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

Good afternoon, everyone. Thanks so much for joining us today. It's a pleasure to introduce Darren Rebelez, who is the President and CEO of Casey's General Stores, which is the fourth largest convenience store operator in the U.S. by store count and actually the fifth largest pizza chain. Now this past year has been very exciting for Casey's, especially as the company executed against significant volatility across the broader c-store landscape and closed on the acquisition of Bucky's earlier this year, marking the most significant transaction in the company's 53-year history. Now there is a lot to discuss this afternoon. So I'm going to jump right into our Q&A session. But also just a quick reminder, for those of you listening, please e-mail me any questions you may have, and I'll try to work them in.

So Darren, thanks again for joining us. I kind of wanted to kick things off today just in terms of looking back over the last year, so much has transpired across this channel. And really, as I think about the context of COVID, some -- I'd be curious to hear if the Delta variant spread has impacted what you're seeing in terms of consumer purchase behavior at all? And any kind of impact on -- any talk of returning to self-serve restrictions or reduced store hours?

Well, first, hi, Bonnie, and thanks for having me today. Yes. When we think about the pandemic and as you rewind the tape a year ago, when everybody was first starting to understand how to operate in a COVID world, I think we experienced some pretty dramatic shutdowns, significant shifts in consumer behavior, major restrictions on prepared foods and self-serve items, a whole host of things. I think the world has evolved a lot in the last year in terms of how to live our lives in a COVID environment. And so now as we've cycled through that, and we're experiencing some challenges with the Delta variant at the moment, we're not necessarily seeing the significant shifts that we saw before. We haven't seen any municipalities taking a hard stance in terms of sheltering in place. We haven't had those types of food service restrictions we experienced early on in the pandemic. We haven't even gone really to mask mandates in most of the areas that we're operating in. So we haven't seen that. What I would tell you is that we anticipated that the business would ramp up throughout the summer and get better. And then kind of post Labor Day, all the kids we be back in school. Most companies were saying they were going to return to work in some form or fashion. We had kind of anticipated that. I think really the change that's occurred there is with the Delta variant. People are still committed to keeping kids in school, and so we're still seeing that. We haven't seen any school districts pull the kids back home. But we are seeing some companies saying, "Let's pump the breaks on bringing people back to work for a month or 2 or maybe just punt until January and see how things play out." So we're only 2 days past Labor Day, so we're still trying to sort through what's actually going to occur, but that's what we're seeing so far.

No, that makes a lot of sense. And in the context of what you guys just reported, earnings, which was quite strong in the quarter, but you did make some comments about August trends. And maybe highlight for us how August trended relative to, on a sequential basis, from the prior month? And your thoughts looking out over the remainder of the year?

Yes. I think what we said on the call was we were experiencing low to mid-single-digit comps inside the store and low single-digit comps in gasoline gallons. And I think some -- that was somewhat a function of what we were cycling. As last summer progressed, June was a big drop. July got a little bit better. August got a little bit better. In the summer, August was probably the best month of the summer. Now we're cycling over that. So it naturally sort of softened a little bit. But from an absolute volume standpoint, didn't really change much. So we were somewhat anticipating that. I think it maybe got overreacted to in the context of the Delta variant and maybe people interpreted that as a softening. But from our perspective, it's more of a cycling event than anything.

Okay. That's important, yes. I think that's something that is critical just in understanding some of the trends that you're facing. And then I'm thinking about the different day parts within your store base. What are you noticing in terms of the consumer behavior? Has there been also any notable shifts in terms of same-store sales growth, if I think through whether it's your prepared foods, fuel gallon growth or certainly field to store conversion? Are you still seeing consumers come in the store as frequently?

