Casey's General Stores - Earnings Call - Q3 2025
March 12, 2025
Executive Summary
- Q3 FY2025 delivered solid topline and gross profit growth amid integration of Fikes/CEFCO: revenue $3.90B (+17% YoY), EBITDA $242.4M (+11% YoY), diluted EPS $2.33 (flat YoY), with inside margin 40.9% and fuel margin 36.4¢ per gallon.
- Strong operational KPIs: inside same‑store sales +3.7%, grocery margin +40 bps to 34.2%, fuel same‑store gallons +1.8% while total gallons +20.4% on unit growth; fuel gross profit +17.4% YoY despite lower margins, aided by store additions and share gains vs Mid‑Continent (-4%).
- Guidance updated: EBITDA growth raised to approximately 11% and FY2025 PP&E reduced to ~$500M; all other metrics maintained (inside SSS +3–5%, fuel SSS -1% to +1%, OpEx +11–13%, net interest ~$90M, D&A ~$410M, tax 23–25%, ~270 stores).
- Integration headwinds: one‑time Fikes deal/integration costs (~$13M in Q3) and higher interest/depreciation pressured EPS, with management reiterating Q4 dilutive EPS from Fikes due to incremental interest/D&A and added integration spend; fuel and prepared food margins blended down by ~2¢/gal and ~180 bps respectively from Fikes mix.
- Catalyst: the guidance raise on EBITDA and strong store growth trajectory, plus clear synergy roadmap ($45M over 3–4 years, fuel/overhead first, prepared food later) provide medium‑term visibility; near‑term narrative acknowledges Q4 dilution and weather/leap day headwinds.
What Went Well and What Went Wrong
What Went Well
- Inside performance: Total inside sales +15.3% and inside gross profit +14.3% YoY; grocery margin +40 bps to 34.2% with favorable mix and asset protection gains.
- Fuel execution: Same‑store gallons +1.8% vs Mid‑Continent down ~4%, total gallons +20.4% and fuel gross profit +17.4% YoY, showing share gains and scale benefits.
- Operational efficiency: Same‑store OpEx ex‑credit card fees +3.2% with same‑store labor hours reduced for the 11th consecutive quarter; management: “reduced same‑store labor hours for the eleventh consecutive quarter”.
What Went Wrong
- Margin dilution from Fikes: Prepared food margin down ~180 bps, fuel margin down 90 bps YoY, primarily due to Fikes’ lower margin profile and January coffee promotion; one‑time integration costs ~$13M.
- EPS flat YoY: Higher interest from Fikes financing and higher depreciation from operating more stores offset inside/fuel profit gains.
- Q4 caution: Management flagged February weather and leap‑day lap; expects finishing the year at the bottom of the inside SSS range and Fikes dilutive to Q4 EPS (interest/D&A/integration costs).
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the Q3 fiscal year 2025 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.
Brian Johnson (SVP of Investor Relations and Business Development)
Good morning, and thank you for joining us to discuss the results from our Q3 ended January 31, 2025. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President, and Chief Executive Officer, as well as Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to the potential impact of a Fikes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities, and performance at our stores.
There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions, as well as other risks, uncertainties, and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website.
Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as detailed breakdown of the operating expense increase for the Q3, can be found at our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our Q3 results. Darren?
Darren Rebelez (President and CEO)
Thanks, Brian, and good morning, everyone. We're excited to discuss the excellent Q3 results in a moment. Before I do, I want to thank the entire Casey's team for delivering another outstanding quarter. I'd also like to highlight our Feeding America campaign that kicked off in late February in partnership with Celsius. Through April 1, we're excited to be able to help communities in need, including rural areas in Casey's country, combat hunger and food insecurity. Now let's get into the results from the quarter. Diluted EPS finished at $2.33 per share, and net income was $87 million, both flat with the prior year. EBITDA was $242 million, up 11% from the prior year. Inside sales were up over 15%, and fuel gallons sold were up over 20%, while our store count growth was up 10% versus the prior year.
An encouraging sign that the economic impact of the stores we are building and buying is greater than the company average. Inside the store, prepared food innovation was also a key driver of strong performance. With regards to fuel, the team managed to outperform the geographic market and grow same-store gallons with fuel margins over $0.36 per gallon. The business continues to execute on our three-year strategic plan as we are growing the food business, accelerating unit growth, all while operating the stores more efficiently. I'd now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 3.7% for the quarter, or 8% on a two-year stack basis, with an average margin of 40.9%.
Same-store prepared food and dispensed beverage led the way, as sales were up 4.7%, or 12.6% on a two-year stack basis, with an average margin of 57.8%. Hot sandwiches continued their strong performance, up over 50%, and bakery also performed well, up nearly 10%. Margin was down approximately 180 basis points from the prior year, due primarily to the addition of the CEFCO stores that have a lower margin profile, as well as the coffee promotion that featured our new flavor profiles. Same-store grocery and general merchandise sales were up 3.3%, or 6.2% on a two-year stack basis, with an average margin of 34.2%. Non-alcoholic beverages performed well in the quarter, with energy drinks continuing a strong momentum, up approximately 18%. Margin increased approximately 40 basis points from the prior year, primarily due to a favorable product mix shift.
