10-QPeriod: Q3 FY2007

CASEYS GENERAL STORES INC Quarterly Report for Q3 Ended Jan 31, 2007

Filed March 9, 2007For Securities:CASY

Summary

Casey's General Stores, Inc. (CASY) reported its third-quarter and nine-month results for fiscal year 2007 in this SEC filing. For the three months ended January 31, 2007, the company saw a significant increase in net sales, driven by higher gasoline volumes and prices, alongside robust growth in grocery, general merchandise, and prepared food sales. This top-line growth, coupled with improved gasoline gross profit margins, led to a substantial increase in net earnings compared to the prior year period. The nine-month period also demonstrated strong top-line growth, though net earnings experienced a decrease. This was primarily attributed to a decline in gross profit margins for gasoline, grocery, and prepared foods, despite increased gallon sales and new store additions. The company made a significant acquisition of the HandiMart convenience store chain during this period, which contributed to increased capital expenditures and goodwill on the balance sheet. Investors should note the company's ongoing investment in store remodels and acquisitions, as well as its exposure to gasoline price volatility and competitive pressures.

Key Highlights

  • 1Net sales for the third quarter of fiscal 2007 increased by 15.6% to $922.8 million, driven by a 15.4% rise in retail gasoline sales and a 15.3% increase in grocery and general merchandise sales.
  • 2Net earnings for the three months ended January 31, 2007, increased by 61.7% to $11.2 million, primarily due to improved gross profit margins on gasoline sales.
  • 3For the nine months ended January 31, 2007, net sales grew by 15.8% to $3.03 billion, but net earnings decreased by 9.4% to $45.3 million, mainly due to lower gross profit margins in gasoline and other merchandise categories.
  • 4The company acquired the HandiMart convenience store chain, consisting of 32 stores and one truckstop, for approximately $66.7 million, significantly increasing goodwill and property and equipment on the balance sheet.
  • 5Total liabilities increased to $479.7 million as of January 31, 2007, primarily due to an increase in long-term debt to $155.0 million, including new Senior Notes issued.
  • 6Capital expenditures for property and equipment and goodwill totaled $134.9 million for the nine-month period, a significant increase from the prior year, reflecting investments in new and remodeled stores, including the HandiMart acquisition.
  • 7The company is involved in 'hot fuel' litigation, alleging misrepresentation of gasoline volumes. Management believes it is not liable and does not expect a material adverse effect, but acknowledges the uncertainty of litigation outcomes.

Frequently Asked Questions

The revenue increase in the third quarter was primarily driven by a 15.4% rise in retail gasoline sales, attributed to a 14.6% increase in gallons sold and a 0.7% rise in the average retail price per gallon. Additionally, sales of grocery and general merchandise grew by 15.3%, and prepared food and fountain sales increased by 19.2%, boosted by the addition of new stores and product introductions.

The decrease in net earnings for the nine-month period, despite revenue growth, was primarily due to a decline in gross profit margins. Specifically, the gross profit margin on retail gasoline sales decreased from 5.3% to 4.1%, and margins for grocery and general merchandise and prepared food also saw reductions compared to the prior year period. Increased operating expenses, particularly bank fees due to higher credit card usage, also contributed.

The acquisition of the HandiMart convenience store chain for $66.7 million is a significant strategic move to expand Casey's market presence in eastern Iowa. It added 32 convenience stores and one truckstop to the company's portfolio, contributing to increased goodwill and property and equipment on the balance sheet and impacting capital expenditures and cash flow from investing activities.

Casey's General Stores has increased its long-term debt to $155.0 million, including the issuance of $50,000 Series A Senior Notes. The company relies on cash flow from operations, a bank line of credit, and new debt to fund its capital expenditures, which are significant due to store expansion and remodeling. Management believes its current liquidity and capital resources are sufficient for future operations and growth.