Yes. Certainly, guests are coming back. And we've seen traffic improve over the course of the summer, particularly since the vaccine has been more readily available. The traffic is not all the way back from where it was pre-COVID levels. So we still have a delta there of about 10% of traffic on a 2-year basis. And that's where we are expecting the return to work, return to school dynamic to really start to impact that. And again, the impact of return to school is a little bit too early to tell. Return to work, as we discussed before, a little bit spotty. But -- all that being said, I'm really encouraged with how our stores have performed from a comp sales perspective in spite of all that. And I think a lot of the merchandising efforts that our team have put in place between store resets between more strategic business planning with our major supplier partners, to private brands, to innovation, or food. All of those things are just causing our stores to work harder for us, and we're selling more product to the people we do have coming in the stores, and I think that reflects in our numbers.

Okay. And then maybe sticking with fuel volumes for a second. They were up pretty nicely in the quarter, I believe, 9% in your Q1, and that certainly probably had a lot to do with lapping some of the year ago period, the COVID restrictions that we're all experiencing in the stay-at-home mandates. So I know there's still a lot of uncertainty, but how should we think about fuel volume recovery for the balance of this year and maybe into the future, just in the context of mobility improving and then thinking of, of course, also as we keep thinking about fuel-efficient cars and how that's impacting us?

Yes. I think fuel volume is certainly going to recover from where it is now. And that could be a little bit lumpy, just like we talked about. If people start returning to work in October, it will look different than if they start returning to work in January. Some -- at some point, those commuting patterns are going to return to what is more normalized level. I think one of the variables inside of that equation is to what extent do people ever return back fully? Is there a hybrid model where everybody is kind of more of a 3- to 5-day a week versus a 5-day week? We have to see how that plays out. There's a lot of talk about different ways to go. But if you think about how that discussion has gone throughout COVID, early on, people said, no one's ever going to go back to an office. Then a couple of months ago, everybody said, "I'm sick of working at home." Everybody wants to go back to the office. So somewhere in there lies the truth, we'll just have to see how that goes. But certainly, more fuel-efficient vehicles will have an impact on demand. But the way we look at that is from a couple of perspectives. One, we've seen, in our industry, the ability to expand margins in the face of demand erosion. And we experienced that through this entire last year, and we continue to experience it today. So to the extent that there is some demand erosion, we believe there will be industry margins that compensate for that. And so from a profitability standpoint, we stay and play. The other piece of that is, I do believe it will create more acquisition opportunities as some of the smaller operators in the space are just going to have a more difficult time trying to overcome thinner fuel or thinner volume, along with all the other challenges that the industry faces. So we really like our spot from that perspective.

That's a good point. And I mean that's something we're noticing too. Just, as you mentioned, the smaller operators in there. Breakeven fuel margins have gone up, which is allowing a lot of the larger scale operators like yourself to really take advantage to some extent and capture that greater spread and stronger margin. Is that something that you expect could continue in the next several quarters or a few years?

Yes, absolutely. If you think about the dynamics in our industry right now, and really the way it's been for a while, but certainly a little more acute right now. The underlying costs to operate in this industry have continued to go up. Credit card fees have continued to expand. EMV compliance is a significant undertaking that costs a lot of money. Regulatory compliance for sure. And now we have the labor shortage that's compounding things. You have supply chain challenges. And as we've talked to smaller operators more recently, a lot of them are just kind of at the point where they're ready to pack it up and move on. And in our industry -- for people that aren't as familiar with our industry, we have 150,000 convenience stores in the U.S., about 2/3 of those or 90,000-ish are held in -- with operators of 10 stores or less. So highly, highly fragmented industry. And Casey's has a long track record of being able to buy those smaller operators at very attractive multiples, very simple integrations. And we can buy those at 6 to 9x and we trade at 11 to 12. So immediately accretive. We put in our food program and we like that math all day long.

Agreed. And now that we're on the topic of M&A, maybe give us an update on Bucky's transaction. It sounds like things are progressing pretty well as you integrate. And I'd love to hear if there's any opportunities that may be you've uncovered now that more time has gone by where you think there might be even more synergies than you originally expected? Or just give us a sense of really where you see the biggest upside from this transaction.

