Q1 2024 Casey's General Stores Inc Earnings Call
Four.
course performance is there were no significant macro events that influenced Marge.
It was a relatively benign quarter from a wholesale cost perspective, and we believe this is a strong indicator that higher industry fuel margins are here to stay.
Overall, I think this quarter truly illustrates the strength of the unique Casey's business model, particularly in the more normal times.
and shows our three-year strategic plan objectives are very achievable.
The team continues to do an excellent job operating the business efficiently and effectively both inside and outside the store.
I would now like to go over our results and share some of the details in each of the categories. Inside same store sales were up 5.4% for the first quarter or 12.1% on a two-year stack basis.
with an average margin of 40.6%.
We saw notably strong performance in whole pizza pies and bakery.
as well as alcoholic and non-alcoholic beverages.
Our team, with support from our supplier partners, continues to find the right product mix and promotional activity to drive sales and profitable results. Same-store prepared food and dispense beverage sales were up 5.9%, or 14.8% on a two-year stacked basis, with an average margin of 58.2%, up approximately 260 basis points for the prior year. The previously mentioned innovation with thin crust pizza helped drive sales as we saw great results with our whole pizza pies, in addition to strong performance in bakery. Margin was favorably impacted by softening in commodities by 17% from the prior year due to the lower retail price of fuel. Double inside percent from the prior year.
For the quarter grocery and general merchandise sales increased by 74 million dollars to 997 million an increase of 8% Prepared food and dispensed beverage sales rose by 29 million dollars to 373 million an increase of eight and a half percent
Results were also favorably impacted by operating approximately 3% more stores on a year-over-year basis.
Retail fuel sales were down $669 million in the first quarter due to a 24% decrease in the average retail price per gallon. That was partially offset by a 3.6% increase in gallons sold to $714 million.
The average retail price of fuel during this period was $3.40 a gallon compared to $4.49 a year ago.
As a reminder, we define gross profit as revenue less cost of goods sold by excluding depreciation and amortization.
Casey's had gross profit of $878 million in the first quarter, an increase of $42 million, or 5%, from the prior year.
This is driven by higher insight gross profit of $52.2 million or 10.3%.
partially offset by a decrease of 11.2 million or 3.6 percent in fuel gross profit.
The grocery and general merchandise margin was 34.1%. That's an increase of 20 basis points from the prior year.
A slight increase was due to a favorable mix shift with further penetration of private label products, a lower LIFO charge than in the prior year, and favorable vendor funding.
Prepared food and dispensed beverage margin was 58.2%. That's up 260 basis points from prior year. The category margin benefited from lower commodity costs, specifically cheese, which was $2.04 per pound for the quarter. That compares to $2.49 per pound last year, a decrease of 18%.
This positively impacted PF and DB margin by approximately 130 basis points.
Margin also benefited from a lower LIFO charge than the prior year as our input costs softened, which had an approximate 120 basis point impact.
We are in the midst of adjusting certain benefits associated with our Casey's Rewards platform. And during the quarter, these one-time changes positively impacted PF and DB sales and margin by approximately $4.9 million. However, because we were concomitantly running a summer-long promotional campaign of 89-cent fountain drinks, we did not see much of a net benefit from the program change.
Fuel margin for the quarter was 41.6 cents per gallon, down 3.1 cents per gallon from the all-time high prior year's quarterly CPG.
Fuel gross profit benefited by $20.2 million from the sale of RINs, and that's up 2.5 million from the same quarter in the prior year.
Total operating expenses were up 3.2 percent or $17.6 million in the first quarter.
Nearly 3% of the total operating expense increase is due to unit growth as we operated 82 more stores than the prior year.
Credit card fees decreased approximately $6 million due to lower retail fuel prices.
And that offset essentially all remaining operating expense increases.
Same store employee expense was approximately flat as the increase in wage rates was offset by the reduction in same store hours.
Depreciation in the quarter was $82.9 million. That's up $6.6 million versus the prior year, primarily due to operating more stores.
Net interest expense was $12.5 million in the quarter, down $1.3 million versus the prior year, aided by rising interest rates on our cash balances.
As a reminder, about 16 percent of our debt is floating rate.
The effective tax rate for the quarter was 23.6% compared to 24.6% in the prior year. That decrease was driven by a one-time benefit that we recorded due to an income tax rate reduction in the state of Nebraska.
Net income was up versus the prior year to $169.2 million, an increase of 10.7%. EBITDA for the quarter was $316.9 million compared to $293 million a year ago, an increase of 8.2%.
