10-QPeriod: Q2 FY2007

CASEYS GENERAL STORES INC Quarterly Report for Q2 Ended Oct 31, 2006

Filed December 8, 2006For Securities:CASY

Summary

Caseys General Stores, Inc. (CASY) filed its quarterly report for the period ending October 31, 2006, showing a mixed financial performance. While total net sales increased by 4.8% for the quarter and 15.9% for the first six months compared to the prior year, driven by increased gasoline gallon sales, higher merchandise and prepared food sales, and a significant acquisition, profitability faced headwinds. The company experienced a decrease in net earnings for both the quarter (down 22.6%) and the six-month period (down 20.9%). This was primarily attributed to a substantial compression in gross profit margins on gasoline sales, which fell from 5.5% to 4.0% for the quarter and 5.7% to 3.8% for the six months. This decline, coupled with increased operating expenses as a percentage of net sales, significantly impacted the bottom line. The company's strategic acquisition of the HandiMart convenience store chain for $66.7 million is a notable event, contributing to asset growth and goodwill, but also impacting cash flow from investing activities.

Key Highlights

  • 1Net sales increased 4.8% to $1,009.9 million for the three months ended October 31, 2006, compared to $963.7 million in the prior year.
  • 2Net sales increased 15.9% to $2,109.8 million for the six months ended October 31, 2006, compared to $1,821.2 million in the prior year.
  • 3Net earnings decreased by 22.6% to $17.2 million for the three months ended October 31, 2006, compared to $22.2 million in the prior year.
  • 4Net earnings decreased by 20.9% to $34.1 million for the six months ended October 31, 2006, compared to $43.1 million in the prior year.
  • 5The company acquired the HandiMart convenience store chain for $66.7 million, adding 33 stores (32 convenience stores and 1 truckstop) and $29.0 million in goodwill.
  • 6Gross profit margins on retail gasoline sales significantly compressed, declining to 4.0% for the quarter and 3.8% for the six-month period, down from 5.5% and 5.7%, respectively, in the prior year.
  • 7Cash used in investing activities increased significantly to $114.2 million for the six months ended October 31, 2006, primarily due to the HandiMart acquisition.

Frequently Asked Questions

The primary reason for the decline in net earnings is the significant compression of gross profit margins on retail gasoline sales. The margin per gallon decreased substantially in both the three-month and six-month periods compared to the prior year, which more than offset the revenue gains from increased sales volume and other product categories.

The acquisition of the HandiMart chain for $66.7 million significantly increased Casey's assets, including the addition of $28.98 million in goodwill. This acquisition also led to a substantial increase in cash used for investing activities during the first six months of the fiscal year. The acquired stores will contribute to future revenue streams, but their immediate impact on profitability is not yet fully detailed in this report.

Management notes that the company achieved below-average gross profit margins per gallon during these periods. They expect market conditions to stabilize and anticipate a return to historical levels of 10 to 11 cents per gallon over the long term. The company is also focusing on increasing sales of prepared foods and merchandise, which have higher margins.

As of October 31, 2006, Casey's had a current ratio of 0.71:1, which is below 1:1, indicating current liabilities exceeded current assets. However, the company stated its primary source of liquidity is cash provided by operations and indicated its current bank line of credit, combined with operating cash flow, is expected to be sufficient to meet working capital needs.