Yes, sure. Well, first, I'd say that this was a really strategic transaction for us. About 95 stores -- 90 stores once it's all said and done. I'll get into the FTC stuff in a minute. But 90 stores when it's all said and done in 2 areas that we were already in, to a certain extent, Omaha and then in the suburbs of Chicago, which was an area we were developing. We like that area. We just were underpenetrated. So really solved a couple of development challenges for us and got us in scale pretty quickly. They were a great operator. They ran really good basic convenience stores. They had really good real estate. Didn't have much of a prepared food business. So we were certainly able to bring that prepared food business to the table. And that's where we saw a lot of upside, and then along with scale. So certainly, our scale was more significant than theirs. They were selling branded fuel, which we will convert to Casey's brand. So there's margin upside there. So we -- a lot of things to like about this transaction. But they had a couple of unique things that we didn't have that we think are beneficial for us. The first is a wholesale fuel capability, where they have independent dealer operators that they sold gasoline to as a -- just as a supplier. We like that business, and we had actually been looking to acquire a business like that because it helps us facilitate other acquisitions. In our space, there's always -- in any portfolio of stores, there are always going to be those stores that we love and we want to convert to a Casey's and will perform very well. And there will always be a handful that are too small, conflict with one of our existing stores to the facility doesn't work to convert. And so we have to have something to do with those. Now we have the ability to sell those to an independent operator, but tie them up with a longer-term fuel supply agreement. So not only do we get the capital back, but now we have an incremental revenue stream on those disposed assets. So it really makes the math on any transaction a little bit more attractive to us. So that helps us take down other deals. Probably the other thing that Bucky's did really well is the car wash business. About 3/4 of their stores had car washes. They were bigger car wash, more sophisticated and very profitable. That's something that we had not traditionally put a lot of focus into. We have about 100 of car washes that we primarily accumulated through acquisitions. But now we've got some in-house expertise. So we brought that team over, and we'll be leaning on them to learn more. And that may be another incremental revenue stream for us in the future.

Okay. And so on that, so should we think about your store base potentially adding more of these car washes in the future? Is that how we should think about that capability that you've acquired?

Yes. We'll have to assess the store base. Obviously, you have to have enough real estate there to add it on. So we haven't gone through the exercise yet of really qualifying how many sites in the existing fleet have the space to do that. So we'll have to do that first. This will probably be more in the future with new builds, but first step is to make sure we understand that business. We like that business. But we think we do now. We have a little more work to do to make sure we do. But -- yes, that would be something out in the future though.

And then 2 other follow-on questions on this topic. As you think about future M&A, you touched on this and the attractiveness of the dealer network. Is that -- as you go out and look at potential acquisitions, is that now something that you're more interested in acquiring? Or do you think you have that capability that you can apply to future acquisitions? And then -- okay.

It's more of a -- we have the capability now. It gives us a tool in our toolbox to help integrate acquisitions that we would find moving forward. That being said, some of these other businesses that we would look to acquire would have a wholesale business of their own. And so I think historically, we shied away from those types of deals. Now that we have that capability, we would just integrate that into our existing wholesale fuel business. So it probably widens the aperture for other opportunities that we might take a look at that maybe, historically, we would have passed.

And then staying with Bucky's, is there anything -- so far I know it's still new -- relatively new in the integration phase, but is there anything that's maybe taking longer? Has been disappointing? Or that you underestimated so far?

No. Actually, I've been really pleased with how the team has performed on this one. We've actually moved a little bit quicker. One thing that happened when the FTC kind of held us up for a few months while they were reviewing a handful of sites, the team kept doing the work on permitting and getting entitlements in doing store remodel designs so that when we ultimately close, we'd be able to hit the ground running. So that wasn't time lost, ultimately. And so now we've already got 4 stores that have been fully remodeled and reopened as Casey's. We got another 4 or 5 opening up this week, and we're on track to add north of 40 of those stores fully remodeled as Casey's before the end of the calendar year. And so I think we were able to accelerate post-close because we didn't stop working just because we had that FTC delay. So really, everything at this point is right on track.

That's good to hear. And speaking of the FTC, obviously, there's a lot of talk about their recent comments. So could you touch on that and how you see that impacting the industry? I mean you made the point earlier, it is an incredibly fragmented industry. But do you think it's going to have a hindrance on future M&A activity?

