Casey's General Stores, Inc. (CASY) Earnings Call Transcript & Summary

Okay. Thanks, everybody, for joining us this afternoon. We'll go ahead and get things started. I'm Ben Bienvenu, I cover the grocery and convenience store industry here at Stephens. I'm glad to be participating in ICR's 23rd Annual Conference, and Casey's is here with us today to talk about their business. As one of the largest convenience store chains in the U.S., many of you will know Casey's business well. And I'm thrilled to introduce from the company, Darren Rebelez, Chief Executive Officer; Steve Bramlage, Chief Financial Officer; and Brian Johnson, SVP of Investor Relations and Business Development. This will be a fireside chat format and I'll be leading the Q&A session today. But to listeners, feel free to submit questions, and I can ask them on your behalf to the team. Darren, Steve, Brian, thanks so much for being here today.

Yes. Thanks a lot, Ben, and I appreciate everybody participating this afternoon.

I think maybe to get things started, if I think back to around this time last year at your Investor Day, you provided an overview of your plans that you laid out to deliver sustainable EBITDA growth in the top quintile of retailer peers. And you set out to do so through a combination of operational and strategic enhancements to the business. Could you give listeners a little bit of a summary of what you presented? And I'd love to ask, a year later and an unusual year at that, to say the least, is there anything about that plan that you think changes? Or does that plan still largely look the same?

Yes. Sure, Ben. Thanks for that question. And yes, it's really kind of incredible to think that it was almost a year ago exactly that we were in New York on our Investor Day and little did anybody know that 6 weeks later, we were going to be beginning the lockdown process and COVID and a whole new world order, so to speak. But yes, in terms of what we presented on Investor Day, what we -- very broadly speaking, what we outlined is that we we're targeting to grow the business from an EBITDA perspective in the top quintile of all S&P 500 retailers, which would be at around an 8% to 10% CAGR. And we are going to do that through 3 strategic pillars: one was really reinventing the guest experience, and I'll talk about that in a minute. The second thing was creating investment capacity through generating operational efficiencies. The third pillar was to accelerate our unit development, both through organic growth and acquisition. And all of that would be underpinned by an investment in our talent and our people. And so as I look back on that, I'm really pleased with the progress we've made on all of those fronts. If you -- certainly, from an EBITDA growth perspective, we've had fantastic results so far through this year and on track to continue that pace. When we look at the guest experience, we've launched a number of things that we had outlined on that Investor Day. We launched our rewards program, which a year ago at this time was literally just getting started. Today, we have over 3.1 million rewards members. We've enhanced our digital experience. Everything from launching our DoorDash platform, which we have over 600 stores on now, that was in a test when we first talked about it. We've launched curbside pickup at all of our stores now. That was an initiative that wasn't really on the near-term road map for digital, but given the pandemic, our digital team was able to quickly pivot and accelerate progress on that front. More recently, we've rolled out our private brands products. And we just announced this week, we've introduced over 100 new items. And I'm happy to say that when we set out the beginning of this year, we were targeting to get our private brand mix up from 1% of our total sales to 2%, and at this point, very early on, we're almost at 3% of our total mix. So that's gone extremely well. And if I shift over to the efficiencies pillar, we made a lot of progress there. We've stood up our internal procurement, centralized procurement function, which we did not have in the company before. We're in the process of standing up our asset protection function that we did not have before, and we've had some quick wins there, but a lot of work to do and -- but making great progress there. And then on the last front, we continue to accelerate our store growth, although with COVID, we've been a little bit slower out of the gate on the organic growth, primarily due to slower approvals with different municipalities going through the permitting process. The flip side of that coin is that we announced the acquisition of Buchanan Energy. And so that helps pull forward some of that acquisition growth. And then perhaps the thing I'm most proud of is the progress we've made with our people. We've expanded the -- extended leadership team. We brought on some new talent as we've had some folks retire from the organization. We've also been able to diversify the leadership team to the extent that about 50% of our leadership team now is either a woman or a person of color. So we've really made a lot of progress on bringing in great talent, more diverse talent. And now [ we've got ] a really good mix of about half the team being brought in from the outside and about half of the team being folks that have been around Casey's for a while. So now we have this really nice blend of fresh and new thinking and different experiences alongside a lot of institutional knowledge of what has made Casey's successful. So Ben, to your point, while this has been an unusual year to say the least, I'm really happy with the progress the entire team has made to deliver on what we said we're going to deliver and produce some really strong results.

