Darren Rebelez: Yes. This is Darren. With respect to pricing in prepared foods, in about the last 14 months, we’ve taken four different price increases and so we’ve tried to keep pace to a certain extent with inflation, but we’re also trying to balance that with our relative value proposition to our guests. And so, when we look at where we’re at today, I think we’re in a decent spot. That doesn’t mean that we won’t take more price action, but what it does mean is that we’ve had very solid performance from those categories from a volume perspective. And again that’s our highest margin category even at current rates. And so, the more we sell at a 56% or 57% or 58% margin, the better for Casey’s. So, we’re always cognizant of that and we’re just trying to strike that right balance.
Our consumer insight work tells us that our guests still perceive us as a good value. So we’re – we feel like we’re striking that right balance for the moment, but we continue to keep an eye on those commodity costs. And when we think those are a little more permanent in nature, then we’ll take pricing action to offset that. But right now it’s fairly volatile and what we don’t want to do is raise prices too much and then have to whipsaw the customer and go backwards. So we feel like we’re in a – in an appropriate spot for the moment, and we’ll continue to monitor and take pricing action as we think we need to.
Alessandra Jimenez: That’s very helpful. Thank you. And then one follow-up from an earlier question, did you see any correlation in acceleration in inside sales and higher volumes, fuel volumes as fuel price is moderated or comes fairly stable and consistent throughout the quarter?
Darren Rebelez: Our traffic certainly improved from first quarter to second quarter inside the store and our gallon volume improved over that same period. So there is somewhat of a correlation. I’d be careful to draw a too brighter line on that one because about three quarters of our transactions are non-fuel related. So there’s about 25% of those guests that come in for fuel and some of those translate into the store. But I would say, by and large that’s a function of – the inside traffic is a function of what we’re offering inside the store more so than it is our price for fuel.
Operator: Thank you. Our next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is now open.
Chuck Cerankosky: Good morning everybody. Excuse me. Great quarter. As the price of fuel trends down, is there any effect on the arithmetic to what the cents per gallon might be?
Darren Rebelez: You’re referring to what the margin might be, Chuck?
Chuck Cerankosky: Correct, correct. Darren, does – say we get to $2.50 a gallon, does that make it harder for the industry to hold around $0.40 CPG?
Darren Rebelez: I don’t think it’s so much a function of the absolute number as much as it is where the trend is going. When wholesale costs are coming down, they typically drop faster than the retail price. That widens out the margins. So whether you’re at $4 a gallon retail or $2 a gallon retail, if the wholesale cost is coming down, that margin is going to widen out a bit. Where we’ll start to see the flattening out is when the wholesale costs start to flatten out, and that bottoms out, and then we’ll land at more of an equilibrium point. And then if it starts to go up again, then we’ll see the opposite effect. So, right now since really the beginning of October, we’ve experienced a steadily declining wholesale environment.
So you would expect those margins to expand. What I would remind everybody of is that we saw the same thing happen last year. In the month of November last year, wholesale costs dropped $0.40 a gallon, and then over the next two months they rose $0.60 a gallon. So we’re just – it’s a dynamic environment. We just got to keep focused on executing our strategy day-to-day. But I don’t think landing at any certain retail price point is going to make it easier or more difficult to maintain margins.
Chuck Cerankosky: Thanks. And then Darren, on the competitive side with some customers quite sensitive to what’s happening to the economy. How do you see that affecting your competitors and willingness to price through ingredient costs?
Darren Rebelez: Well, I think everybody is playing a different hand right now. With respect to that, I would think that the smaller, perhaps less resilient retailers are going to have to price through more of those commodity costs because they’ve got to survive. We are in a fortunate position where we can be a little more strategic than that and really focus on the consumer value proposition, which is what we’re doing. And I think we’re striking a good balance of that right now. Would I love our margin rate to be a little bit higher? Sure, I would. But I like what our gross profit dollar growth has been and it seems to be outpacing most. And we’re getting the volume forward as well. And so I think we’re growing some loyalty with our guests, which is more important for the long term.
Operator: Thank you. Our next question comes from the line of Irene Nattel with RBC Capital Markets. Your line is now open.
Irene Nattel: Thanks and good morning everyone. Just sort of thinking through some of this discussion…
Darren Rebelez: Good morning.
Irene Nattel: Good morning – around margins versus volumes and whether we’re talking about fuel or we’re talking about pizza, it sounds as though you’re doing really well with these – with your gross profit dollars at slightly lower, but still robust levels of margin. Does that kind of give you pause and make you rethink a little bit some of the margin targets?
Darren Rebelez: Are you referring specifically to inside the store, Irene?
Irene Nattel: Yes. Yes, just sort of – if you can get to your growth, if you can continue to gain share and get to your gross profit dollar target with maybe slightly lower margins, but higher volumes. Is that the way we should – is that something that you’re thinking through on a go forward basis?
Darren Rebelez: We really haven’t specified a margin percentage target. I mean, historically we’ve been right around that 60% margin range for prepared foods and 40% overall. We like to keep that, but we have to be cognizant of the environment we’re in right now. And when we’re in a, what I would call, a hyper-inflationary environment, there’s obviously going to be pressure and we’re going to have to try to balance the margin rate desires with our value proposition to the guests and keeping the volume there. So the gross profit dollars are coming right now. Certainly when inflation moderates and we get some time to normalize some things, we’d like to see that margin come up closer to more historic levels, but we’re not going to force ourselves into a position where we’re managing to a rate that might be artificial and ultimately negatively impact the guest experience.