Well, I think we'll have to see how that ultimately plays out. We read the letter from the FTC Commissioner. There's certainly going to be more scrutiny on to the deals. Now if our experience with the Buchanan transaction is any indicator, they're certainly willing to look down to the individual site level to make sure that they're comfortable, that there are no conflicts there. And so that -- as you know, that transaction was held up for 4 months over 6 sites. And so I think it's going to certainly elongate the time to consummate a deal because buyers are going to have to go in most likely with another buyer or 2 to deconflict those transactions upfront. From a Casey's standpoint, I think it sets up pretty well for us. And the reason I say that is we have 2,300 stores in 16 states, but 2,000 of our 2,300 are in only 9 of the states that we operate in. And so we have some -- we have another 7 states that we're very underpenetrated in the base case. So I think as more opportunities to acquire come up, I think we're going to have opportunities to buy something where there's not any sort of conflict whatsoever. And there's not a lot of operators of our scale that can really say that because they tend to be more geographically dispersed. So I think it opens up some potential opportunities, either in some of those periphery states that we talked about or even just right outside of our geography, where we have no presence at all today, but maybe probably the most actionable buyer because of that.

No, that makes sense. And I know that's something we've talked about in the past. So I think it is a nice opportunity. And now I'm going to switch gears just a little bit on -- with expenses, OpEx. I mean, obviously, the industry and a lot of companies are facing pressures, whether it's labor pressures, elevated costs. Touch on that for us. I know your costs in your most recent quarter were up, I think it was 24% year-over-year. But having said that, it sounds like maybe you're somewhat insulated from some of these pressures given your supply chain. So maybe touch on how you see that as an advantage relative to your peers? And how you can mitigate some of these pressures in the future?

Sure. Yes. With respect to the quarter, we did have a 24% OpEx increase. A big chunk of that, almost half of that, was simply cycling over shutdown activity and reduced store hours and reduced staffing last year, and now we're fully staffed. So that's just more of a math exercise. The other big component of that was operating 166 more stores than we had the prior year from the 2 acquisitions and some of the organic growth. But more to your point, there certainly are cost pressures coming in. Labor scarcity has been a challenge and has put some upward pressure on wages. We're certainly not immune to that. The entire world is really not immune to that at this stage of the game. We talked a little bit about EMV compliance and some of the other regulatory compliance that's impacting everybody. Where we do have an advantage that you alluded to, Bonnie, is in our supply chain. We distribute the vast majority of our fuel ourselves. We are 100% self-distributed in our inside products or merchandise for resale with our 3 distribution centers. So we have positive control over that supply chain. And so in times like this, when drivers are scarce and freight rates are going up, we don't have the exposure to those freight rates that a lot of others do. The other thing that we have the ability to manage better is staying in stock in our stores. And there are some products that we distribute today ourselves that others have to rely on a third-party to distribute or a DSD supplier to distribute. And in our channel checks, as we go and look at competitors, we're seeing that they're struggling much more than we are from an in-stock perspective. And I think that's because we have the ability to manage and control how we distribute the product to our stores. Where if you're with a grocery wholesaler and you're one of many customers that they have, you're at their mercy as to how they choose to allocate the products among all their customers, and it's just a bigger challenge for them.

Yes. No, it's a good point and something I think you did highlight recently. And in the context of that, although the quarter, the OpEx was 24% growth, you're still maintaining your full year mid-teen growth. And as you think about that, my understanding is this, towards your fourth quarter, it will keep lowering year-over-year in terms of the growth rate. But as I think about all of the pressures and what I'm seeing with commodities, is there realistically a greater probability that your OpEx expense will be higher than even the mid-teens versus potentially lower?