Our balance sheet remains in excellent condition and we have ample financial flexibility. On July 31st, we had total available liquidity of $1.3 billion. Furthermore, we have no significant securities coming due until fiscal 2026.
Our leverage ratio, calculated in accordance with our senior notes, is now 1.7 times.
For the quarter, net cash generated by operating activities of $229 million less purchases of property and equipment of $69 million resulted in the company generating $160 million in free cash flow. That compares to generating $194 million in the prior year.
At the September meeting, the board of directors voted to maintain the quarterly dividend at 43 cents per share.
During the first quarter, we also repurchased approximately $30 million of stock and have $370 million remaining on our existing share repurchase authorization.
Investing in EBITDA and ROIC accretive growth opportunities remains our primary capital allocation priority, but as we mentioned at our investor day, our balance sheet affords us the opportunity to be more opportunistic than in the recent past with regards to share repurchase.
In our press release and during this call, we have and will mention several pending acquisitions.
These acquisitions will be funded with cash on hand.
The pending transaction with EG Group is subject to regulatory approval and is expected to close this calendar year.
As a result of the pending transactions, Casey's expects to add at least 150 stores in fiscal 2024.
We will revisit the entire annual outlook following our second quarter earnings call.
Our August results for the current quarter are as follows.
Same store sales, both inside and fuel gallons, are slightly below the midpoint of their respective annual outlooks.
Fuel CPG through August was in the high 30s.
At current spot, cheese prices are modestly favorable versus the prior year, but less so than we experienced in the first quarter.
Total operating expenses will be near the high end of our annual growth range in the second quarter, and that's primarily due to timing.
I'd now like to turn the call back over to Darren.
Thanks, Steve.
I would like to express my gratitude to the entire CASES team for delivering another great quarter.
We're often extremely strong start to our fiscal year in our three-year strategic plan.
Our M&A and real estate teams have been hard at work, as we are very excited about the pending acquisition with EG Group and their 63 stores in Kentucky and Tennessee.
These stores are located in rural and suburban markets, and we look forward to bringing more of our delicious pizza to Kentucky and Tennessee.
It is complementary to our existing footprint and within our distribution center's radii, further leveraging our scale and infrastructure.
In the first quarter, we also introduced a refreshed app design that makes it easier than ever for our loyalty members to track their points, redeem for rewards, and see how much they've saved by shopping with Casey's Rewards.
The program is nearing 7 million members and we're excited to see the way our value proposition is resonating across the Midwest.
Our guests have also gravitated to our private label products, and we exited the corridor approaching 350 items in the assortment, with over 40 new items in the pipeline for the remainder of the calendar year.
And the results are there, achieving nearly 10% unit share and over 10% gross profit share in the first quarter, with same store sales up 26%.
On the ESG front, we released our third annual sustainability report in July , and it's available on our website.
Our team has put in a lot of work to build a more sustainable business for FACES.
We're excited to share our progress on this journey.
As we look ahead to the second quarter of fiscal 24 and beyond, I'm excited about what Casey's has to offer.
Our balance sheet gives us the ability to be disciplined but opportunistic with store growth, and our capabilities throughout the organization will allow for that growth to be efficient and innovative.
The plan we laid out in June has been well received, and we have the team in place to execute on that plan at a high level and continue to deliver the kind of results our investors have come to inspect from cases.
I'm looking forward to seeing the results of our hard work in the quarters and years ahead. We will now take your questions.
Thank you. As a reminder, to ask a question, please press star 1 1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
We also ask that you please limit yourself to one question and to one follow-up question.
Stand by as we compile the Q&A roster.
Please for our first question. Our first question will come from Anthony of Wells Fargo. Your line is open.
Hey, guys. Congrats on the nice quarter. So, I guess just starting with fuel margins, clearly a lot stronger than some of us were expecting. Seems like a pretty normal environment in terms of price action, but there does seem to be a growing consensus that breakevens are sort of drifting higher. I guess just any thoughts on underlying drivers of that dynamic, and then how are you thinking about that mid-30s number that you talked about as a modeling assumption when you gave 624 guidance? Yeah, Anthony. This is Darren. I'll start with that. Like you said, it was a…
Is a relatively normal quarter from a few margin standpoint. We had some a little bit of volatility here and there, but nothing. Nothing of note, and I, I'd 1st, just say that I think our team did a really great job of balancing. That volume and margin and.
And when we look at volume numbers for the industry, Opus Mid-Cotton had those volume numbers down about 4.1% in our geography. So I think our positive gallon growth was great.
you know, in terms of the outlook.