For fuel, same-store gallons sold were up 1.8%, with a fuel margin of 36.4 cents per gallon. OPIS fuel gallons sold data shows the Mid-Continent region down approximately 4% in the quarter, indicating they were taking market share. We believe our high-quality in-store experience drives traffic to our sites and is a significant competitive advantage. Operating expense management remains top of mind, and the Q3 saw an increase of just 3.2% on a same-store excluding credit card fee basis. Our continuous improvement team has identified processes that can be simplified while still serving the guests at a high level. The results are there, as same-store labor hours were down 2%. I'd now like to turn the call back over to Steve to discuss the financial results from the Q3. Steve?
Steve Bramlage (CFO)
Thank you, Darren, and good morning. I'm very proud of the hard work of our team during the quarter as we integrated the largest transaction in the company's history while also producing outstanding results. Total revenue for the quarter was $3.9 billion, an increase of $574 million, or 17.3% from the prior year, due to outstanding results in both inside sales and fuel gallons sold, partially offset by a 4.2% decline in the retail fuel price. Results were also favorably impacted by operating approximately 10% more stores on a year-over-year basis. Total inside sales for the quarter were $1.4 billion, an increase of $185 million, or 15.3% from the prior year. For the quarter, over $100 million of the increase was attributable to the CEFCO stores.
Prepared food and dispensed beverage sales rose by $48 million to $397 million, or an increase of 13.7%, and grocery and general merchandise sales increased by $138 million to $1 billion, an increase of 15.9%. Retail fuel sales were up $315 million in the quarter, driven primarily by a 20.4% increase in fuel gallons sold. The CEFCO stores contributed just over 100 million gallons in the quarter. This was partially offset by a 12 cents decline in the retail price of fuel, from $2.98 per gallon in the prior year to $2.85 per gallon in the Q3. We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $913 million in the quarter, that's an increase of $126 million, or 16% from the prior year.
This is driven by both higher inside gross profit of $71.6 million, or 14.3%, and higher fuel gross profit of $44.8 million, or 17.4%. Inside gross profit margin was 40.9%, that's down 40 basis points from a year ago. Prepared food and dispensed beverage margin was 57.8%, that's down 180 basis points from the prior year. 150 basis points of the decrease was due to the consolidation of lower margin CEFCO stores. The coffee promotion Darren previously mentioned had an impact of approximately 20 basis points. Finally, we also had a very modest headwind on cheese, which was $2.12 per pound for the quarter, and that compares to $2.06 per pound last year, an increase of 3%. The grocery and general merchandise margin was 34.2%. That's an increase of 40 basis points from the prior year.
The increase in margin is due to a favorable product mix shift of approximately 50 basis points, and that was partially offset due to the addition of the CEFCO stores. Fuel margin for the quarter was 36.4 cents per gallon, that's down 0.9 cents per gallon from the prior year, and that's primarily due to the impact of the CEFCO stores, which was nearly 2 cents per gallon. Fuel gross profit includes $2.6 million from the sale of RINs, down $0.8 million from the same quarter and the prior year. Total operating expenses were up 17.8%, or $101.3 million in the quarter. Approximately 14% of the total operating expense increase is due to unit growth, as we operated 254 more stores than in the prior year. Included in this increase was approximately $13 million in one-time deal and integration costs associated with the Fikes transaction.
Same-store employee expense accounted for approximately 1% of the increase, as modest increases in wage rates were partially offset by the reduction in same-store hours. Depreciation in the quarter was $105.2 million, that's up $16.3 million versus the prior year, and that's primarily due to operating more stores. Net interest expense in the quarter was $29.4 million, that's up $15.3 million from the prior year, and this is more reflective of our new quarterly run rate for interest expense in light of the financing associated with the Fikes transaction. The effective tax rate for the quarter was 19.2%, and that compares to 24.1% in the prior year. The decrease was driven by a one-time benefit to state deferred tax liabilities following the Fikes transaction. Net income was flat versus the prior year at $87 million.
EBITDA for the quarter was $242.4 million, compared to $217.6 million a year ago, an increase of 11.4%. Our balance sheet is in excellent condition, and on January 31st, we had total available liquidity of $1.3 billion. The quarter-end leverage ratio of debt to EBITDA was approximately 2.1 times per the covenants and the company's recently amended credit facilities, and we now expect to achieve our target leverage ratio of approximately 2 times by the end of the fiscal year, and that's a bit earlier than we had originally anticipated. For the quarter, net cash generated by operating activities of $205 million, less purchases of property and equipment of $114 million, resulted in the company generating $91 million in free cash flow. This compares to using $27 million in the prior year.