No, we don't think so. And some of that wage pressure we've already accounted for in our modeling, and we've actually already taken some of that -- those wage increases. And so we certainly accounted for that. Some of the costs in the first quarter is onetime cost, so deal costs, integration costs. Those aren't recurring, so those naturally come out. We also had about $40 million last year of COVID expenses that we're not likely to cycle over. We certainly still have some. But in terms of a comparison to prior year, we're not going to have those expenses like we did last year. And then the last thing is simply what we cycle. So when we get to that fourth quarter that you alluded to, we'll be at the same number of operating hours that we're cycling as where we are right now. So what you won't see is incremental labor on a quarter over quarter basis like you did in this most recent quarter. And the last point I'd make is that even with this quarter we just had, our same-store operating hours -- or our same-store labor hours on a 2-year stack basis are actually 4% lower than they were pre-COVID, even though we're substantially at 100% of the same open hours. So we've actually become more efficient on the deployment of our labor than we were pre-COVID. It's just a matter of what we're cycling and how that math works. So we feel -- as you know, we didn't change our guidance for the year in terms of that OpEx plan, and we're sticking to that.

No, that's helpful. And in the context of that, so then are you happy -- as you think about your ability to have more hours, to open more hours, are you happy with the level of growth, whether it's inside sales, fuel? Do you feel like you're getting enough of the lift being open longer?

Yes, I do. I mean we are happy with where our comps are right now, given where our traffic is right now.

Okay.

And we still think there's more room to go. As I mentioned, we're still on a 2-year stack basis. We haven't got all of the traffic back. And we think that's largely due to getting the commuting traffic back to more normalized levels. We think that's a window of time where that's going to come back. It's not that long. We just got to see how the Delta variant plays out. But I think that's more months that we're talking about at this stage.

I hope so.

Yes, I hope so too. I think we all do. So I'm not overly concerned about that. I think it's just a matter of when things start to subside a bit and then we get back to normal. But there -- everybody had plans to return. Delta threw a wrench in that, for a moment. I think we get pass that, and then we get back to more normal traffic patterns.

And maybe sticking on cost pressures a little bit, but maybe coming at it more from the angle of the consumer. And I'm thinking about them and inflation and stimulus payments ending. I don't think we've necessarily seen any changes in consumer behavior yet. But certainly correct me if I'm wrong. But how are you guys thinking about that in the next couple of quarters for the consumer? And how they're going to handle some of these headwinds?

Well, I think it's an interesting dynamic. We'll be a lot smarter in 3 or 4 weeks from now than we are today about this. I mean the enhanced unemployment benefits just ended on Monday. And so we think, on the one hand, that pulls some money out of people's pockets. On the other hand, it's going to force more people go back to work. And so we benefit from 2 things on that front. One is people will get a paycheck again. So maybe they come out about where they ended up on unemployment benefits. But more importantly for us, they're active. They're moving around more. They're going from home to some place to go work and come back. That's what the convenience industry thrives on is that activity. So getting people out of the house and out into the world and moving on a consistent basis is where we thrive. So I'm far more bullish about people going back to work than I am people getting paid to stay at all.

Yes. It's all about mobility. Agreed. Let's talk about prepared foods, which is, in my opinion, one of your key competitive advantages and such a strength. Certainly led by your famous made from scratch pizza. So could you give us an update on some of the current trends? And maybe an update on your latest menu innovations? I think you touched on this on your quarterly call, but just such as the new breakfast handheld product. Touch on that for us and how big of an opportunity all of this could be? And how that sets you further apart from some of your peers?