Moving forward, I would prefer to be a little more on the conservative side, but I have to say that the more recent history, as I mentioned in the prepared remarks of nine quarters over 34 and a half cents, I think it would suggest that those margins may pick up a bit higher and the pressure that we've talked about over the last couple of years.
With the smaller operators is still there. You know, the cost of operating the business is still a challenge for a lot of those folks that don't have scale. And I think in the current environment, the. The continued erosion of the cigarette category is putting additional pressure on those smaller operators. So I would say if anything, there's probably an upward bias. On a few margin moving forward.
Got it. That's really helpful. And then just quickly on operating expenses, obviously a very impressive quarter on costs, but on guidance, you raised your unit growth guidance by, it looks like about 2% for fiscal 24, but less OPEX growth unchanged. So I guess one, why is that? And then two, assuming that still holds and fiscal Q1 is certainly a good data point, I guess what makes you more constructive about your progress there? Yeah. Hey, Anthony. This is Steve. I'll maybe start with what's in or out of the guidance. So...
We did raise the unit number that we expect to close for the year just based on the strong start to the year that we've had. You know, we don't know the timing of exactly when any of those units are going to come into the system, so to speak, and the EG transaction as we mentioned that does require us to get regulatory approval. And so all of our guidance that we gave at the beginning of the year, you know, was predicated on that initial unit number and so our numbers from an OPEX standpoint are still based on that original unit count. We haven't adjusted total OPEX expectations for when those new units will come in yet because we just don't know when we'll get clearance to close those. So when we revisit...
The total outlook at the end of the 2nd quarter will be halfway through the year. I think we'll have a lot more clarity around exactly when those units come in and what impact they may have on all of the various metrics. And we'll we'll try to be as transparent as we can at that point.
Thank you. One moment, please, for our next question. Our next question will come from Ben Bienvenu of Stevens, Inc. Your line is open.
Hey, good morning guys.
I'm going to ask, you provided helpful color on quarter-to-date trends. My understanding or recollection is that August was probably a reasonably difficult comparison just given last year that was a period where we saw a precipitous drop in fuel prices off of a very high base following the onset of the Ukraine war. I'm wondering, what did that mean for the compare in the period?
You provided helpful color on quarter to date trends. My understanding or recollection is that August was probably a reasonably difficult comparison just given last year that was a period where we saw a precipitous drop in fuel prices off of a very high base following the onset of the Ukraine war. I'm wondering what did that mean for the compare and the period and...
I know it's just the 1st quarter in the year, and you typically don't revisit guidance until you get a little bit further into the year. But how much does kind of what you're seeing quarter to date play into the. You know, the decision not to address for your guidance. Yeah, Ben, this is Darren, I would say that that's got nothing to do with our decision to. To not update guidance at this point, it's just been our standard practice to wait till the midpoint in the year where we have a bit more visibility into what's going on. So I would, I would just emphasize you should read nothing into the fact that we didn't update guidance. Other than the fact.
that it's more one quarter into it and we have another quarter before we typically do that. We did make the adjustment on the stores because we already have under contract more stores than we had planned to open for the year. So that one just mathematically we felt obligated to adjust, but everything else was setting up really favorably for us. Like we've mentioned, cost have still been higher to operate, especially for those that don't have scale, the tobacco mix.
is starting to have an impact on folks, we believe. And so we've seen a pretty good uptick in the opportunities that are out there for us to pursue. And we have our dedicated M&A team has been busy looking at all of those that make sense for us. And we'll just have to see how that process plays out, but we're definitely in the market for that.
Thank you. One moment, please, for our next question. Our next question will come from Bonnie Herzog of Goldman Sachs. Your line is open. All right. Thank you. Good morning, everyone. I wanted to ask about your inside sales, which were quite healthy. So, maybe just hoping for a little bit more color on some of the key categories where you saw maybe the most growth, and then also on your private label performance. Maybe you could share with us just sort of where you're at with that business that you've rolled out and maybe how it trended throughout the quarter, especially in the context of the consumer.
One moment please for our next question. Our next question will come from Bonnie Herzog of Goldman Sachs. Your line is open. All right, thank you. Good morning, everyone. I wanted to ask about your inside sales, which were quite healthy. So maybe just hoping for a little bit more color on some of the key categories where you saw maybe the most growth and then also on your private label performance. Maybe you could share with us just sort of where you're at with that business that you've rolled out and maybe how it trended throughout the quarter, especially in the context of the consumer. Thanks.
