Anthony Bonadio

Anthony Bonadio questioned the drivers behind Casey's strong fuel business performance, which saw growth in both same-store gallons and fuel margins despite the Fikes headwind, and how this compares to competitive trends.

Answer

Darren Rebelez, President, CEO & Board Chair, outlined three key drivers: 1) Casey's prepared foods offer attracts more traffic, increasing opportunities for fuel purchases. 2) A strong value perception among guests reduces the incentive to shop around for fuel. 3) Consistent execution of the fuel team's pricing strategy builds guest confidence in competitive pricing, allowing for stable margins without aggressive pricing.

Anthony Bonadio of Wells Fargo Securities questioned the drivers behind Casey's strong fuel business performance, which saw growth in both same-store gallons and fuel margins despite a Fikes headwind, contrasting with peers struggling to maintain gross profit dollars. He also asked about the competitive environment.

Answer

CEO Darren Rebelez identified three key drivers: the strong prepared foods offer driving traffic and more 'shots on goal' for fuel, Casey's high value perception among guests (reducing incentive to shop around for fuel price), and the fuel team's consistent execution of a competitive pricing strategy, building guest confidence.

Anthony Bonadio inquired about the drivers behind the strong Q4 fuel margin performance despite the CEFCO headwind, the expected trend for this headwind in fiscal 2026, and the key components building up the annual guidance, including FICS contributions and synergy assumptions.

Answer

President and CEO Darren Rebelez explained that the fuel team managed the volatile pricing environment well and benefited from upstream procurement capabilities. CFO Steve Bramlage added that for fiscal 2026, the FICS acquisition will create an operating expense headwind in H1. He noted that while fuel and overhead synergies are materializing, significant inside-store and kitchen-related synergies are not expected in FY26 due to existing supply contracts and remodeling timelines.

Anthony Bonadio asked about the drivers behind the strong Q4 fuel margin performance, despite the CEFCO headwind, and how that headwind is expected to trend. He also requested a breakdown of the FY26 guidance, focusing on the FICS acquisition's contribution and synergy assumptions.

Answer

President and CEO Darren Rebelez attributed the strong fuel margins to effective price management during wholesale cost volatility and progress in upstream fuel procurement. CFO Steve Bramlage detailed the FICS synergy timeline, noting that while fuel and overhead synergies are materializing, significant inside-store procurement and kitchen-remodel synergies are not expected in FY26 due to an existing supply contract and permitting lead times.

Anthony Bonadio inquired about the early performance of the Fikes acquisition, the integration progress, and the cadence of expected synergies. He also asked about the drivers of strong fuel gallon growth.

Answer

CEO Darren Rebelez reported that Fikes' performance is in line with expectations and the integration is proceeding well. CFO Steve Bramlage reiterated the $45 million synergy target over 3-4 years, with fuel and overhead synergies expected in the first 12 months. CEO Darren Rebelez attributed the strong fuel gallon performance to the ramping up of prior-year acquisitions and renewed strength in the diesel category.

Anthony Bonadio asked if anything had fundamentally changed in the outlook for the core Casey's business given the revised guidance. He also sought clarity on the expected contribution from Fikes synergies in fiscal '25.

Answer

CFO Steve Bramlage confirmed that nothing has fundamentally changed for the core business; in fact, its OpEx growth outlook has improved. He detailed the synergy timeline for Fikes, stating that fuel synergies will be realized quickly, followed by SG&A and procurement savings. The most significant synergies from introducing pizza are longer-term and dependent on the multi-year remodel schedule.

Anthony Bonadio asked about the potential impact of the Department of Labor's new overtime rule and the key drivers behind Casey's strong fuel gallon performance relative to peers.

Answer

CFO Stephen Bramlage stated the overtime rule is expected to have a de minimis impact, around a couple of million dollars annually, as most affected team members are already above the threshold. CEO Darren Rebelez attributed the strong fuel gallon performance to the compelling inside-store offer driving traffic, combined with a consistent and trusted fuel pricing strategy.