At the March meeting, the board of directors voted to maintain the quarterly dividend at $0.50 per share. We are updating our previously communicated fiscal year 2025 guidance as follows. Casey's now expects EBITDA to increase approximately 11%, and we now expect the purchase of property and equipment to be approximately $500 million. We are not updating any other metrics, but we have some further clarification as follows. First, while we know there is some modeling noise related to the Fikes acquisition in the quarter, the outstanding financial results that we posted demonstrate the team's ability to integrate a large acquisition while still running the business at a very high level. Also, as a reminder, the Q4 will obviously be impacted by the Fikes transaction on our total results, notably on our inside and fuel margins, as well as total operating expenses. They will not impact same-store sales.
Additionally, February 2024 included a leap day, which is not repeating this year. The impact of the leap day to the fiscal 2024 Q4 was a positive approximately 100 basis points. We believe that February has not been reflective of the expected same-store Q4 results due to unfavorable weather conditions and the lapping of leap day, but the company does expect to finish the year at the bottom of the inside same-store sales range. This does imply that the Q4 will be below the annual range. Same-store gallons are still expected to be near the middle of the range for the fiscal year. Fuel margin in February was in the mid-30s on a cents per gallon basis, and that includes Fikes, and cheese costs are very modestly favorable versus the prior year.
Our total Q4 operating expense expectation is a continuing increase, again, primarily due to the Fikes acquisition. In total, as expected, Fikes will be dilutive to our earnings per share in the Q4, primarily due to incremental interest expense, higher depreciation and amortization, and several million additional dollars in anticipated integration costs. I'll now turn the call back over to Darren.
Darren Rebelez (President and CEO)
All right, thanks, Steve. I'd like to again thank the entire Casey's team, including our new team members from Fikes, for another excellent quarter. I'm also very proud of the team's ability to integrate the largest transaction in the company's history while also producing outstanding financial results. The first pillar of our three-year strategic plan is to accelerate the food business. Our prepared food and dispensed beverage team continues to do an excellent job innovating and finding the right quality products to serve to our guests. The hot sandwiches launched last year have continued to perform very well. We also had a limited release of new chicken wings and fries in our Des Moines market, with encouraging results so far. On the grocery and general merchandise side, we continue to see strength in the energy drink category, as we mentioned earlier, with 18% growth in the quarter.
Our store growth pillar was on full display this quarter, integrating the Fikes transaction. Our dedicated integration team has done an excellent job getting our newest team members comfortable operating in the Casey's system. We're able to do this while maintaining a strong balance sheet. As of January 31, we sat at a 2.1 times leverage ratio and are quickly on our way to the targeted 2 times leverage ratio. Given our track record of executing and integrating meaningful acquisitions, we are well-positioned to continue this strategy and enhance shareholder value. Enhancing operational efficiency is the third pillar of the strategic plan. With strong work from our continuous improvement and operations teams, the organization achieved its 11th consecutive quarter of reduced same-store labor hours. This work has been done without compromising the Casey's experience, and we continue to see guests' and team member satisfaction scores rise
Overall, this quarter was another great example of how our differentiated business model, coupled with a great team, leads to outstanding results. With a high level of execution on our strategic plan, we are able to guide to EBITDA growth of approximately 11%, outpacing our standard growth algorithm. We'll now take your questions.
Operator (participant)
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question and one follow-up. One moment for our first question. Our first question will be coming from Jacob Aiken-Phillips of Melius Research. Your line is open, Jacob.
Jacob Aiken-Phillips (VP of Retail Research)
Hi, everyone. First, I want to ask something, I guess, more broad strategic. Both of you joined in 2019, 2020, and you've overseen the company through some volatile times, pandemic, inflation. Now we're up against kind of a volatile policy backdrop, tariffs, maybe some accelerating inflation. Just wondering if you could talk about how Casey's is set up, things that have changed over the past four or five years, and why you're confident that Casey's can operate in this potentially volatile environment.
Darren Rebelez (President and CEO)
Hey, Jacob, this is Darren. Yeah, you're right. I started in the middle of 2019, and then Steve started a year later. Yeah, we've got to see quite a bit over the last few years. I guess what I would tell you is that the company we started in five or six years ago is very different than the company we have today. We've added a lot of different capabilities, whether it's in our procurement function, data and analytics, guest insights, our culinary team, continuous improvement. We just have a whole suite of capabilities that we simply didn't have several years ago.
As I look at this particular environment with some uncertainty and a bit of volatility, I feel far more confident now than I ever was before in our ability to deal with those things just because we have a more tenured team, we have more sophisticated capabilities, we have better technology. I just feel like we're better equipped to deal with whatever comes our way. So far, what we're seeing is a lot of uncertainty, but we haven't seen a lot of concrete impacts to the business either, based on all the noise out there in the world. I feel like we're in a much better position to deal with whatever comes.
Steve Bramlage (CFO)
I would probably add to that, Jacob. You put all of that on top of just the resiliency of our core business model, right? Casey's was successful for a long time before any of the current members of the leadership team got here through all kinds of external environments. The beauty of our business model is we're not dependent on a particular set of exogenous factors going our way, whether it's in petroleum or health of consumer. We've got a differentiated value proposition inside the store when times are tough for a consumer. We've got outstanding fuel capabilities, much more sophisticated than most of the people that we compete against with on a day-to-day basis. The merchandising offering that we have inside the store, we feel is second to none.
