Casey's Reports Record Third Quarter

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Casey's Reports Record Third Quarter

ANKENY, Iowa -- Unless an acquisition comes to fruition quickly, Casey’s General Stores Inc. will likely end fiscal 2009 behind its acquisition goal, Chief Financial Officer Bill Walljasper said during an investor conference call yesterday.

The company’s expansion goal for fiscal 2009, which ends April 30, is to increase its total number of stores 4 percent. At the end of the third quarter -- concluded Jan. 31 -- the company acquired 14 stores and completed seven new store constructions.

"The acquisition environment is slow," Walljasper said, noting, however, he is encouraged by the number of potential deals currently in the pipeline. "We have quite a few under review. These are acquisition targets that have a willingness to have conversations with us and show us their financials. Some are under negotiations ... I think there are significant long-term opportunities if we remain patient."

While acquisitions are a slow-go, Casey’s is moving ahead with new store constructions. The retailer expects to have 17 new stores open and operational by end of this fiscal year, and another four to six stores will likely filter over to early next fiscal year, according to Walljasper. These new builds continue Casey’s rollout of a new store concept that’s 1,000 square feet larger than existing stores and designed to increase gross-profit dollars by driving traffic to higher-margin, faster-moving products such as beverages and prepared foods.

By the end of this fiscal year, between 35 and 40 newly designed locations will be open and operational. That includes new builds, remodels and replacements, he noted.

Looking ahead to 2010, Walljasper said it’s possible Casey’s expansion focus may shift more to new store constructions as opposed to acquisitions. "Right now, we are in the capital budgeting process for fiscal 2010. We need to have a few more data points on our new store design concept [before we decide]," he explained. "You may see an acceleration of new stores next year in relation to what you’ve seen from us in past years. We want to be cautious because the new design won’t work everywhere … We’ve placed the new design in a wide variety of locations to see where it works and where it is most efficient."

In discussing the company’s record third quarter, Walljasper said the positive results were driven by a decrease in operating expenses and strong performance at the stores.

Casey’s annual goal is to increase same-store gasoline gallons sold by 2 percent with an average margin of 10.8 cents per gallon. In the third quarter, same-store gallons sold were up 2.1 percent with an average margin of 9.9 cents per gallon.

"Retail prices were very responsive to the downward movement of wholesale cost, which put pressure on our gasoline margin," Casey’s President and CEO Robert J Myers stated. "However, as costs stabilized toward the end of the quarter, the margin improved."

For the nine-month period, total gallons sold rose 2 percent to 942.5 million gallons. Same-store gallons sold were up nearly 1 percent with an average margin of 13.1 cents per gallon.

The company’s goal in the grocery and other merchandise category is to increase same-store sales 7 percent with an average margin of 33.2 percent. For the 20th consecutive quarter, Casey’s increased same-store sales. Same-store sales were up 6.5 percent for the third quarter and up 5.3 percent year to date. Total sales for the quarter were $231.3 million with an average margin of 32.9 percent, up more than 100 basis points from the third quarter a year ago. Gross profit in the quarter rose 11.1 percent to $76.1 million.

"All areas in this category are performing well, lead by solid gains in beer and beverages," Myers stated. For the nine-month period, total sales in grocery & other merchandise were $770.8 million with an average margin of 33.6 percent.

Casey’s goal in prepared food and fountain is to increase same-store sales 6.8 percent with an average margin of 61.2 percent. Same-store sales were up 8.1 percent for the quarter and 9.9 percent year to date. Total sales in the quarter rose 10.4 percent to $81 million, with an average margin of 61.8 percent. "We have taken advantage of a recent decrease in commodity costs to lock in the price of cheese through October 2009," Myers stated. For the nine months, total sales were up 11.6 percent with an average margin of 60.9 percent.

In the third quarter, operating expenses decreased 1.4 percent to $118.9 million. “We experienced nearly a 19 percent decrease in credit card fees due to lower gasoline prices and had a significant decline in our fleet fuel expense,” said Myers. "We expect these favorable conditions to continue into our fourth quarter." For the year, operating expenses were up 5.9 percent, according to the company.