Anthony Bonadio from Wells Fargo questioned the competitive landscape for fuel margins, asking if the market remains rational despite soft volumes. He also sought details on trends in the Other Tobacco Products (OTP) category and the potential impact of an FDA crackdown on the illicit market.

Answer

CEO Arie Kotler explained that strong fuel margins are supported by their strategic pricing systems and the industry's need to offset lower volumes. He noted that OTP was a top-performing category in Q2, with sales up 2.6% and margin up 170 bps, driven by the back-bar refresh. Kotler believes an FDA crackdown on illicit products would benefit Arko as they only sell legal products. CFO Rob Giammatteo added that OTP's profit contribution is now nearly equal to cigarettes despite lower sales penetration.

Anthony Bonadio inquired about the drivers behind the strong Q2 fuel margin guidance and the company's approach to the cadence of share buybacks and overall capital allocation.

Answer

Arie Kotler, Chairman, President and CEO, attributed strong fuel margins to market volatility and the industry's need to offset soft in-store sales, a dynamic similar to the COVID period. Rob Giammatteo, EVP and CFO, confirmed margins were strong at $0.46 per gallon in April. Regarding capital allocation, Mr. Kotler confirmed recent share repurchase activity but stated he could not comment on the future cadence of buybacks.

Anthony Bonadio of Wells Fargo inquired about the assumptions behind the constructive 2025 fuel margin guidance, asking to distinguish between company-specific and broader industry trends. He also asked about the drivers for the decline in same-store operating expenses and the potential for further improvement.

Answer

EVP and CFO Rob Giammatteo attributed the fuel margin outlook to ongoing industry dynamics where margin is a lever to offset traffic and cost pressures. He explained the OpEx decline was partly a result of lower sales volume (e.g., credit card fees) but also reflected disciplined cost management. CEO Arie Kotler added that their strategy remains focused on maximizing total fuel contribution dollars.

Anthony Bonadio from Wells Fargo inquired about the potential ramp-up speed for ARKO's new-to-industry (NTI) store growth, how the company weighs the return on capital for NTIs versus acquisitions, and for any high-level thoughts on the business drivers for 2025.

Answer

CEO Arie Kotler stated that after completing the current pipeline of 8 NTIs by the end of 2025, the company intends to ramp up the program. He positioned NTIs and acquisitions as parallel capital allocation strategies, not mutually exclusive. For 2025, CFO Robert Giammatteo pointed to food penetration and margin accretion as key themes, while Kotler highlighted the significant, low-volatility earnings contribution expected from the dealerization initiative, estimated at $15-$20 million annually.

Anthony Bonadio of Wells Fargo questioned the company's confidence in the forecasted acceleration of comparable store sales in the second half of the year and asked for the underlying drivers.

Answer

President and CEO Jason Potter affirmed confidence in the back-half momentum, citing several key initiatives. He noted that work on sharpening Known Value Item (KVI) pricing is largely complete, and improved in-stock levels on top SKUs are already adding 150-200 basis points of comp lift in focused stores. Potter also highlighted the upcoming 'new arrival guide' to enhance IO planning and a new, non-systems-dependent forecasting tool for meat and produce that is driving double-digit sales lifts in test stores.

Anthony Bonadio asked for a high-level overview of the new leadership's strategy and growth philosophy, and how it might differ from historical approaches.

Answer

CEO Jason Potter explained the focus is on execution to create a "loved brand." He outlined four key imperatives: improving new store performance, securing top talent for the strategy, closing execution gaps via systems upgrades, and enhancing execution at scale to transform into a selling-focused organization.

Anthony Bonadio of Wells Fargo sought clarification on the Q4 gross margin underperformance, asking what specifically changed with systems issues since the last call and requesting a quantification of the impact.

Answer

CFO Chris Miller explained that while better value sourcing helped margins, this was more than offset by two key factors. He quantified that issues with egg supply and pricing had a 50 basis point negative impact. He also cited ongoing inventory shrinkage related to systems challenges as the other significant headwind.