Almost irrespective of what's happening outside of our four walls, we feel like we have som thing that differentiates us from anybody else in the space. I guess just as a follow-up, on Fikes, it was known that it was going to be down to the roof to margins. I guess mainly from prepared food, what are the easy things to fix? Is it just a factor of different product mix? What are the timelines to kind of helping those stores improve on their margins?
Darren Rebelez (President and CEO)
Yeah. Nothing's easy to fix. I guess what I would say is, if you look at the prepared food side of their business, that's probably where the most glaring difference in the margin profile between where they are today and where we are. Some of that is due simply to product mix and what they sell. What they sell in their food business is a little more protein-heavy, which tends to come with a little bit lower margin profile, where we sell a lot of pizza, which has a much higher margin profile. Some of the fix, so to speak, will be when we ultimately get kitchens in those stores and we can get our assortment of products in to complement theirs. We'll add pizza to their assortment.
What's really encouraging right now is we've converted three stores pretty quickly that already had kitchens in them, and we've kind of taken a best of both approach to the assortment, where we've kept some of the things that really made them successful. We added some of the things that make us who we are, primarily pizza, and we have the best of both. We have eliminated some of the things that were not as profitable for them. What we're seeing is really good results so far. Granted, it's only three stores. It's early days. We really think that as we get further into it and we're able to optimize that menu between what they did really well and what we do really well, we'll see not only increased margins, but we'll see increased velocities as well.
Of course, over time, as their existing supplier contracts come to an end, we'll be able to migrate them over onto our contracts with far more scale. We'll be able to blend that margin up as well.
Operator (participant)
One moment for our next question. Our next question will be coming from Anthony Bonadio of Wells Fargo. Your line is open, Anthony.
Anthony Bonadio (VP of Equity Research)
Yeah. Hey, good morning, guys. Thanks for taking our question.
Good morning.
Just digging in on Fikes a little bit more, can you just maybe talk a little bit more about early performance from that asset, how the integration's going, and then any change to how you're thinking about the Cadence and magnitude of synergies?
Darren Rebelez (President and CEO)
Yeah. I'll talk a little bit about performance. Thus far, I'll let Steve talk about Cadence of synergies. Performance overall, I mean, we're pretty happy. We're only one quarter into it, right? Unfortunately, that Q1 was in the wintertime, and we got a lot of snow in Texas and in the panhandle of Florida, which does not happen a whole heck of a lot. Probably not as representative of what the normal business performs like. Aside from that, I think it's exactly what we thought we bought. We've got some really high-quality, high-volume stores in attractive geographies. Like I mentioned before, early indications are that when we combine our assortment and doing the things that we each do well, we get some pretty good results. We feel really good about the deal so far. The team seems to be integrating very nicely.
We got a lot of work to do still, but feel good about that so far. Again, the real synergies for us start to happen as we convert stores. Steven, what's your?
Steve Bramlage (CFO)
Yeah. Just to reiterate, our expectations on synergy capture have not changed. Over three to four years, we think we can achieve $45 million of synergies. The 40% of that or so would be the food synergy capture that Darren referenced. That will be on the back end of that three to four-year time period just because that is associated with some construction and remodeling or lead times to get that to work. Certainly, in the first 12 months, you would expect us to capture some fuel pricing synergy where we have taken over the pricing of fuel already and started to convert that more to how Casey's mothership would do that. There will be some overhead synergies, obviously, as we work through the rationalization of some of the processes that Fikes had been doing previously.
In the middle of that, we'll get some merchandise synergies for our center of store mix. Again, most of what will happen in the next 12 months would be on the fuel and the overhead side.
Anthony Bonadio (VP of Equity Research)
Got it. That's really helpful. And then just on the gallon side, you guys put up a really strong fuel gallon quarter. I mean, we've generally seen pretty choppy industry data and results from others. Can you just talk a little bit more about what you think's driving that outperformance? And then just maybe your latest thinking on the right balance between gallon growth and margin as you look to optimize gross profit dollars?
Darren Rebelez (President and CEO)
Yeah, Anthony, I would say that there are two factors that really drove the gallon performance in this quarter. Some of it is some of the acquisition stores that we did in prior years, they're starting to ramp. As we cycle over some softer numbers when we bought those stores, now we're starting to see our fuel capabilities come to bear on those stores, and we're seeing some strong gallon growth in those areas. The other area that we started to see some traction in is on diesel. That's been a subcategory that's been under some pressure for the last several quarters, but started to gain some traction in the most recent quarter, both on the commercial side and through some of the programs that we have to offer incremental value to that over-the-road diesel consumer.
We saw strength in both of those areas, and that really contributed to the overall gallon performance.
Operator (participant)
One moment for our next question. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line's open, Bonnie.
