Casey’s General Stores, Inc. (NASDAQ:CASY) Q3 2024 Earnings Call Transcript
Casey's General Stores, Inc. (NASDAQ:CASY) Q3 2024 Earnings Call Transcript March 12, 2024
Casey's General Stores, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to Casey’s General Stores, Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead, sir.
Brian Johnson : Good morning, and thank you for joining us to discuss the results from our third quarter ended January 31, 2024. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Board Chair, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this Investor Call, they constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities, and performance at our stores.
There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions, as well as other risks, uncertainties and factors which are described in our most annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events.
And Casey’s disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as a detailed breakdown of the operating expense increase for the third quarter, can be found on our website at www.casey.com under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our third quarter results. Darren.
Darren Rebelez : Thanks, Brian. Good morning, everyone. We're thrilled to discuss third quarter as it once again demonstrated the strength of the Casey’s team and the resilience of our business model. Now, let's review the results. Diluted EPS finished at $2.33 per share, 13% decrease from the prior year. The company generated $87 million in net income, a decrease of 13% and $218 million in EBITDA, a decrease of 2% from the prior year. As we mentioned in last quarter's call and the press release, all of these metrics were comparing against the prior year and included a one-time operating expense reduction due to the resolution of a legal matter. This resolution benefited the prior year by approximately $15 million or $0.31 per share.
I'm proud of our team members for producing solid third quarter results. As the team navigated a less favorable fuel cost environment than in the past year, as well as challenging weather in most of our footprint in January. I'd now like to go over our results and share some of the details in each of the categories. Inside, same source sales were up 4.1% for the third quarter or 9.9% on a two-year stack basis, with an average margin of 41.3%. Same store prepared food and dispensed beverage was particularly strong, and sales were up 7.5% or 12.9% on a two-year stack basis, with an average margin of 59.6%, up approximately 230 basis points from the prior year. Whole pies performed well in the quarter, but we also saw strong performance with hot sandwiches and dispensed beverages.
Margin was favorably impacted by softening commodity costs, notably cheese, as well as modest menu pricing adjustments during the quarter. Prepared food continues to be a key differentiator for Casey's, and I'm very pleased with the sales growth in March. Same store grocery and general merchandise sales were up 2.8% or 8.8% on a two-year stack basis, with an average margin of 33.9%, a decrease of approximately 10 basis points from the prior year. We saw positive momentum in the category, notably in both alcoholic and non-alcoholic beverages, and our private label program continues to be a great value option for our guests, with Casey's chips and bottled water performing well in the quarter. For fuel, same store gallons sold were nearly flat, with a fuel margin of 37.3 cents per gallon.
This marked the 11th consecutive quarter, with fuel margins above 34.5 cents per gallon. Our volume continues to outperform our geographic market as well, as OPIS Fuel Gallon Sold data shows the mid-continent region down approximately 5% in the quarter. Our fuel team is doing an exceptional job balancing volume growth and margin, and the results continue to show it. Operating expenses were up 10.3% versus the prior year, but only 2.5% on the same store excluding credit card fee basis. Our team continues to get more and more efficient operating stores, while at the same time integrating multiple acquisitions. This is a testament to the outstanding work and maturity of our integration team. I'd now like to turn the call over to Steve to discuss financial results from the third quarter.
Steve?
Steve Bramlage : Thank you, Darren, and good morning. I'd also like to thank the team for their great work during the quarter. Our results were solid, especially inside the store, where we continue to grow sales and expand margin. This was accomplished during a quarter of heavy integration that required stores across our footprint. Overall, this was another quarter of effective operational execution in what is shaping up to be a great fiscal 2024. Total revenue for the quarter was $3.3 billion, a decrease of $3 million or 0.1% from the prior year, due primarily to the lower retail price of fuel. Total inside sales for the quarter were $1.2 billion, an increase of $106 million or 9.5% from the prior year. For the quarter, prepared food and dispensed beverage sales rose by $36 million to $349 million, an increase of 11.4%.
Grocery and general merchandise sales increased by $70 million to $866 million, an increase of 8.8%. Results were also favorably impacted by operating approximately 7% more stores on a year-over-year basis. Retail fuel sales were down $106 million in the third quarter, as an 11% decline in the average retail price of fuel was partially offset by a 6.9% increase in fuel gallons sold. The average retail price of fuel during this period was $2.98 a gallon compared to $3.34 a gallon a year ago. We define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey’s had gross profit of $787 million in the third quarter, an increase of $49 million or 6.7% from the prior year. This is primarily driven by higher inside gross profit of $50.9 million or 11.3%, offset by lower fuel gross profit of $5.3 million or 2%.
Inside gross profit margin was 41.3% and that's up 70 basis points from a year ago. Prepared food and dispensed beverage margin was 59.6%, up 230 basis points from prior year. The category margin benefited from lower commodity costs, specifically cheese, which was $2.06 per pound for the quarter compared to $2.30 per pound last year, a decrease of 10% or approximately 80 basis points. Margin also benefited from a lower LIFO charge than in the prior year as our broader input costs softened, benefiting margin by over 40 basis points. Modest menu pricing adjustments also helped. The grocery and general merchandise margin was 33.9%, a decrease of 10 basis points from the prior year. The change was primarily due to lapping favorable vendor-funded promotions in the prior year, partially offset by lower LIFO charge and private label continuing to increase its share of our mix.
Fuel margin for the quarter was 37.3 cents per gallon. That's down 3.4 cents per gallon from the prior year. Fuel gross profit benefited by $3.4 million from the sale of RINs, and that's up $0.5 million from the same quarter in the prior year. Total operating expenses were up 10.3% or $53.2 million in the third quarter. Approximately 3% of the increase is due to lapping a one-time benefit to operating expense last year from the resolution of a $15 million legal matter. Approximately 6% of the total operating expense increase is due to unit growth and integration spending as we operated 167 more stores than the prior year. Same store employee expense accounted for approximately 1% of the increase, as modest increases in wage rates were partially offset by the reduction in same store hours.
