10-QPeriod: Q2 FY2020

CASEYS GENERAL STORES INC Quarterly Report for Q2 Ended Oct 31, 2019

Filed December 9, 2019For Securities:CASY

Summary

Casey's General Stores, Inc. reported solid performance for the second quarter and first half of fiscal year 2020, with net income increasing significantly year-over-year. This growth was driven by a strong increase in fuel gross profit dollars, the strategic expansion of its store base, and a sustained focus on operational efficiencies. Despite a slight overall dip in total revenue, primarily due to a planned decrease in fuel gallons sold driven by a more balanced fuel price optimization strategy, the company saw robust growth in its grocery, merchandise, and prepared food and fountain categories. The company continues to invest heavily in new store construction and acquisitions, indicating a commitment to future growth and market expansion. Financially, Casey's demonstrated strong cash flow from operations, which remains its primary source of liquidity. While the current ratio has declined due to the reclassification of a significant debt maturity, management expresses confidence in its ability to meet working capital needs through its credit facilities and operational cash flow. The company also reported a healthy increase in its diluted earnings per share, reflecting improved profitability and effective cost management. Investors can take note of the company's strategic shift towards optimizing fuel margins, which has positively impacted profitability despite lower fuel volumes, and its continued expansion strategy.

Financial Highlights

46 data points
Beta

Revenue

$2.49B

22.4% Gross Margin

Net Income

$81.98M

3.3% Net Margin

EPS (Diluted)

$2.21

Total Assets

$3.87B

Cash & Equivalents

$43.98M

Free Cash Flow

-$8.12M

Financial Statements
Beta
Revenue$2.49B
Cost of Revenue$1.93B
Gross Profit$557.07M
Operating Expenses$373.38M
Interest Expense$12.68M
Net Income$81.98M
EPS (Basic)$2.22
EPS (Diluted)$2.21
Shares Outstanding (Basic)36.92M
Shares Outstanding (Diluted)37.14M

Key Highlights

  • 1Net income increased by 23.1% to $81.98 million for the three months ended October 31, 2019, compared to $66.62 million in the prior year.
  • 2Diluted earnings per share rose to $2.21 from $1.80 in the same period, indicating improved profitability on a per-share basis.
  • 3Revenue less cost of goods sold (excluding depreciation and amortization) improved to 22.4% of revenue for the quarter, up from 20.1% in the prior year, driven by strong fuel margins and favorable product mix in grocery.
  • 4The company continues its expansion strategy, operating 2,181 stores as of October 31, 2019, with 36 new stores under construction and 5 acquisition stores pending.
  • 5Operating expenses increased by 8.5% due to operating more stores, but same-store operating expenses (excluding credit card fees) were up only 3.4%, showcasing efficiency gains.
  • 6Cash flow from operations remained strong, increasing by 2.3% to $311.41 million for the six months ended October 31, 2019, providing ample liquidity.
  • 7Management plans significant capital expenditures of $516 million for fiscal year 2020, focused on store construction, acquisition, and remodeling.

Frequently Asked Questions

Total revenue for the second quarter of fiscal 2020 decreased by 2.0% ($50.4 million) to $2.49 billion compared to the prior year. This decrease was primarily driven by a 6.6% decline in retail fuel sales, influenced by a planned reduction in fuel gallons sold as part of an evolving fuel price optimization strategy and a 9.7% decrease in average retail fuel price. However, sales of grocery and other merchandise increased by 6.8%, and prepared food and fountain sales grew by 5.2%, primarily due to the company operating more stores.

Casey's is adopting a more proactive and balanced approach to fuel price optimization, aiming to grow profitability. This strategy has contributed to a higher average fuel margin (22.9 cents per gallon for the quarter, up from 20.0 cents a year ago), which has, in turn, led to a decrease in same-store fuel gallons sold. While volumes are down, the increased margin per gallon has positively impacted fuel gross profit dollars.

Operating expenses increased by 8.5% in the second quarter, largely attributable to operating 84 more stores compared to the prior year. However, same-store operating expenses, excluding credit card fees, increased by only 3.4%. This indicates that while expansion naturally increases overall expenses, the company is managing costs effectively within its existing store base, benefiting from advancements in labor management and lower insurance costs.

Casey's maintains a strong liquidity position, with cash provided by operations being its primary source. As of October 31, 2019, the company had $43.98 million in cash and cash equivalents. Management believes its existing credit facilities ($300 million revolving credit facility and a $25 million bank line) and operational cash flow are sufficient for working capital needs. The company plans significant capital expenditures of approximately $516 million for fiscal year 2020, primarily for store construction, acquisitions, and remodeling, funded by existing cash, operations, and potential new debt.