Anthony Bonadio asked about the appropriate long-term EBITDA margin profile for the business given recent volatility and requested specifics on which strategic priorities might be scaled back to improve focus.

Answer

Interim CFO Lindsay Gray reiterated that the long-term algorithm targets of 30.5% gross margin and approximately 6% adjusted EBITDA margin remain the goal. Interim President and CEO Eric Lindberg noted that while it's clear the company is 'trying to do too much,' he is not yet ready to specify which initiatives will be deprioritized, as he is still assessing operating plans in his first week.

Anthony Bonadio from Wells Fargo asked about the reasons for the decline in fuel gallon trends during the quarter, the company's market share performance, and why retail margins didn't increase more to offset the volume weakness. He also sought clarification on whether the updated guidance for various metrics results in a net reiteration of the implied EBITDA.

Answer

President, CEO & Director Andrew Clyde explained that while June volumes decelerated, the company was more price-aggressive, which supported demand, and that July volumes have since rebounded to prior-year levels. EVP & CFO Gallagher Jeff added that Murphy USA outpaced OPUS volumes for the quarter. Regarding guidance, Andrew Clyde confirmed they do not provide specific EBITDA guidance but acknowledged the various puts and takes, with strong cost control offsetting some of the pressure from merchandise and volumes.

Anthony Bonadio from Wells Fargo asked about the reasons for worsening fuel gallon trends during the quarter, the corresponding market share performance, and why retail margins didn't increase more to offset the volume weakness. He also sought clarification on whether the net effect of updated guidance components implied a reiteration of the original EBITDA outlook.

Answer

President, CEO & Director, Andrew Clyde, explained that a different same-store base for the April-May update masked the true trend, with June decelerating to down 4%. He noted that retail margins did improve despite more aggressive street pricing and lower credit card fees. EVP & CFO, Gallagher Jeff, added that MUSA outpaced OPUS volumes and July volumes recovered to 100% of prior-year levels. Andrew Clyde clarified they do not provide EBITDA guidance but acknowledged the various offsetting factors impacting profitability.

Anthony Bonadio from Wells Fargo & Company requested a more detailed breakdown of the merchandise contribution guidance, questioning why it wasn't stronger given easier comps and growth initiatives. He also asked about the sharp decline in fuel gallons in late Q4 and the basis for confidence in 2025 gallon growth.

Answer

CEO Andrew Clyde explained the merchandise guidance reflects persistent headwinds at QuickChek and the delayed ramp-up of new stores from 2024. COO Mindy West added that the company is pursuing a store productivity initiative focused on fuel dispenser uptime, which could yield significant savings. Regarding fuel volumes, West attributed the Q4 softness to winter storms, midweek holidays, and low price volatility. She expressed confidence in 2025, citing the strength of new stores and better market execution, noting that February was already showing improvement.

Anthony Bonadio inquired about the successful acceleration of new-to-industry (NTI) store openings beyond initial targets and the key drivers for the projected growth in inside store contribution for Q4.

Answer

CEO Andrew Clyde and CFO Galagher Jeff explained that the NTI acceleration resulted from a more robust real estate pipeline and efficiencies in the permitting process, allowing for a front-loading of 2025 projects. For inside contribution, Andrew Clyde highlighted that Murphy banner stores continue to see strong traffic-driven sales, while new value promotions and the relaunched QuickChek Rewards program are expected to drive a recovery at the QuickChek banner, which has faced QSR competition.

Anthony Bonadio asked for clarification on inside sales trends, the impact of temporal factors like Easter, and for an update on retail fuel margins and the competitive landscape.

Answer

CEO Andrew Clyde explained that non-nicotine categories are performing well due to digital capabilities, while nicotine sales were impacted by a lighter promotional cycle in Q1 that is expected to strengthen. He noted that retail margins remain robust as marginal competitors continue to trade volume for margin to cover their costs, indicating a rational competitive environment.