8-K: Casey's General Stores Reports Mixed Q3 Results Amidst Expansion and Cost Pressures

Casey's General Stores announced its third-quarter results, showing a decrease in earnings per share and net income compared to the previous year, despite growth in inside sales and store expansion.

Summary

• Casey's General Stores reported a diluted EPS of $2.33 for the third quarter, a 13% decrease year-over-year.
• Net income for the quarter was $87 million, also down 13% compared to the same period last year.
• EBITDA was $218 million, a 2% decrease from the prior year's third quarter.
• The prior year's results benefited from a one-time $15 million operating expense reduction due to a legal matter resolution.
• Inside same-store sales increased by 4.1%, with a 9.9% increase on a two-year stack basis, and an inside margin of 41.3%.
• Total inside gross profit rose by 11.3% to $501.5 million.
• Same-store fuel gallons decreased by 0.4%, with a fuel margin of 37.3 cents per gallon.
• Total fuel gross profit decreased by 2.0% to $257.2 million.
• Same-store operating expenses, excluding credit card fees, increased by 2.5%, but were favorably impacted by a 1% reduction in same-store labor hours.
• The company had approximately $1.1 billion in available liquidity at the end of the quarter.
• Casey's repurchased approximately $30 million of shares during the quarter and has $310 million remaining under its existing share repurchase authorization.
• The Board of Directors approved a quarterly dividend of $0.43 per share.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong inside sales growth and reaffirmed outlook, but tempered by decreased earnings and fuel margin pressures. The company is expanding and managing costs, but faces some headwinds.

Positives

• Inside same-store sales increased by 4.1%, driven by strong performance in prepared food and dispensed beverages.
• Total inside gross profit increased by 11.3% to $501.5 million.
• Inside margin was up 70 basis points compared to the same quarter a year ago.
• The company successfully integrated multiple acquisitions and reduced same-store labor hours.
• Casey's has a strong liquidity position with approximately $1.1 billion available.
• The company is reaffirming its annual outlook for same-store inside sales growth and EBITDA growth.
• The company expects to add at least 150 stores in fiscal 2024.

Negatives

• Diluted EPS decreased by 13% to $2.33 compared to the same quarter last year.
• Net income was down 13% to $87 million.
• EBITDA decreased by 2% to $218 million.
• Same-store fuel gallons were down 0.4%.
• Total fuel gross profit decreased by 2.0% to $257.2 million.
• Operating expenses increased by approximately 10% during the third quarter.
• The prior year's results benefited from a one-time $15 million operating expense reduction.

Risks

• The company faces challenges in maintaining fuel margins in a rising cost environment.
• Operating expenses increased due to the addition of 167 new stores and the lapping of a one-time benefit from the prior year.
• The company is exposed to risks related to the execution of its strategic plan and the integration of acquired stores.
• There are risks associated with wholesale fuel, inventory and ingredient costs, and potential supply chain disruptions.
• Geopolitical disruptions, such as the conflict in Ukraine, could impact the company's performance.

Future Outlook

The company is reaffirming its annual outlook, expecting same-store inside sales to increase 3.5% to 5%, inside margin improvement to approximately 40% to 41%, and same-store fuel gallons sold to be between negative 1% to positive 1%. Total operating expenses are expected to increase approximately 6% to 8%, with same-store operating expenses excluding credit card fees expected to increase approximately 3%. Fiscal 2024 EBITDA growth is expected to be in-line with the long-term strategic plan's goal of 8% to 10%. The company expects to add at least 150 stores in fiscal 2024 and repurchase at least $100 million in shares throughout the fiscal year.

Management Comments

• Casey's delivered another solid quarter highlighted by inside gross profit growth, said Darren Rebelez, Chairman, President and CEO.
• Inside same-store sales were driven by prepared food and dispensed beverage, with whole pies and hot sandwiches performing exceptionally well.
• Our fuel team navigated a rising cost environment and delivered nearly flat gallon volume and a 37.3 cents per gallon fuel margin.
• The operations team performed exceptionally well this quarter integrating multiple acquisitions, reducing same-store labor hours while growing sales and driving positive guest satisfaction scores.

Industry Context

The convenience store industry is facing challenges related to fuel margins and operating costs, while also seeing growth in prepared food and beverage sales. Casey's results reflect these trends, with strong inside sales growth offset by fuel margin pressures and increased operating expenses due to expansion.

Comparison to Industry Standards

• Casey's inside same-store sales growth of 4.1% is solid, but needs to be compared to other major convenience store chains like 7-Eleven and Circle K to assess relative performance.
• The fuel margin of 37.3 cents per gallon is lower than the 40.7 cents per gallon in the same quarter last year, indicating a potential challenge in managing fuel costs, which is a common issue in the industry.
• The company's expansion plans to add at least 150 stores in fiscal 2024 is aggressive and needs to be compared to the expansion strategies of its competitors.
• The company's EBITDA growth target of 8% to 10% is in line with industry expectations for well-managed convenience store chains.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share, but may be encouraged by the dividend and share repurchase program.
• Employees may benefit from the company's growth and expansion, but may also face challenges related to labor hours and cost management.
• Customers may benefit from the company's focus on prepared food and dispensed beverages, as well as the expansion of store locations.
• Suppliers may see increased demand due to the company's growth and expansion.

Next Steps

• The company will report earnings during a conference call on March 12, 2024.
• The company will continue to execute its strategic plan, including store expansion and share repurchases.

Key Dates

Keywords

convenience stores, fuel, inside sales, EBITDA, same-store sales, gross profit, operating expenses, acquisitions, share repurchase, dividend