Yeah, Bonnie, I'd say that I was really happy with the inside sales performance. And it was, we had strength across a lot of categories. I start with our prepared foods, you know, 5.9% and I was cycling over eight and eight and a half percent from the prior year. So really, really strong performance there. And what we really like about that is that it was led with our core with with whole pizza pies. And so the innovation around thin crust was something that was a gap in our menu and has really resonated well with our with our guests. And we've hit about 15% mix.
right out of the chute with that product. And that's about where we expect it to be, actually a little bit higher than where we expect it to be compared to the industry overall. So that was strong. We had some other innovation in the hot lunch sandwich category with our barbecue brisket sandwich on a King's Hawaiian bun. So we did a nice collaboration from there. And that category was up 30%. During the quarter as a result of that innovation.
On the grocery and general merch side, we saw real, real good strength in non-alcoholic beverages of about 8%. Our grocery category was up 7 and alcoholic beverages were up 6. So really, really good strength across the board. Really the only area. Where we have some softness was in tobacco, and I think that's more of a driven by an industry dynamic.
grocery general merch side, we saw real, real good strength in non-alcoholic beverages of about 8%. Our grocery category was up seven and alcoholic beverages were up six. So, really, really good strength across the board. Really the only area where we have some softness was in tobacco. And I think that's more of a driven by an industry dynamic more than anything else.
With respect to private label, again, we're up 26%, same store in private label. Units were up close to 16%.
So what that indicates is that we had good velocity on the unit side, but we're also able to take a little bit of price and still keep that relative value proposition for the guests. So that's been resonating with our guests and we're really happy with where we're at on that one.
Okay, a helpful color, and if I may, just a follow up on that. Just thinking about your inside margin expansion, which was also quite healthy, you did attribute it, a lot of it, it sounded like to the softening of ingredient costs, specifically cheese. So curious to kind of hear how we should think about your margin performance for the rest of the year. And then thinking about some of what you just mentioned, Darren, and some of the innovation that's driving growth, how has that been impacting margins? Is it creative as you think about as you continue to evolve what you're offering in your store? Thanks.
Yeah, with respect to the innovation, I'll start there and I'll let Steve talk a little bit more about the margin cadence. But with the innovation, we've really leaned heavier on that to drive traffic and to drive sales and less focused on some of the more aggressive value offers. We did do a little bit of that over the summer, fountain drink promotion, and that worked out really well to drive traffic. So, yeah, it was a little bit of aleness and also a slight
Yeah, with respect to the innovation, I'll start there and I'll let Steve talk a little bit more about the margin cadence. But with the innovation, we've really leaned heavier on that to drive traffic and to drive sales and less focused on some of the more aggressive value offers. I mean, we did do a little bit of that over the summer, fountain drink promotion, and that worked out really well to drive traffic. But,
When we look at innovation on the food side, we've not had to discount that innovation and we've been able to drive volume. And so we think we're, we think our team is really hitting its stride in terms of understanding what the guest needs are. And our culinary team is really developing those products that are specifically hitting those needs and that's what's resonating with the guests. And so it's allowing us to drive that incremental growth without having to do a lot of discounting to get there.
And Bonnie, this is Steve. I think we certainly continue to expect inside margin to improve year over year. That's reflected in the guidance on the grocery side of the business.
you know, the private label mix change in conjunction with, you know, generally speaking tobacco becoming gradually a smaller part of the mix is going to naturally flatter the grocery margin. And the real opportunity, as you know, is on the prepared food side of the business. And so we're 80%.
hedged on our cheese buy for the remainder of this year. And so, less exposed to Spot variability here in the out quarters. We were 18% to the good on cheese in the first quarter. We're kind of committed to high single digits to the good and Q2, three and four as we sit here right now with Spot. But the 80% hedge won't give us quite as much upside as we saw in the first quarter, but I feel good about.
year-over-year deflation generally on the cheese side of the business. And by and large, there's still less pressure on the protein side of that business. And so I think we still feel good that we will continue to show improvement year-over-year on the margins, on the prepared food side of the business as the year progresses.
Thank you. One moment please for our next question.
Our next question will come from Kelly Vanya of BMO Capital Markets. Your line is open.
Good morning. Good morning. Thanks for taking our questions.
Good morning. I wanted to just circle back to the inside comps in August . Sounds like maybe a little bit of a deceleration there, but can you give color on what you're seeing with traffic, ticket, grocery prepared food, or is this just maybe a little bit of cycling off this fountain drink promotion that was done over the summer, or just anything that we should think about that's impacting the trend near term?
And how you view the opportunities and challenges in bringing the Casey's brand to those denser areas. Thanks.
Yes, Dan.
When we think about markets like bowling Green in Lexington.
Those arent real or significantly.
The larger markets than a lot of the markets we operate in today.
Lexington is a city that's comparable to.
