

Thank you. Our next question comes from the line of Bob Summers from Mcquarie, your question please..

Good morning. I just wanted to go back to the three items that are or the three big variables that are impacting your business and trying to understand where the rig changer or the incremental rig change is coming from understanding that the ag economy has been weak for a while.

Food spends have been problematic for a while ago, we're probably offer a wide and that competition is something that you more recently spoken about just try to understand like where incrementally the pressure is coming from..

Well, I think the pressure is a combination of all of those, but with respect to the farm in comment, that's been as you know Bob, that's been going on. That decline has been going on for last three years and so I just continue to weigh on the customer.

Each year that farm income goes down, I think there is an incremental pressure on the consumer and that they are forced to tighten their belts to little bit more. We're hopeful that can turn around sometime in this fiscal year and that tightening of the consumer changes. You are correct on the spread.

I think we have seen a compression of that spread so that is not as wide as it has been in prior quarters. That's a plus, so incrementally that it will start giving less and less of an issue.

Now on a competitive landscape out there, I mean we definitely have seen an increase in promotions out there; we've seen in the grocery stores, even the big box, we see it in the competitors with pizza -- even in the QSR, people are just becoming much more focused on promotional activity, trying to drive customers with value propositions and we can't be -- we can't put blinders on in those, we need to be proactive and trying to look at those and make the appropriate adjustments.

So really are the three..

Okay.

And then what I really want to get to is, as I think about the comp guidance for fiscal '18 and towards the run rate that we had in the fourth quarter, even adjusting for the lead day; you know, what's the right way to think about the cadence of the components as we go through '18? Is it going to be weaker in the first half and stronger in the second half? One, if some of these things, particularly farm income maybe gets a little better and then we have easier comparisons and much -- how should we think about that?.

I think you've stated very well. I think that's certainly the anticipation there in the back half given obviously some of these pressures we've just talked about to start to the lessen, we've seen an opportunity for uptick in the back half..

Okay.

And then last one, I don't think it -- I don't think you have an exact spread; I mean how underperforming are the unchanged stores?.

Yes, I don't think I did give a spread there. Now when you say underperform, and I relate that our expectations coming into the system year and so generally speaking I don't change store bases; historically has been running into that low to mid-single digit comps. And certainly exists it's kind of flash mode right now.

And so again, coming back to your commentary just a minutes ago as some of the overarching pressures lessen, I think you'll see -- at least we're hopeful, that level starts uptick..

Okay, thank you..

Thank you. Our next question is a follow-up from the line of Chuck Cerankosky from Northcoast Research. Your question please..

Bill, I was just wondering if you could comment on how tobacco might behave in fiscal 2018; what kind of trends are you looking at in that category..

Well, I would venture to get this; you know, at least for the first part of fiscal 2018 with the consumer still under pressure. Look for more movement towards Packers, seeing away from Cartons; book for more value opportunities consumer will have with respect to the [indiscernible] generic or some other discounted brand.

So those are definitely things that we're seeing; also here we are seeing more and more of our stores here in Iowa, starts and move to the Marble leadership program. We just converted maybe another 20 or 30 stores this past quarter and we roughly have about 30% of our stores in Iowa now.

So I would to get that but continue, cigarette is a challenging category, it's been a declining category for some time and I think there will be pressure in that regard..

Alright, thank you very much..

[Operator Instructions] Our next question comes the line of Kelly Bania from BMO Capital Markets. Your question, please..

I was wondering if you could just follow-up on the MOP comment. I think you just said 30% of your stores in Iowa are now in that program.

Can you just talk about the impact of that; how that impacted comps in margins this quarter and what would be the impact if the rest of those stores in Iowa get transitioned?.

Well, I'll answer the first part; I'm not sure I'll be able to answer the second part of that question there. Right now it's been a relatively neutral to slightly negative impact.

We're moving that -- I mean obviously, when we move the stores so that you're your own retail environment which will impact and we have a fair amount of stores in Iowa; so you can probably extrapolate that into -- depending on how the market will react I guess; it will depend on how the overall impact would be but it's a neutral to downward movement..

And on margins as well?.

Yes..

And I guess just one last follow-up, I'm just -- any comment on CapEx guidance for fiscal '18?.

I'll probably defer that until we actually have that out in the end report 10-K. As we've traditionally done in the past year, we'll break down in similar bucket that we report on. And so if you may have any questions on the CapEx when that rolls out, just feel free to give me a call..

Okay, great..

Thanks, Kelly..

Thank you. Our next question is a follow-up from the line of Chris [ph] from Jefferies. Your question please..

Thanks for the follow-up.

Bill can you defend if you happen now your fingertips, what the deflationary impact was in fiscal '17 and what you're expecting within the guidance for fiscal '18 and that grocery category anyway?.

