10-QPeriod: Q2 FY2005

CASEYS GENERAL STORES INC Quarterly Report for Q2 Ended Oct 31, 2004

Filed December 9, 2004For Securities:CASY

Summary

Casey's General Stores, Inc. reported its financial results for the fiscal quarter ended October 31, 2004. The company experienced a notable increase in net sales, driven by a significant rise in gasoline sales due to both higher gallon volume and an increased average retail price per gallon. Sales in grocery, general merchandise, and prepared foods also saw growth, supported by the addition of new stores and increased store maturity. Despite revenue growth, profitability was impacted by compressed gross profit margins, particularly in gasoline and prepared foods. This was attributed to rising wholesale gasoline costs, reduced vendor rebates, and higher wholesale cheese prices. Operating expenses, while increasing in absolute terms due to factors like increased bank fees and store expansion, decreased as a percentage of net sales, which offered some offset. The company continues to invest heavily in capital expenditures for store development and remodeling, funded primarily through operations and existing cash reserves, while managing its debt levels.

Key Highlights

  • 1Net sales increased by 17.3% for the quarter, driven by a 23.4% rise in retail gasoline sales (3.4% volume increase, 19.3% price increase) and an 8.2% increase in grocery/merchandise and prepared food sales.
  • 2Gross profit margins declined across key categories: gasoline (5.4% vs. 7.9%), grocery/merchandise (30.8% vs. 32.3%), and prepared food/fountain (60.4% vs. 62.8%), negatively impacting overall profitability.
  • 3Operating expenses as a percentage of net sales improved to 11.7% from 12.7% in the prior year's comparable period, despite an 8.2% increase in absolute operating expenses.
  • 4Net income for the quarter decreased by 30.2% to $11.0 million compared to $15.8 million in the prior year, primarily due to lower gross profit margins.
  • 5The company continues significant capital investment, with $40.7 million spent on property and equipment in the first six months of the fiscal year, and anticipates approximately $100 million in capital expenditures for the full fiscal year.
  • 6Total liabilities increased to $408.5 million from $394.8 million, while total shareholders' equity grew to $462.0 million from $439.8 million, indicating continued equity growth despite increased leverage.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in retail gasoline sales, which rose by 23.4%. This increase was a result of both a 3.4% rise in the number of gallons sold and a significant 19.3% increase in the average retail price per gallon. Sales of grocery and general merchandise, along with prepared foods, also contributed positively, increasing by 8.2% due to new store additions and a higher proportion of stores operating for at least three years.

Net income for the quarter decreased by 30.2% due to compressed gross profit margins. The gross profit margin on retail gasoline sales fell from 7.9% to 5.4%, grocery and general merchandise margins decreased from 32.3% to 30.8%, and prepared food and fountain margins declined from 62.8% to 60.4%. These margin squeezes were primarily caused by rising wholesale gasoline costs, reduced vendor rebates, and higher wholesale cheese prices, which the company could not fully offset with price increases.

Casey's is making substantial capital investments, spending $40.7 million on property and equipment in the first six months of the fiscal year and planning for approximately $100 million in capital expenditures for the full year, primarily for store development. The company expects to fund these expenditures through operating cash flow and existing cash reserves. Liquidity is supported by strong cash flow from operations and a $35 million bank credit line, which had no outstanding balance as of October 31, 2004. The current ratio stood at 0.98:1.

Yes, during the third quarter of fiscal 2004, the company changed its accounting principle for valuing retail gasoline inventories from LIFO (last-in, first-out) to FIFO (first-in, first-out). This change was made because FIFO is considered to better reflect the current value of gasoline inventory and match costs with revenues more accurately. The prior year's comparative six-month results were restated to reflect this change.