That's great. That's really helpful context, I think, for the discussion today. And I know there are a number of questions that I want to address across various topics, some of which you hit on there. Before I do though, you put out a business update yesterday ahead of this event. Would you maybe talk a little bit about that for listeners either who didn't see it or that may have seen it and are kind of wondering to hear your thoughts about it?

Yes. Sure. We thought it was appropriate coming into this conference that we sent out a bit of a business update. And largely, the results are in line or comparable to what we had shared with everyone at our December earnings call, particularly from a comp sales standpoint. Our fuel gallons are performing about in line with where we had said before. Margin and -- fuel margin is a little bit better. Sales inside the store from a prepared food and fountain standpoint as well as grocery and other merchandise, about the same. Operating expense is running higher. And as we said, we were about 10% year-over-year operating expense growth in the second quarter. We said we'd be a bit higher than that in the third quarter, largely driven by the things we're doing to keep our teams and our guests and our communities safe from a COVID standpoint. We -- as we discussed in the call, we were -- the Midwest, in its entirety, was experiencing an influx in COVID cases. And when that happens for us, we take a number of actions. We pay our team members who are in quarantine. We pay our team members who are sick. We get the stores deep-cleaned, and so that has incremental costs. We've enhanced our PPE equipment. One example is early on the pandemic, we put in plexiglass shields to keep our team members safe. But those were very temporary in nature. And now we've gone back and put in more in what I'll call semi-permanent fixtures. They are more protective. We've given appreciation pay throughout and enhanced that here most recently in January and gave holiday pay in December. So all in, we've had a number of incremental expenses that we've incurred as a result of COVID-19 and so that's obviously going to have some impact on the results in Q3. But I think it's the right thing to do to protect our people and to protect our guests and our communities. And so we've made that investment, but we still feel very positively about the trajectory of the business overall, given the circumstances.

Yes. Maybe the -- Ben, this is Steve. Maybe the last piece of that business update, just related to the Buchanan Energy announcement, which we remain very confident that, that deal is going to be quite positive for us strategically, financially. We're basically ready to go as it relates to closing the transaction. But for -- we do need to work through the formal clearance process with the FTC. They asked for a little more information from us over the holidays around a couple of sites. And so we'll play that out and then make sure we provide them what they need. And as soon as that process is finished, we'll be -- we'll be ready to close the transaction.

All right. Understood. There are a lot of various components of the plan that you laid out last year. One of them was menu innovation. And I'm curious to hear your thinking about menu innovation in response to what we've seen with COVID. Has that changed your thinking around what types of products you could launch that changed? I know that was -- that was not going to be one of the initial forays for the plan that you laid out, but does it change the time line at all of you implementing some of those changes? Maybe help us understand how you react on that front relative to the COVID environment?

Yes. Ben, I guess I'd probably step back from COVID for a minute because I think COVID is a moment in time. And I think people's shopping habits may alter a bit, but I don't know that their consumption patterns will necessarily change. And so when we think about innovation, we're really looking more broadly and a little bit longer term. And I know when we talked about this in Investor Day, really, the -- to do a proper menu innovation or product innovation pipeline, to do it right, it really is about an 18-month process from ideation to commercialization. And so we were just getting that process started. So we have some products that are well on their way, and we're still working on those. And I'd say, in the next 6 months, you'll start to see some of the results of that menu innovation. I don't want to get in to any specific items for competitive reasons. But suffice it to say, the pipeline is starting to fill. And we're taking a more robust approach to that. One of the capabilities that we stood up recently is a more robust consumer insights group. And so now as opposed to just trying out some items and putting them out in the world and see what sticks, we're really applying a lot more rigor to that process and getting real consumer insights upfront so that we can adjust those products or eliminate them from the queue so that we don't have as many misses. But I feel really good about where we are in the process. Like I said, I think it's going to take a few more months before we start to see some of the new innovation but very bullish on where we're heading in the future with that.