Bonnie Herzog (Equity Research Analyst)
All right. Thank you. Good morning. I wanted to ask about just the fears of recession right now seem to be gaining some momentum recently. Just hoping you could touch on how your business model and value proposition might position you hopefully well in the case of a recessionary environment. Along those lines, have you become more aggressive on your food and beverage promotions recently, given the increased promotional intensity we're seeing at some of the QSRs? Any broader commentary on the consumer, your recessionary playbook, and promotional levels would be helpful. Thanks.
Darren Rebelez (President and CEO)
Okay. Sure, Bonnie. I think that was five questions, but I'll try to tackle them.
Bonnie Herzog (Equity Research Analyst)
Maybe not.
Darren Rebelez (President and CEO)
Going into recessions, if we end up in one, Casey's for a long time has performed very well during recessionary times. I think that's for a couple of reasons. One is that we sell basic daily needs that people need. They're low-dollar denominations. In the grand scheme of things, when people have to pull back on discretionary spending, a lot of what we sell would be considered by our guests to be non-discretionary. Because there tends to be a lower price point, it isn't the first thing to cut on the list because these are daily needs. That being point number one. Point number two is on our food proposition. We are, generally speaking, lower priced than an equivalent QSR alternative. As consumers start to look for value, we're a great trade-down opportunity from a price perspective, but not a trade-down in quality.
I think consumers feel really good about being able to stretch their dollars with us on the food side. With respect to being more promotional, we have not increased our promotional activity. We have been more targeted with that. We have got some new capabilities now where we are able to more efficiently look at different consumers and what their purchasing habits have been. Where we see that they may be lapsed, we can target them with more specific offers. We are not spending more from a promotional standpoint, but we are being far more targeted in how we do that.
Bonnie Herzog (Equity Research Analyst)
All right. Thank you.
Operator (participant)
One moment for our next question. Our next question will be coming from Mike Montani of Evercore ISI. Your line is open, Mike.
Mike Montani (Research Analyst)
Hey, good morning, guys. Thanks for taking the question. Congrats on the quarter.
Darren Rebelez (President and CEO)
Good morning.
Steve Bramlage (CFO)
Morning. Thanks.
Mike Montani (Research Analyst)
Thanks. You said a two-parter here. The first one was just in terms of a high level, maybe if you could talk a little bit about the state of the consumer through your eyes. Secondly, the value gap positioning that you see versus peers, given some of the promotional activity from some of the other dining options that may exist out there.
Darren Rebelez (President and CEO)
Yeah, sure, Mike. From a consumer standpoint, I think similar to others, we've seen a little bit of pressure on the lower-income consumer. What I would say is that consumer, and I'll remind you that we consider a low-income consumer someone who makes less than $50,000 a year. We only have about 25% of our guest base is in that category. We are not overly exposed in the base case. They are still purchasing. We still see positive growth from those consumers. It's just not at the same rate that we see in the other income cohorts. They are still buying, just not as much as some of the other cohorts. Typically, about one to 300 basis points softer. It is more in some of those, I guess, maybe more discretionary items like tobacco and alcohol, where we see a little bit of softness there.
That's really from the consumer side. With respect to value, like I said, I think we're still in a good spot from a value proposition standpoint. When we look at our pizza business, on the one hand, only about half of our stores even have a national brand competitor in their trade area. We do not really have to go head-to-head with somebody that might be a little more promotional in about half of our stores. In the other half, where we do have that national brand competitor, we typically are a dollar or more below on a typical menu price versus those competitors. We already start off at a competitive value relative to them. We do some promotional activity. They do some. We feel like we're always competitive.
Like I said before, we're able to get more specific and targeted with our rewards members and really be more efficient with our promotional spend.
Operator (participant)
One moment for our next question. Our next question will be coming from Bobby Griffin of Raymond James. Your line is open, Bobby.
Bobby Griffin (Managing Director of Consumer Hardline)
Hey, guys. Good morning. Thanks for taking my questions. Congrats on a good quarter. I want to circle back on February and just kind of ask in the sense of, obviously, there's a lot of anxiety on consumer spending from investors and different things like that. When you kind of X out the weather or look in the regions of your business that might not have been impacted quite as much on a year-over-year basis, is there anything you can share to kind of give comfort that this really was a weather impact around February? Any data or anything like that?
Darren Rebelez (President and CEO)
Yeah, Bobby. I don't have specific numbers to share with you on that other than to say February was a tough weather month. I can tell you when the temperature difference is 50 or 60 degrees colder than the prior year, I mean, you see it in the numbers. What gives me confidence about this, Bobby, is that when the weather starts to normalize, when it even gets back to parity, it doesn't have to be good weather. It just has to be comparable weather, we see the business respond accordingly, and we see the growth again. If I wasn't seeing that, I would have other concerns. It has strictly been tied to those weather events where we have an unusual amount of snow where we've had to shut down some stores or just, like I mentioned before, those extreme temperature variations.
I don't have any concern that there's a more fundamental issue with the consumer because they bounce back as soon as the weather clears up.