Yes, I don't have that on my fingertips; whether to keep in mind, I've characterized this however. You look at deflationary impact, it let us probably more of an impact in a grocery store and [indiscernible] would be for us.

I mean we do have several products that would be impacted but I'm not sure that they're big enough products to really have a significant impact; I mean the bigger deal for us is what we've alluded to you early, that's spread between home away and food at home.

Maybe it's still there but obviously any movement in the other direction would be slight positive for us..

Okay.

And then I understand you don't want to necessarily mention the buckets as it relates to CapEx but just regarding the potential 80 new stores if you will; can you help us understand what percentage of those units will actually be the new lower cost format?.

Yes, it's going to be aright about 25% to 30% of those would be that lower cost format..

And can you just remind us of the differential there?.

Yes, I mean roughly about $3 million, that would be our larger footprint; obviously there is very invest around that for a number of [indiscernible] like plants for instance. Roughly that you just mentioned is roughly about $2.3 million to $2.4 million dollars..

Alright, thanks again..

Thank you. Our next question comes from the line of Shane Hagan from Deutsche Bank. Your question, please..

Good morning, thanks for taking my questions. Bill, it looks like you guys -- you guys ramped up your pizza delivery in FY17; it sounds like you guys are bringing it back down a little bit back to the 100 range if I heard that right.

Can you just kind of talk about the decision to slow those down a little bit? And obviously, how the sales lift has been from those -- that initiative?.

Yes, and I will circle back to the fiscal 2017 ramp up. You know, we actually as in the third quarter I believe we made a decision to increase the number of pizza delivery stores to some of the smaller communities and runny those at four day pizza delivery a week.

The kind of ads in R&D and CF, we have get opportunity in some of the smaller communities to be successful pizza delivery.

They performed relatively well, a bit ahead of my expectation, and so we continue to test that making sure it wasn't like a enough moon, it's back in that regard and so if we continue it would not surprise me that 100% goes northern of that in the fiscal year..

Okay, so you guys could ramp that up later this year if you're seeing good results from that still?.

Yes, correct. Now if we ramp to be an on that; again it would be -- again smaller communities on a four-day delivery. But definitely -- I think we have some opportunities these..

Okay.

So most of your stores are on a seven-day?.

Yes, I would say yes, about the ones that Terry mentioned, definitely those are 7 day..

Okay, thanks. And then just on your RINs; it looks you had a nice step-up in the number of RINs that you sold.

Was this a timing issue? I know in some quarters you guys have had some timing around month end, I didn't know if that was a timing aberration or how should we think about that over the next couple quarters?.

No, I'll look at timing issues this quarter but you're right, occasionally we will have that, we're one of the contracts that can get shifted into a different month but that's not the case in this regard. I think that's probably going to be like a normal case and brands moving forward..

Okay, great and then just a last one for me.

On the other category, obviously sales and profitability and a little bit; any color around that? I know just looking into next year, is that -- should that be up slightly? I don't know how we should think about modeling that?.

Well, I mean -- let me talk about few of these things. I mean one of the things and we've put the guidance out there based on kind of what we think we can accomplish in the upcoming year. But in Q4 specifically, we did have that one-time inventory adjustment that was about 60 basis points; that was about $2.7 million in the fourth quarter.

We also were last seeing over that Bagged Ice [ph] program that I mentioned previously that would take care of the majority of the other spread better than where we finished in Q4 this year and March relative to Q4 last year Mark and then for another merchandize category? Now the prepared food category in the Q4 and we call that that thirty basis point; impact the adverse impact due to the -- one from the unknowns in the margin side of the prepared foot category would be the back half of fiscal year as we come off the lock of sales of both distribution centers.

And so I will see where that goes going forward..

I'm sorry, just to clarify, in the other category that was -- you had some in fact from that the ice program there?.

Not in the other guy, the grocery general merchandise category, if I missed to understand your question, I apologize..

Yes, I was actually referring the other category.

I know we're down a lot in the third quarter; I believe they were -- I think you guys were lapping on a large lode [ph] -- yes, I mean were you guys a similar compare in the fourth quarter or just any color around that?.

Yes, I mean -- I don't know sure, what was [indiscernible] it was down, in other category was down slightly from the same period a year ago but not significantly. So I don't know I mean just speaking to a play lottery sales in the quarter, but I've nothing to call out as this point..

Okay, thanks. I'll get back in queue..

Thank you. This does conclude the question-and-answer a session of today's program. I'd like to hand the program back to Bill Walljasper for any further remarks..

Thank you very much. I appreciate everybody getting on the call this morning. If you have any follow-up questions, feel free to give me a call [indiscernible]. Thank you..

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..