Okay. You touched on the loyalty and rewards program that you launched last year and a ton of progress, as you noted, with the engagement from your customer base, but it's still fairly early days. So I'm curious, what are you learning early days on this front that you think would make you excited about this capability and to portend future growth for those -- the categories you participate in?

Yes. We -- like I said before, we were just getting started about a year ago. We're up over 3.1 million rewards members right now. And so it's really exceeded our expectations in terms of an enrollment standpoint. From an engagement standpoint, we really see some stickiness there, and our rewards members are leveraging the platform a lot more, and it's really given us a lot of great capabilities. One of those is within the tobacco categories in cigarettes, in particular, where we're able to leverage manufacturer discounts that can only be done through an age-verified rewards program. Those were not available to us a little over a year ago because we didn't have this platform. Now we do, and we're seeing some of the benefits of that. We're also getting better inside that rewards program of creating curated experiences for our guests so that they can better leverage the platform to meet their specific needs. So we have -- whether it's different clubs they can participate in or different offers, we're able to tailor that to those specific guests so that -- so it's more effective for us and more relevant for them. And it's also allowed us to dial in our promotional activity, where we're able to not just promote to the universe of potential guests but be more aggressive on certain offers with our rewards members. So the investment is lower, the hit rate is higher, and that's probably reflecting itself most prominently in our whole pizza business, where we really accelerated that growth, and we've seen growth in the mid-teens from a units perspective year-over-year, and that momentum continues.

I want to shift gears a little bit and ask some bigger picture industry questions. And the first one is theoretical, but I think we'd all benefit from hearing your [ pertinent ] thoughts on it. Fuel margins have been interesting for the last year. They're always volatile, but they've been particularly interesting over the last year. And I want to hear your thoughts on how you think industry structure impacts fuel margins over the near to intermediate term. And also, do you think once -- or if we see fuel demand return to normal, will we see fuel margins return to pre-COVID levels?

Yes. This is always an interesting question. And I've generally tried to make it my habit not to get into the fuel margin prediction business because that's a dangerous business to be in. But generally speaking, I think when you talk about industry structure, I think there's a couple of ways of looking at that. There's the underlying economics and cost structure of the business is one driver. And then really, the composition of the industry itself in terms of the size of the operators in the business. So I'll talk about the cost structure first. If you were to go back a number of years, you'll see a trend of increasing fuel margins pretty ratably over the last 5 to 10 years. And I think a lot of that is a reflection of the underlying cost pressures that the industry is under. And with the new administration coming in, that's not likely to get any better, I think. Minimum wage increases are going to continue. Regulatory pressures are going to continue. EMV is a pretty significant incremental cost to the industry. And so you'll see those underlying cost structures putting pressure on margins. And so there will be some natural expansion of margins to compensate for those underlying cost pressures. I think that gets exacerbated a little bit by the composition of the industry itself in terms of larger players versus smaller. And when you look at that, about 2/3 of the industry is still comprised of operators of 10 stores or less. So if you look at the smaller operator, having to deal with those underlying cost pressures, they typically don't have a rewards program. They don't have a food program. They don't have purchasing scale. They don't have procurement sophistication. So they have no choice but to raise retail prices and fuel to help offset that. Now as consolidation continues, I think there's some offsetting pressure to that because you have larger competitors who have the ability to capture share with perhaps a little bit lower margin. So I think all that being said, what I would expect is that margins when we come out of COVID will probably settle out somewhere higher than they were pre-COVID but probably not at the level that we're experiencing now.

On the same line, an active year for the industry in M&A. It's a -- this is an industry that's seen years of consolidation. As it relates both to fuel margins and just industry competitiveness, what do you think consolidation means generally for the industry and for you specifically?