Bobby Griffin (Managing Director of Consumer Hardline)
Very helpful. Maybe just on the coffee promotion as well as the wing test, just anything more you can share on that? In particular, how they went is something I know coffee has been a category you guys have talked about maybe being able to do a little better in and kind of push in. Is that something that was successful and that might continue going forward?
Darren Rebelez (President and CEO)
Yeah. On the coffee side, it's still a little bit early, but we did see some good results. We saw a shift to having positive unit growth in that category for the first time in years. Really, that was assortment-driven. We've got a new supplier, a little more sophisticated on the quality of the product. We did a lot of development and testing on that one. We think we've got the assortment right. Coffee is a tough habit to get people to change. We got probably a little more aggressive on the promotional side than we normally would. Give away about million cups of coffee in January, and hence the impact to the margin a little bit on prepared foods. Overall, we're playing the long game here with coffee.
We like the results so far, but it's going to work over a pretty protracted period of time to really gain traction in that business. On the wing side, again, early days, we just did a soft launch in the Des Moines market in January and then started to advertise in February. We're very pleased with the results so far. Really high satisfaction scores from the guests. We feel confident that we've got the product right. We're still working through some operational kinks, as you would expect when you test things, but feel really good about this. What we're seeing so far is that this isn't really cannibalizing the pizza business. This is actually contributing an incremental, call it an incremental night per week or an incremental visit from our guests, which is exactly what the goal was. So far, so good.
Again, more work to do, but feel good about it in the early stages.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from Krisztina Katai of Deutsche Bank. Krisztina, your line is open.
Krisztina Katai (Equity Research)
Hi. Good morning. Congrats on a nice quarter. I had a question.
Darren Rebelez (President and CEO)
Morning.
Steve Bramlage (CFO)
Morning.
Krisztina Katai (Equity Research)
Good morning. Question on prepared foods there. You noted that innovation is driving the results there. I was wondering if you can help contextualize for us how innovation is indeed driving that market share as it relates to bakery, hot sandwiches, etc. Where do you see the greatest untapped opportunity, whether that is a broader wings rollout? We understand February has unique noise, but it sounds like March has bounced back. Is that a fair take? Thank you.
Darren Rebelez (President and CEO)
Yeah. Krisztina, the innovation really has been the bigger driver of our growth versus the promotional activity. We do both, but whenever we get that innovation right, that's when we really see the outsized growth. You mentioned it in the hot sandwiches. We launched that platform a year ago, and we're cycling over it with still double-digit increases in it. It really goes to show when you get the level of the quality right and with some unique twist to it, we start to see some growth. In our specialty pizza business, this last quarter, we had the Italian deli pizza, and we saw really strong growth in that specialty pizza subcategory overall. That's always been the case for us. When we innovate, we win. On the bakery side, we've had real strength in the dessert subcategory, primarily cookies.
The bakery team has done a great job in terms of innovating and coming up with limited-time unique cookie SKUs that really resonate with our guests. That innovation has really taken hold. I'm sorry. You had asked another part of that question.
Krisztina Katai (Equity Research)
Yeah. It sounds like you said that as the weather essentially turned, it started to bounce back. Is there a fair take to say that March is seeing sort of normalized level of inside comp growth?
Darren Rebelez (President and CEO)
I'd say March is seeing that level of growth when the weather cooperates. Probably the first week of March didn't look a heck of a lot different than the last couple of weeks or two of February. We're starting to see that weather turn around. Like I mentioned, when the weather turns, the sales turn around with it. We still have a little bit of room to go in the Q4. If we can get back to normal weather comps, I'm confident that the sales performance will follow.
Operator (participant)
One moment for our next question. Our next question will be coming from Kelly Bania of BMO Capital Markets. Kelly, your line is open.
Kelly Bania (Equity Research Analyst)
Good morning. Thanks for taking our questions. Wanted to just circle back on Fikes. You gave several of the figures. Just curious how much EBITDA the acquisition of Fikes added to the quarter and how much it's contributing to the 11% EBITDA growth forecast for the year. If anything has changed on that front, whether it's the performance of the business or just the timing of integration activities, just an update on that.
Steve Bramlage (CFO)
Yeah. Hey, good morning. Kelly, this is Steve. In the quarter of Fikes, it was EBITDA dilutive to us. It was a negative number, and that was primarily because of the $13 million of integration-related expenses. Prior to those costs, it was positive EBITDA, but it was net negative when you added in all of the integration and one-time costs. It will be modestly positive EBITDA in the Q4. Again, that's going to be influenced. We'll still have a couple million dollars of integration-related costs for sure. Some of it's sliding out from the third into the fourth. Some of it's just normal course spending. It will become EBITDA positive as we expected it to be in the Q4, but it'll still be a relatively small number.
Fikes, per se, is not a large contributor at all in the second half of the year to us increasing the total EBITDA expectation. That's a mothership phenomenon.