Sure. Well, first, our single, biggest differentiator of everything we do, we've got a lot of differentiators, I think, versus our peers. But the one we're probably most proud of and the biggest one is our prepared food, of course, led by our pizza. And as you mentioned in the introduction, we're the fifth largest pizza chain in the U.S. And we take that responsibility seriously. And so we saw, throughout the last year or so, our whole pizza business really accelerated as people were staying at home not going out as much. That piece of the business has moderated some. But on a 2-year stack basis, we're still up double digits in that whole pie business. So we believe we've been able to retain a lot of that business that we've earned throughout the pandemic, and that's a nice piece of our business. What we're gaining back now is the slice business, particularly morning and lunch time as more people are out and about. That single-serve business is really important for us, and that was up over 20% in the quarter. And so we feel really good about where that's going. But the breakfast business, the breakfast daypart overall was the most impacted by COVID. And same is the reason, right, as people aren't going into the office or going to their place of work, they're not stopping in the stores for their breakfast. So -- and that's been pretty much industry-wide. The QSR industry has faced that. Even the full serve breakfast restaurants have faced that. Everyone has faced that. So we identified the need to not just come back with the same thing that we'd always have, but we needed to innovate. And we saw a real opportunity in the breakfast daypart. And one of the things that we've established as a rule for our Prepared Foods team is that we want to elevate the caliber and quality of all of our food products to the level of our famous pizza. And we need to deliver on that promise to the guests. And so when we looked at our breakfast lineup, we had some things that just weren't selling very well. We had some other things that were selling okay, but the quality bar was not where we wanted it to be. And we needed to innovate. And so that's what really led us to what we just launched. So we've revamped the number of different products, elevated the level of quality, the bills and the ingredients. And we really had 2 innovations. One was our signature handheld item, which is leaning into our made-from-scratch dough where we take that dough and then we build a breakfast sandwich into it essentially with cheese and eggs, and sausage and even more cheese because in our research, our guests can't get enough cheese, so we kept putting cheese on until they said that we hit the mark. And we have a build with sausage, we have a build with bacon and they're craveable. They're portable, handheld, very indulgent at an attractive price point for them under $5. Attractive price point for us, nice margin and unique. It does not exist anywhere in the world. So as the QSR industry starts to go back in the fall and everybody is trying to regain that breakfast business, we have new news to talk about, not just the same old rethreaded things. We also developed a signature burrito as well. And the burrito is fantastic. And actually, with a grand total of one day of sales so far, the Burrito is actually leading the pack. So the Burrito is performing well. The handheld is exceeding our expectations. And so we're really excited about how the food is done. And then the last piece of it was we reworked our coffee program, and we implemented a bean to cup coffee solution, where -- in all of our stores. So we spent the summer rolling this technology out. So now every single cup of coffee gets brewed individually to order. The beans are ground fresh for that cup of coffee. So it delivers a fantastic quality. And I'd be remiss if I didn't acknowledge the team that we have behind this, we -- in the last couple of years, we really brought in some restaurant and culinary expertise. We have a -- our head chef is something that we got from a concept called snooze, which is a breakfast, lunch-only kind of higher-end concept. So he's very familiar in the breakfast space. And our Head of R&D, who was a 23-year Starbucks veteran, who did R&D over there. So certainly knows the coffee business, and has taught us a whole lot. And so we're really bringing some high-caliber folks into the company to really help us innovate and is working very well so far.

I'm laughing. You're making me hungry as I'm listening to you. It all sounds really good. And as you describe it, it sounds like several months or if not more than a year in the works, and it's probably been so frustrating given COVID that you haven't maybe been able to fully roll this out or experience as much upside as you're hoping for, given the mobility issues we talked about earlier.

Well, Bonnie, when we had our Investor Day a little over 1.5 years ago, we talked about this. And at the time, I said, look, in my experience in the restaurant industry, a fully developed product pipeline is about an 18-month process, from ideation, into commercialization, into stores. And so we're right about on that time line when we first started up and we had to build that team. We had to get the innovation pipeline going. We built a consumer insights group who -- that we didn't have before. So they're able to really run the testing and guest feedback loop. So that we knew what we were solving for, and we knew when we had it right. And so that's what I alluded to before, we kept putting cheese into that handheld until we got it right. Well, that was our guest insights group -- our guest insights group were the ones that uncovered that. And so when you put something out into stores, we have a high degree of confidence that it's going to be on the mark.

Great to hear. All right. And then I know we're getting close to running out of time. There are so many other things I wanted to talk to you about, but I definitely want to talk about your private label strategy. Since you have some aspirations. Your, I think, private label penetration reached just over 4% now as a percentage of your mix and you're hoping for a little over 5% by the end of the year. So curious, definitely touch on that and how that's impacting your business, driving comps, certainly margins. And then I think you still have a goal of being at 10% as your target. How quickly do you think you can get to 10% of your mix being generated from private label?