Yes. I think consolidation is going to continue. I think it's going to be interesting to see how it evolves. As you're seeing right now, these -- some of these larger deals that are taking place are at really rich multiples. And so that's something that we have specifically are trying to avoid and have avoided pretty successfully is overpaying, what I would call overpaying for some of these deals. But at the larger scale, it becomes an interesting dynamic for some of the larger players to do M&A that's actually meaningful because they have become so big that they have to almost do a bigger deal just to make it make sense or to move the needle from a growth standpoint. So I'm not sure if the activity at that end of the spectrum is going to continue. What we said in our Investor Day was that we were going to focus more on the smaller acquisitions because we can get those at more attractive multiples and we bring more synergies to the table as a result of those. The Buchanan deal was a larger one for us admittedly. But we also said we were going to stay open to those larger deals and as long as we could get them at attractive multiples and bring the appropriate synergies. And this one, in particular, met all of that criteria. And so we went ahead and moved forward with that transaction. But I think the industry will continue to consolidate. It's going to have to because the smaller players are -- just aren't going to be able to stay resilient enough to compete. And that presents tremendous opportunity for us, particularly with our type of more rural and small market footprint to be able to roll those types of operators up and bring immediate accretion to our financials.

We talked about fuel margins from a macro or industry perspective, but you've made a lot of progress on expanding your fuel margins over the last few years. Specific actions you've taken, where are you on the path today? How much of what is left is related to pricing optimization? How much is -- of what's left is related to procurement? And is -- if you had to characterize things, is the last bit of optimization harder than what you've already done? Or how should we be thinking about that?

Yes. I'll take that in 2 pieces. I'll talk about price optimization first. And we're kind of wrapping up our work on that. And remember, price optimization is about balancing the volume and margin equation. It's not an either/or. And I get asked a lot, does price optimization mean you're just raising prices? Well, no, obviously not. It's a balance of getting the right level of volume at the right margin. And I think what you've seen over the last several quarters, if you were to compare that to some of the Opus data or some of our other public company competitors, you'd see that we've outperformed from a comp volume standpoint, comp gallon standpoint, and we've also outperformed from a margin standpoint. So -- so from my perspective, I feel like we've got the pricing optimization pretty well dialed in. On the procurement side, we've made a lot of progress. We -- I think on the Q2 earnings call, we were just a little bit north of 65% of our volume under contract, and we're getting very close to that 75% target that we had started off with. And so we're getting incremental benefit there. But that's still early stages. And really, what we've done so far on the procurement side is termed up our supply agreements with some of the major suppliers. The next step of that is getting more optimized in terms of how we get that product to market. So buying at the refinery and shipping up pipelines, taking on terminal space, optimizing our routing for our trucks so that we're more efficient there, taking advantage of arbitrage opportunities, both locally and between different pads. So we've got quite a bit of work to do. It's going to be a couple more years in the making, but we still feel like we've got a lot of opportunity on the fuel procurement side of the ledger.

All right. I want to pivot a little bit to inside the store sales and in particular, the pizza category, which is -- it's a great category to be in. It's -- you all have done amazingly well with it for a long time. In the midst of COVID, other industry pizza sales have fared very well. I wonder, as a result of that, as we cycle out of COVID, hopefully, later this year, and people maybe have grown tired of eating so much pizza, I don't even know if it's possible to get tired of eating pizza, but indulge me here. Would you expect the industry to respond to that by getting very promotional to try to drive incremental sales? And if that is the case, how do you think about how you want to be positioned around the potential competitive backdrop that we can see [ in this ] environment?

Yes. Well, I think the first point on that one, Ben, is that I don't think getting tired of pizza is a thing. So I feel fairly confident pizza is going to survive this whole thing. But yes, we've really had some great success with our whole pizza business. And you know what, what really makes me optimistic is we've always felt and believed that we have a high, high-quality product. And it starts with made-from-scratch crust that literally nobody does in -- of any kind of scale, 100% whole milk, mozzarella cheese, so quality ingredients, made from scratch. So we have a high-quality product. We just need more people to try it. And I think as more people try it, they really realize the quality difference. And so the pandemic, in some ways, has been helpful for us. And that take-home business has really boomed. It's been helped by our digital platform, for sure. But we also had a little bit of help from the environment. And so we think that now that we've been able to sustain this for a pretty long time that people are going to continue to order our pizza because it is a high-quality product. And we've been able to sharpen our price points a bit and be more targeted in our promotional activity. So I think we are now more competitive from a price point perspective than we might have been historically. So we've been able to balance those two. Now when things go back to "normal", will it get more promotional? I don't know. I think we'll just have to see. Again, I don't think people are going to stop eating pizza just because they're able to get out and about again. I'd imagine with more restaurants open, we'll probably get back to sharing more of those occasions, but that's where we'll have to be better around innovation and everything else we've talked about. But I -- but I think there's a potential for that promotional activity. But again, with our rewards program, it allows us to dial that in and be very targeted, so we don't have to get overly aggressive to a mass of people to stay competitive.