Kelly Bania (Equity Research Analyst)
Okay. That's very helpful. On fuel, you talked a little bit about the factors driving the strong same-store gallons. I was just wondering if you can talk about how Casey's markets, kind of legacy markets, performed from a fuel margin standpoint because we were expecting maybe a little bit of dilution from the Fikes CPG margins just given their regions and where they operate. Just kind of curious what more of a same-store Casey's fuel margin looks like and what your take on the performance of fuel margins is today and when we could maybe start to see those up year over year.
Steve Bramlage (CFO)
Yeah. Maybe, Darren, I'll tag team that one. I'll just start with clarifying on the margin standpoint. The company produced almost 36.5 cents CPG. That's a consolidated number. Mothership Casey's would have been almost 2 cents higher than that, so call it a little over 38 cents. The Fikes geography, as you hinted at, lends that number down by almost 2 cents a share. I'll let Darren talk about some of that volume stuff.
Darren Rebelez (President and CEO)
Yeah. On the volume side, the number that we gave, the 1.8%, that's a same-store number. That would exclude Fikes because they're obviously not in our same-store panel yet. That really is the performance of the base business. Again, the factors driving that, we're cycling over some acquisition activity from the prior year in addition to seeing some recovery in the diesel business.
Operator (participant)
One moment for our next question. Next question comes from Chuck Cerankosky of Northcoast Research. Your line's open to Chuck.
Chuck Cerankosky (Managing Director and Research Analyst)
Good morning, all. Great quarter. Looking at the wings business, is that at the stage you talked about launching it in Des Moines, I think that was where you said. Is it at the decision point where it will become an offering throughout the Casey's footprint?
Darren Rebelez (President and CEO)
Yeah. Chuck, we're still early stages there. The team is assessing it. We're still making some tweaks and adjustments. We feel good about what we see so far, but we haven't made that final decision just yet on that platform.
Chuck Cerankosky (Managing Director and Research Analyst)
Do you have any additional cities where it will be tested?
Darren Rebelez (President and CEO)
We don't have any more at this time. The test in the Des Moines area, it's the broader DMA. It is about 225 stores. It is a pretty fulsome test, both in the metro area and in some of the surrounding smaller towns. We are getting a good look at how this performs both in an urban environment and in very much a rural environment. More to come on that one, Chuck.
Operator (participant)
Thank you. Our next question will be coming from John Royall of JPMorgan. John, your line is open.
John Royall (Executive Director)
Hi. Good morning. Thanks for taking my question. My first question is a strategic question. Appreciating that you're very early days in the Fikes acquisition and the integration will take some time. As you think through your next legs of growth longer term, you do have this white space in Texas where you're essentially a new entrant. Is it safe to assume that that's your best opportunity to grow from here? If so, how should we think about NTIs versus acquisitions as it pertains to that opportunity?
Darren Rebelez (President and CEO)
Yeah, John. Certainly, we have a lot of room to grow in Texas. We now have 170 stores there between the 150 there in Fikes and then the 22 we bought last year from Lone Star. We have tremendous space there. If I take a step back with our 2,900 stores now, roughly 2,000 of those stores are in only six states we operate in. We still have a lot of white space on the eastern edge of our footprint. Michigan, we have three stores open; Ohio, Kentucky, Tennessee. We're just barely getting started. Yes, Texas certainly does present a great opportunity for much more growth. We also have that same type of opportunity in the number of states we operate in. I guess that would be point number one.
Number two, we approach every fiscal year kind of going in with the assumption that our growth target is going to be half from NTI and half from acquisition, being the small deal M&A type of stuff. Now, over the last couple of years, as deal flow has evolved, it's skewed much heavier on the acquisition side versus the NTI side. We continue to go out and find real estate and land bank those sites so that if the deal flow starts to slow a little bit on the M&A side, we have the pipeline to support it from an NTI standpoint and continue on our growth algorithm. That's really how we approach it. We don't have a bias one way or the other. We just approach it as a balance.
As things evolve, we shift and adjust to make sure we can keep that ratable growth that people are looking for.
John Royall (Executive Director)
Very helpful. Thank you. Just a quick follow-up on labor hours. Can you talk about how much runway you think there is to continue to take out same-store labor hours and just what ending you think you're in in terms of getting those hours down to where you'd like to operate them?
Darren Rebelez (President and CEO)
Yeah. When we started a couple of years ago almost, when we started this current three-year plan, we had committed to take 1% of same-store labor hours per year over the three-year period. We're, call it, two-thirds of the way, roughly, through that process. Now, frankly, we're a little bit ahead of schedule too. We've taken out more than that. We still have some runway for the next fiscal year. We haven't really guided to anything specific on that yet. We'll do that in the next quarter. Yeah, we still think there's some opportunity there, at least for the balance of this three-year strategic plan that we're in right now.
Operator (participant)
Thank you. Our next question will be coming from Chuck Grom of Gordon Haskett. Your line is open, Chuck.