Well, first, I'd say we're really excited about our private brand products. And we went into this. We saw a gap in our assortment where we had a handful of private brand products, but we weren't taking advantage of the full breadth and depth of the opportunity. And so we wanted to be able to provide high-quality value to our guests. And so when we built our strategy around private brands, we said any product that comes into our assortment needs to meet 3 hurdles. The first of which is that it has to meet or exceed the quality of the national brand equivalent. And in most cases, in our case, we have exceeded the quality in my opinion. The second piece is that the retail price to the consumer has to be less than the national brand. And then the third hurdle is the penny profit to Casey's has to be higher than the national brand. So we've set a fairly high bar for ourselves to get product into the assortment. And so everything that we have now meets those 3 hurdles. And so we've been able to ramp very quickly up to that 4% number, a little bit north of 4% so far, really within a little bit under a year. And we do have a target of getting to 5% -- a little bit over 5% by the end of this fiscal year. We've launched 209 items so far. And we have another 60 in the pipeline that we'll launch between now and the end of the third quarter. So we feel good about our opportunity to get to that 5%. A little more longer term, it will take a number of years to get to the 10%. But we feel really good about our prospects. And the point I'd make on this is that we have built up such credibility with our prepared foods and the quality of our food offering that when we introduce these other private brand products, consumers immediately gravitated to those products. It was instantaneous trial. And I've done this before, and I've never seen that kind of immediate adoption before. And I really believe is that quality halo from our prepared foods, we gave people confidence. And our private brands team really held true to the bar on quality, and it's being acknowledged by the guests and it's taken off to a fantastic start so far.

And such a nice impact to margins as well...

Absolutely.

Well, I'd be remiss if I didn't bring up the topic that I keep hearing about is electric vehicles. And what your thoughts might be on the impact that it may have on this industry? And the penetration of EVs in the U.S. is still very low, only 2%, and it's really kind of primarily on the coast. And then something about your stores probably aren't as impacted. But how are you thinking about that over the long term for your business? And what are you doing in terms of investments or thinking about piloting, and just impacting the business in general?

Sure. We are thinking about it, and we think it's very much a long-term proposition before it becomes material. And to your point, across the U.S., about 2% vehicle penetration. In our 16-state footprint, that's 0.2%.

Yes.

So 99.8% of the vehicles are still gasoline vehicles. So we're -- this is going to be a long-term evolution. That being said, we have 20 stores today that have vehicle charging stations in them already. And so we have partnered with Tesla and Electrify America for a couple of it. So we've got those sites. We take a look at how that's progressing. We want to understand that experience for the guests. We want to understand how the traffic is flowing. I can tell you right now, in those stores, we average about 250 fuel transactions a day and about 7 charging sessions a day.

Yes.

And so there's a pretty wide delta there. So it's something we keep an eye on. The way we're thinking about longer term is that we think vehicle penetration is going to have to increase over time. We believe that will be the case. It will be gradual. We believe the charging technology will also evolve over time. And right now, even with a rapid charger, it's about a 30-minute charge to get it to 80%. You can't get it to 100% in 30 minutes, so 80%. That's not a very convenient experience. So we believe over time, that concentration of vehicles will increase, the technology will improve, and somewhere in those lines are going to cross, that's probably going to be the right time to invest. Any technology we would seriously invest in how we believe we'll be obsolete by the time those curves intersect, and then we'd have to reinvest in it again. In the meantime, as that evolution is taking place, there could be some demand disruption on the gasoline side. But as I mentioned before, when we've seen demand stretch, we've seen margin expansion. And so we believe that just accrues to our benefit as that transition takes place. And then ultimately, we will find the time to invest and it will be the right time for us.

Okay. All makes sense to me. And I want to thank you so much for your time today. It was fun catching up on all of this. And thank you, everyone, for listening. Nice seeing you. Thanks, Darren.

Thanks, Bonnie.

Bye, everyone.

I appreciate it.