Yes. Understood. If we think about the prepared food category for you guys, what does it take for those sales to reaccelerate? Is it just a broadly available vaccine and that was kind of settling back into historical habits, commuting traffic? Maybe help us understand the components of what we need to see to see that business normalize.

Yes. Well, I think it's probably a little bit of all of those things that will certainly help. And through the pandemic, we have gradually started to chip away at that deficit on prepared foods. And it appears to me from the industry data that I can gather that we're performing better than the rest of the industry with respect to this, but it's still negative. And so we're certainly not satisfied with that, but we're -- we've been making gradual progress at getting closer to flat. What I think is going to make the change is certainly, restoring more typical commuting patterns will help. Our morning daypart has been the largest one impacted from a prepared food standpoint. Our coffee business has been hurt. Our bakery business has been hurt. So that normal routine guests that would come in 3, 4, 5 times a week for coffee and donuts or a breakfast slice of pizza and coffee may not be coming at all or maybe coming once or twice a week. So we think, certainly, that component will help. The vaccine, being more widely distributed to where we get towards that herd immunity, I think there has been a reluctance of some guests to just -- to get dispensed beverages in general. And we've seen a bit of a shift from dispensed drinks on the fountain in particular, migrating over to the cold vault in bottle and can. About 240 basis point swing of our dispensed beverages has been shifted over to the cold vault. So that's a little bit of geography, but it does impact the prepared food numbers. So I think once we get to a little bit closer to herd immunity, get a little bit closer back to our historical commuting patterns, that's when you really start to see the prepared foods accelerate.

Yes. Okay. In the quarter-to-date business update that you offered, I think one of the negative variances or surprises in the release was the operating expenses. You had other positive variances in there as well. I think we're better than people expected. In the second quarter, Darren, you and Steve gave really good color around the components of operating expenses, and I think you helped calibrate everybody's expectations around [ going ] through the rest of this. It looks like COVID expenses still are elevated. How should we be thinking about just generally your paradigm for how you want to manage operating expenses? And then to the extent you can address it, just of these incremental expenses, how much go away versus how much stay?

Yes, Ben. This is Steve. I'll start on that. I mean, at the highest level, if you go back to how does our math work for the whole company over the next couple of years, if we're going to be successful on the Investor Day commitments, we talked about growing total operating expense at a slower clip than EBITDA growth, right? And so we're targeting an 8% to 10% EBITDA growth. We're going to obviously try to manage total operating expenses to a number that's a little bit less than that. That's baked into the way the model really is designed to work. And if you start breaking down the components of our operating expense, we -- as long as we continue to add new units into the system, whether we're buying them or we're building them, we're going to have incremental year-over-year operating expense dollars that come along with those new units. And so if we're adding new units at 4% to 5% or so a year over the next couple of years, on average, you would expect all other things being equal, we'd have something comparable in terms of incremental OpEx coming into the system just from new units. And then that would leave you, like, let's say, 3% or 4% for easy math of OpEx growth that would come from the mother ship that we have. And so that's -- the things that would put pressure on that would be normal course wage inflation, right, as we have minimum wage increases; normal course merit increases, et cetera, that we put into the system in our stores, offset by all of the initiatives we have to just become more efficient in general, both in the stores in terms of how we're scheduling hours and using hours in the stores. But 1/4 of our expense is non-store related, so our distribution network, our warehouse network, our corporate overhead, all of those things, we would expect to take advantage of spreading what are generally fixed costs for us over a larger base of stores, right? We don't need to add fixed overhead at the same rate. We're adding incremental units, and so that should naturally absorb it. And so if all of that plays out the way we wanted to, we would land total OpEx growth less than 8% to 10% of EBITDA. Fast forward or rewind, whichever direction you want to go to the current reality we have, we're now -- we obviously have incremental COVID investments around safety and hygiene in the system. And so we will certainly, in the current year, continue to bear incremental costs we had in the first quarter about $15 million or so in the first quarter of our fiscal year of COVID-related incremental expense, primarily in our stores and support center, primarily around either recognition pay or investments in hygiene barriers, that sort of thing. The number went down in the second quarter. It was about $5 million, mainly because some of our wage premium initiatives we had in place had sunset a little bit earlier. And so our current expectation for the third quarter now that we've seen another spike in the cases in our geography is we'll have incremental COVID expense somewhere in between that $5 million and that $15 million. And so I still think that will be the case. We just announced in the company this week that we're going to make some incremental special recognition payments across our -- largely across our hourly frontline wage force. That's a couple of million dollars of incremental investments that we're making. It's totally the right thing for us to do in light of the circumstances. And so taking it all the way back to the business update, we reported OpEx up year-over-year about 10% in the second quarter with the incremental investments and the challenges in the field of scheduling and paying overtime will be greater than a 10% year-over-year increase for certain in the third quarter. And that's because we're doing the right thing. And eventually, that will sunset as we get to the other side of the pandemic. But while we're in the winter here, we're going to invest for the right -- and do the right thing for our employees, and that's going to drive incremental OpEx here, certainly in the third quarter.