Chuck Grom (Senior Analyst on Retail)
Hey, good morning. Thanks very much. On the 2-cent drag on the cents per gallon from Fikes, should we think about that wrapping over the next three quarters, or was there something seasonal about this quarter that distorted it? On the prepared foods, 150 basis points of a drag, I guess a similar question. How do we think about that wrapping over the next few quarters? In other words, I guess at what point do you think you can narrow it down so it's de minimis?
Steve Bramlage (CFO)
Yeah. Hey, good morning, Chuck. This is Steve. I'll start with that. On the CPG, somewhere around 2 cents is probably a good number for the assumption in terms of whatever you had modeled for a traditional Casey's geography. The states that Fikes is active in generally blends in at about 2 cents down. We've only owned it for one quarter, so I want to be a little careful on the seasonality aspect of it. I mean, generally speaking, the Fikes units are larger volume units than an average kind of Casey's in the mothership. They pump more gallons, literally. I don't have any reason not to tell you 2 cents is a pretty good number on a prospective basis. Some of our synergies that we expect to capture in that $45 million number will be fuel-related synergies.
Can we chip away at that delta ove time? Yeah, I think we can, but we're not going to gain enough synergies to somehow right-size those geographies back to what our average is. That's not what we're trying to do. On the prepared food side, that's going to be something we do over time. Expect to bring the Fikes stores, the 85% of the Fikes stores that will be converted to a Casey's, to a Casey's-like prepared food margin profile. That will be dependent on the construction timeline where we get new kitchens in. Back to an earlier question, it's not going to happen in the next 12 months because of the permitting timeline required. That will be more in kind of year three and year four.
Ultimately, there's no reason for us not to assume that the Fikes stores will come in line with the prepared food margins of the existing Casey's business.
Chuck Grom (Senior Analyst on Retail)
Okay. Great. Thanks, Steve. My follow-up just on the macro question there, everybody seems to be focused on, I guess a different angle would be when you dissect your basket, are you seeing trade down, more people buying fountain drinks? Is there anything to unpack over the past four to six weeks given the environment? Thanks.
Darren Rebelez (President and CEO)
Yeah. We have seen some strength in fountain drinks. I will say that. But it's across the spectrum of income cohorts. I can't necessarily tell you that it's a lower-income consumer indexing higher on that. Actually, it's the higher-income consumers are actually growing the fastest on our dispensed beverages. I'm not sure if I can draw any conclusions from that other than they're liking our fountain business. We have seen and continue to see some shifting around the store with candy prices being very high and our bakery program being really robust and some good innovation there. We are seeing people switch over from the candy category into the bakery category, which is a little more affordable and still allows people to get that sweet indulgence that they're looking for. We like that trade from a margin standpoint, so we'll take that all day long.
That's a good one for us. Generally speaking, that's kind of what we're seeing. There's a lot of other mixed shifts going on that I don't think have really anything to do with the consumer from a pressure standpoint. You see this in our grocery and general merchandise margin and how that's been able to grow. The cigarette category, combustible cigarettes, is under a lot of pressure. That subcategory has been declining. At the same time, nicotine alternatives have been growing at a really fast rate. In the last quarter, our nicotine alternatives were up 74%, while the combustible cigarettes were down right around 4%. That margin trade is a much better trade for us. That blends that margin up.
At the same time, the overall category is less of the overall grocery general merchandise mix, and more of that is going to non-alcoholic beverages and grocery, which carries about double the margin rate that the tobacco category does. You see those shifts going on. That is what is allowing us to blend that margin rate up overall in grocery and general merchandise.
Operator (participant)
We do have a follow-up question from Mike Montani of Evercore ISI. Mike, your line is open.
Mike Montani (Research Analyst)
Hey, thanks for letting me squeeze this in. Just wanted to ask on the private label front if you could talk about any of the tiering initiatives, how that's going. Then secondly, there's got to be a lot of pressure out there on the independents. Is there additional opportunities for acquisitions, especially in light of the ability to deleverage you've shown so far?
Darren Rebelez (President and CEO)
Yeah, Mike, we are starting to make progress on that tiering. We are literally, as we speak, just getting some of those new products into the stores. We will see that gradually bleed into the assortment over the next, call it, 9-12 months as we wind down some inventories on existing products and ramp up some of the production on the new products. We like what we have seen so far, but it is only a handful of SKUs, to be honest. We have a lot more coming over the next several quarters. I am sorry. Yeah, the M&A environment. Yeah. Look, I think you see the same industry data that we do. I think the smaller independent operators are under a lot of pressure right now. Those are the conversations that we continue to have that is impacting also some of the larger-scale players.
We're optimistic that the environment will continue to be favorable to buyers like us. We're seeing some pretty good deal flow, especially on the smaller stuff. The bigger opportunities are a little more lumpy, but whenever something comes to market, we're actively engaged in it. We like the hand we're holding right now. The balance sheet is in great shape. The team is very experienced at integrating these things. It's really about finding the right opportunities and at the right price for us.
Operator (participant)
I would now like to turn the call back to Darren Rebelez for closing remarks.
Darren Rebelez (President and CEO)
All right. Thank you for taking the time to join us on the call today. Hope everyone has a great day.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.