And size to des Moines, where we're based in so we're very comfortable at that level. This isn't a chicago or Los Angeles, and New York type of a scenario by any stretch and so.
I've been to both of those markets bowling Green is a fantastic market for us Lexington will be a great market for us So we're.
We're very comfortable operating accounts of this size I don't have any concerns there.
Yeah.
Thank you.
Thank you.
And one moment please for our next question.
Our next question will come from Kristina <unk> Doug.
Dutch Bank your line is open.
Hi, good morning, Thanks for taking the question.
Wanted to ask on private label, so that 10% unit share in the gross profit contribution you shared with US is a great result, maybe can you talk about where you are in the process of that rollout.
Any particular areas, where you are seeing significant strength I think you called out 16% unit growth. So my question is is that broad based or are there any particular areas that are driving that performance.
Yeah Kristina.
We're still.
Continuing to evolve the private label portfolio.
Got another 40 items that will go into the assortment.
By the end of the year.
At the same time, we're optimizing products. So some products started to atrophy, a little bit will remove them from the assortment and we bring in new innovation.
And so that's a constant process that our private label team is.
Operating with.
With respect to where we saw some strength.
Certainly bottled water was probably our strongest up about 70%.
And in sales and and now our bottled water is about 50% of that bottled water category. Our private labels. So really strong performance. There, obviously, that's a little bit seasonal in the summertime.
Seeing great growth.
Year over year in that.
Another category, that's been really strong as chips and chips is usually a pretty tough one because it's a very competitive category, but.
We have some new innovation with some new flavors there was.
Seasonal just for this summer and Saab.
North of 70% St.
Same store sales in that category as well now that category is about 25%.
Penetrated in and again with some with the competitive landscape in that category. So that's a big that's a.
Big statements so.
We like what we are there and we've seen some broader based strength, but those are the really kind of the standouts that we've seen so far.
That's great and then just my follow up I was going to ask around pizza and in particular, the 12% new guests that you mentioned I think following the thin crust introduction have you seen any competitive response to you taking pizza share or do you anticipate any changes in the promotional landscape.
Anything around pricing.
Not at this point.
A little bit hard for me to say, whether we've taken share from any of the major competitors.
For the most part pizza hut as our primary competitor in most of our markets. If we have one and a lot of cases in our more rural markets.
There may not be a competitor or if there is one is more of a mom and pop. So it's really difficult to say, but I couldnt tell you that we've seen an uptick in promotional activity from competitors. Since we've launched the thing Cross I think.
The other pizza players have struggled a little bit from.
From a velocity standpoint, so I think they are starting to get a little more promotional anyway, but I haven't seen any change as a result of what we've done.
Thank you.
One moment please for our next question.
Okay.
Our next question will come from John Lawrence of Benchmark. Your line is open.
Good morning, guys.
Good morning.
Would you discuss a little bit about the new markets.
How quickly that some of this innovation some of the new products does that help get those.
Maybe the class of new stores in the last couple of years up and running and ramping a little faster and what have you noticed with product innovations and maybe the app.
And some of those new markets.
Okay.
Yes, John I am not so sure that we've seen a difference in terms of the impact of innovation has had and the new stores.
That being said, we've been really happy with the way our new stores have ramped.
In the last couple of years I think that's really a testament to the to the real estate team and their ability to to use advanced analytics to identify high potential sites.
At those sites.
Under contract and so we've just seen an.
An increase in and how quickly those stores have ramped in general I think the innovation only helps.
In that respect.
It gets more people interested in the stores.
See that traffic into those stores.
Great Thanks, and secondly.
Remind us a little bit on that fuel margin you talked at analyst day about some of the things some of the tools you're using to.
Help with the analytics on that data on gas prices et cetera would you remind us of that.
Yeah.
Yes.
Had for a number of years we've had.
So more analytic tools.
Essentially just given the the <unk>.
Pricing analyst the information that they need to make more informed decisions.
They've got a real time credit card data that allows us to see.
Where competitors are priced.
Scott.
Information feeding to them from a commodity market. So they know where cost is moving at any given time and so they really have.
And then they have inventory.
Information from our stores.
At any given time, they really have a complete picture of.
All the factors that would influence price within a particular trade area and so there are just simply able to make more informed decisions as a result of that.
Yeah.
Thank you.
I see no further questions in the queue I would now like to turn the conference back to Gavin Labella for closing remarks.
Okay. Thank you for taking the time today to join us on the call and before we sign off I want to thank the team members for all their hard work this quarter and everybody have a great rest of the day.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
So.
Okay.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Okay.
[music].
Yeah.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Okay.
[music].