Yes. I don't want to make too much of this, but it is topical, I think. You all have delivered great results through all sorts of economic cycles and ag cycles. We're in the midst of a pretty healthy ag cycle, ag economy recoveries. It seems to gain steam kind of week on week on week with the rally we've seen in a lot of crop prices. Maybe it's something as simple as it's just nice to have, but what do you think a stronger ag economy means for your business given your footprint?

Yes. Well, certainly, it doesn't hurt, right? And a little over 50% of our store base is in towns of 5,000 people or less. And a lot of those towns are really driven by the ag economy. So certainly, as net farm income goes up, there would be more disposable income that the farmers and those communities would have. And ostensibly, if we do a good job of running our stores and delivering a great experience, we would be able to benefit from that incremental income. We'll have to see how it plays out a little more from a macro perspective. Typically, what happens when commodity prices rise, the gap between food prepared at home and food away from home starts to narrow with groceries being more expensive. And so eating out becomes a little more attractive on a marginal basis versus eating at home. And so that would bode well for our prepared food business as well, particularly our whole pizza business. So we'll have to see if that dynamic plays out. But certainly, anything that benefits farmers financially in a positive way, should have a knock-on benefit for us in our more rural communities.

Yes. Okay. You talked about the Bucky's acquisition. I know we're still waiting for that to close as you go through the formalities. Largest acquisition in the company's history. What was it about the company that gave you the confidence to make such a large acquisition? Can we just revisit why the deal makes sense for you? And also maybe touch on how the dealer network capability that you added gives you the chance to look at more deals down the road that you might not have otherwise considered?

Yes, sure. This deal really made a lot of sense for us from a number of perspectives. It's really right in our geography. Nebraska, Illinois, 2 really strong markets for us. When we look at markets from an attractiveness standpoint, these are some of the more attractive markets that we operate in. It just so happens that this is where they were. They're a good operator. They've got a good base of inside store sales as well as fuel volume, but they really -- where they had some strength in those areas comparable to ours, they really have a very underdeveloped prepared foods platform. So we have the ability now to take a business that performs pretty well but only does 7% in prepared foods, and we layer our prepared food business on there, which makes us at about 33% of sales. So there's a very clear and bright line to a big synergy with prepared foods. The second thing is, as you mentioned, is the dealer business, and this is a -- it's a new type of business for us but not new to some of us on the team. And what this does is it gives us the ability as we look at future acquisitions to have an alternative use for some, what I call nonstrategic assets that might come along with any acquisition. And as we look at these deals, one of the things that's kind of hampered us in the past is that you'd say -- let's take a 20-store acquisition. You might -- you might see 12 of those stores that have -- that are a really good fit. And then the other 8 are either in the wrong location, they're too small, they're lower volume. They just don't quite fit. And so as you're trying to compete for those chains, you have to discount those other assets to the point where sometimes, those deals aren't as attractive. Well, if we have an acquisition we can do and we can take those assets and sell them to dealers and secure a longer-term fuel supply agreement where we will supply the fuel to them over an extended period of time, we can turn what was a liability into an income-producing asset. And so it just opens up the door for more opportunities for us to do other deals. Frankly, the third piece that we found attractive around this deal was we were able to get it at an attractive multiple. And obviously, you've seen some of the other deals that have been done more recently at 12, 13, 14x EBITDA and this one was in the 10s. And so very much aligned with some other precedent transactions that we had seen and we've been involved in before. And so for those 3 reasons, we think this deal makes a lot of sense. And so we're excited to be able to get to close and then move on with the integration.