Depreciation in the quarter was $89 million. That's up $10.9 million versus the prior year, and that's primarily due to operating more stores. Net interest expense was $14.1 million in the quarter. That's up $2.4 million versus the prior year, primarily due to less interest income as we funded several acquisitions in the quarter out of cash-on-hand. The effective tax rate for the quarter was 24.1% consistent with the prior year. Net income was down versus the prior year at $86.9 million, a decrease of 13.2%. EBITDA for the quarter was $217.6 million compared to $221.7 million a year ago, that's a decrease of 1.9%. Our balance sheet remains in excellent condition, and we have significant financial flexibility. On January 31, we had total available liquidity of $1.1 billion.
Furthermore, we have no significant maturities coming due until our fiscal 2026. Our leverage ratio, calculated in accordance with our senior notes, is 1.6 times. The third quarter tends to be our seasonal trough for cash flow generation. For that quarter, net cash generated by operating activities of $123 million, less purchases of property, plant and equipment of $150 million, resulted in the company using $27 million in free cash flows, and that compares to a generation of $27 million in the prior year. At the March meeting, the Board of Directors voted to maintain the quarterly dividend of $0.43 per share. During the quarter, we repurchased approximately $30 million of stock, and we have $310 million remaining on our existing share repurchase authorization.
Investing in EBITDA and ROIC accretive growth investments remains our primary capital allocation priority, but currently given our low leverage levels and strong cash flow, we are repurchasing more shares than in the past. We have had an excellent unit growth year so far, especially with M&A. During the third quarter we closed on a transaction to enter our 17th state in Texas, and through the end of the quarter, we have built or acquired over 125 stores. As we prepare to finish fiscal year ‘24, we are reaffirming all of our fiscal year guidance as outlined in the third quarter press release. And before we get into our fourth quarter experience to-date, just a reminder that February had an extra day due to the leap year, and that will equate to an approximate 100 basis point increase to both same store results and total OpEx for the fourth quarter.
Our results for February, excluding the impact of the leap day, were as follows: Inside same store sales are near the top end of our annual outlook range. Fuel gallons were near the low end of the annual outlook range. CPG was a touch below the mid 30s. Please note that February tends to be seasonally low in terms of fuel profitability, and that this February's result is a couple of cents per gallon higher than the same period last year. Current cheese costs are modestly favorable versus the prior year. And one last comment on total operating expenses. We expect to finish the year at the high end of our annual outlook range, and that will be driven by some discretionary fourth quarter year-end charitable contributions, as well as incremental incentive compensation expense due to the company's strong performance.
I'd now like to turn the call back over to Darren.
Darren Rebelez : Thanks Steve. I'd like to thank the entire Casey’s team for another strong quarter. You may have seen we recently added a new team member, our new Chief Pizza and Beer Officer, Nebraska native Joe Cruz. Joe was selected from over 500 applicants, and we're thrilled to have him. Now the hard work begins as he's busy tasting our handmade delicious pizza and our refreshing ice cold beer pairings, which you can follow along with on our social media channels. Our team members across the organization continue to execute our strategic plan extremely well, and the results are proving that the hard work is paying off. We continue to roll out programs to make the stores run more efficiently, including the launch of our digital production planner.
This tool allows us to use our robust data and analytics capabilities to give team members the technology to manage food production more effectively in order to reduce waste and save team members time. The Casey's brand, both with private label and our prepared food offering, continues to prove to be our strength in the industry, as evidenced by our robust inside same-store sales, both in the quarter and on a two-year stack basis. This allows for strong guest support for food innovation, and in January we rolled out a refreshed chicken sandwich and cheeseburger that guests are already gravitating towards. Just another example of guests trusting that Casey's will deliver. Our prepared food program continues to drive strong results and gives us a unique competitive advantage in the industry.
The commitment of our team members in stores to serve guests with high quality products at a great value has translated to results. Our private label program continues to shine as we saw positive growth in units and gross profit versus the year. More and more guests continue to join Casey's rewards as we have over 7.7 million members today, as growth in the third quarter was accelerated by our 24 days of Casey's campaign. With help from the continuous improvement team, our store operations team continues to operate the stores more effectively and efficiently. With their efforts, we had another quarter reducing same-store labor hours, marking the 7th consecutive quarter of same-store labor hour reduction, while increasing both guest satisfaction and team member engagement scores.
There's more to come as we're excited about what's in the pipeline for the next 12 to 18 months regarding store simplification. We look forward to giving our team members even more tools to make a great guest experience. On the fuel side of the business, we performed well despite lapping a highly profitable quarter last year. Wholesale price move in was less favorable, but we still posted a 37.3 cents per gallon margin, while outpacing our geography on fuel gallons sold. We're positioned to thrive in this environment with our team and the capabilities that we've stood up. Regarding store growth, we're off to a great start on our commitment to add 350 stores by the end of fiscal 2026. Our two-pronged approach of new store construction as well as M&A allows the company to ratably grow without reaching for acquisitions.
As we approach the end of fiscal 2024, I'm proud of how we started our three-year strategic plan. I'm extremely excited about the outlook of the business. Now that the world and our industry has evolved to a more normalized post-pandemic environment, our unique business model is proving to be both highly differentiated and resilient. We have abundant growth opportunities on the horizon and the team and balance sheet to capitalize on. This gives me great confidence in our team and our ability to execute the strategic plan. We'll now take your questions.
See also 27 Most Charitable Countries in the World and 13 States That Don’t Tax Retirement Income.
To continue reading the Q&A session, please click here.