Yes. Maybe last question here before we wrap up. And maybe this is for Darren. What is the right capital allocation model for this company in terms of debt load, CapEx intensity and so forth? Do you think there's an opportunity to improve store level returns on new builds? Would you ever consider introducing some lease leverage into the new stores versus owning [ fee ] simple? Maybe help us think about this landscape as we think about the future growth of the company.

Yes. Ben, a couple of questions in there. So I'll maybe do the simplest one first. We are not dogmatic about owning all of the assets. For sure, historically, that's been the predisposition of the company is to own the assets for a variety of reasons, flexibility, et cetera. But we do have a smattering of leased properties across the footprint today. And we are not averse to if it's the right corner in the right market and the way for us to access that corner is via lease. We'll take that lease on, right, if the math works for us. And so we certainly are open-minded about leases going forward. And I think over time, we probably will continue to very slowly increase the amount of leased property that we have in the portfolio, but it will probably take a while for it to actually be noticeable as a percentage of the total. If you look at return expectations regardless of whether we're owning or leasing the property, our return expectations are relatively straightforward around any investment that we make. We have -- because we continue large -- exclusively to invest within our existing footprint where the brand is known and where we're already operating in those geographies, we have a very good kind of historical experience set of how we expect stores to perform based on traffic and the store build. We expect any investment, whether we're building it or buying it to be hitting double-digit after-tax returns on invested capital by about the third year and to be in the mid-teens area by about the fourth or fifth year of ownership or a start-up of that asset. That's been our historical pattern. We feel very good we can continue to achieve that with the targets that we're looking at. And we need the store-level after-tax ROIC to be 12%, 13%, 14% on average going forward for us to continue to move the company's ROIC in a positive direction. And so we've been around 11% to 12% ROIC on average at the company level, the last kind of 3, 5 and 10 years, depending on what period of time you want to cut it. And so the stores need to perform at a higher level, obviously, to carry some of the nonreturning investments that we have to make as a company at the corporate level. And then I think in terms of just how we're allocating capital, generally at the company, historically, the first dollar clearly went to unit growth. That's what drove a lot of the EBITDA experience over the last 10-plus years. We feel great about our medium, long and near-term opportunities to continue to add units and have them be accretive to both EBITDA and returns. And so for sure, we're going to put the first dollar of available capital to work continuing to drive unit growth without a doubt. We also have a dividend. We're going to respect the dividend. We're going to continue to increase the dividend over time. We like our leverage level. We ticked up a little bit. We'll be a little above 2 by the time we close the Buchanan transaction, and we'll probably pay some of that off to get it back down around 2. But I don't think from a cost of capital standpoint, it needs to go significantly below that. The balance sheet is super flexible and in great shape. So deleveraging is -- it has a place, but not probably a primary role for us over the next couple of years. And then we were sensitive to share repurchase opportunities. We understand where that math makes sense for us, where it doesn't. And we will continue to be opportunistic as we look at share repurchase opportunities versus incremental store investments that drive accretive returns. And then as the last part of your question, our money can go further for us or it can work harder for us. We do spend $500 million or so on normal course capital as we're investing in units. Clearly, we can be smarter with that kind of spending, more standardized builds, more standardized equipment, more coordinated negotiations with contractors, with vendors, et cetera. And the investments that we're making on the procurement side are also pointed at helping us take advantage of scale not just on cost of goods items but on the capital items as well.

Very good. I think that's a good place to stop. Darren, Steve, Brian, thank you so much for your time and your insights on the business. Thanks to ICR for hosting us, and thanks, everybody, for tuning in to listen.

All right. Thanks a lot, Ben. I appreciate you giving us the opportunity to share our story.