Casey General Stores: CASEYS GENERAL STORES INC. Discussion and analysis by management of the financial position and operating results (in thousands of dollars). (form 10-Q)
Casey's and its direct and indirect wholly-owned subsidiaries operate convenience stores primarily under the names "Casey's" and "
Casey's General Store" and as of May 13, 2021, approximately 89 stores under the name "Bucky's" (collectively referred to as the "Company", " Casey's Store" or "Stores") throughout 17 states, over half of which are located in Iowa, Missouriand Illinois. The Company also operates two stores selling primarily tobacco products, one grocery store, and one liquor store. As of July 31, 2021, there were a total of 2,380 stores in operation. All convenience stores offer fuel for sale on a self-serve basis and most stores carry a broad selection of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco products, health and beauty aids, automotive products and other non-food items. The Company derives its revenue primarily from the retail sale of fuel and the products offered in its stores. Approximately 52% of our stores were opened in areas with populations of fewer than 5,000 persons, while approximately 23% of all stores were opened in communities with populations exceeding 20,000 persons. Three distribution centers are currently in operation (in Ankeny, Iowaadjacent to our corporate headquarters; which we call the Store Support Center, in Terre Haute, Indiana, and in Joplin, Missouri) from which certain grocery and general merchandise items are supplied to our stores. As of July 31, 2021, the Company leased a combination of land and/or building at 86 locations. The Company reported diluted earnings per common share of $3.19for the first quarter of fiscal 2022. For the same quarter a year-ago, diluted earnings per common share was $3.24. The following table represents the roll forward of store growth through the first quarter of fiscal 2022: Store Count Total stores at April 30, 20212,243 New store construction 3 Acquisitions 139 Acquisitions not opened (2) Prior acquisitions opened 2 Closed (5)
Total stores at
Acquisitions in the table above include, in part, 89 stores which were acquired from Buchanan Energy on
May 13, 2021. The table excludes three sites that were included in the transaction, but were divested by Casey's shortly after closing as part of a consent order with the Federal Trade Commission. Additionally, the Company acquired 48-stores from the Circle Ktransaction that closed in June. For additional discussion, refer to Note 6 in the condensed consolidated financial statements. Throughout the latter half of the Company's 2021 fiscal year, and into the first quarter of fiscal 2022, the Company has generally seen an increase in guest traffic and sales of certain products, for example fuel gallons and pizza slices, as schools, businesses and the economy in general have gone, or are going through, various stages of reopening from COVID-19. The Company has, however, also seen a recent increase in the number of COVID-19 cases reported amongst its team members and in certain areas of its operating territory, which in some instances has led to an increase in temporary store closures (which often times only last for a matter of hours) for COVID-19 cleaning protocols, labor challenges and the return of various locally imposed governmental restrictions, including but not limited to mask and social distancing mandates. As such, the unpredictable nature of the evolving COVID-19 pandemic, including what, if any, further governmental restrictions or protections may be imposed upon the Company and its business, team members, guests and communities, could again lead to additional closures, decreased traffic and demand, and increased COVID-19-related operating expenses, for the foreseeable future. While COVID-19 continues to result in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to navigate, and eventually emerge from, the pandemic. Same-store sales is a common metric used in the convenience store industry. We define same-store sales as the total sales increase (or decrease) for stores open during the full time of both periods being presented. We exclude from the calculation any acquired stores and any stores that have been replaced with a new store, until such stores have been open during the full time of both periods being presented. Stores that have undergone a major remodel, had adjustments in hours of operation, added pizza delivery, or had other revisions to their operating format remain in the calculation. 15 -------------------------------------------------------------------------------- Table of Contents The first quarter results reflected a 9.0% increase in same-store fuel gallons sold, with an average fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) of 35.1 centsper gallon, compared to 38.2 centsper gallon in the same quarter a year ago. Same-store gallons sold were positively impacted by higher guest traffic that is lapping COVID-19 restrictions that were in place a year ago. The Company sold 11.3 million renewable fuel credits for $18.7 millionduring the quarter, compared to the sale of 6.4 million renewable fuel credits in the first quarter of the prior year, which generated $3.4 million. Same-store sales of grocery and general merchandise increased 7.0% and prepared food and dispensed beverage increased 10.8% during the first quarter. Note that we have changed the grocery and other merchandise category to grocery and general merchandise and the prepared food and fountain category to prepared food and dispensed beverage to better reflect the composition of the category. There have been no changes to the makeup of the category, and it remains directly comparable to prior periods. The increase in grocery and general merchandise same-store sales was primarily due to stronger sales of packaged beverages and grocery items, such as salty snacks and meat snacks. The increase in prepared food and dispensed beverage same-store sales was primarily attributable to a resurgence in pizza slices, driven in part by increased guest traffic inside the store. Three Months Ended July 31, 2021 Compared to Three Months Ended July 31, 2020 (Dollars and Amounts in Thousands) Prepared Grocery & Food & General Dispensed Three Months Ended July 31, 2021 Fuel Merchandise Beverage Other Total Revenue $ 1,967,155 $ 835,485 $ 308,440 $ 70,914 $ 3,181,994Revenue less cost of goods sold (excluding depreciation and amortization) $ 234,474 $ 275,408 $ 188,106 $ 25,899 $ 723,88711.9 % 33.0 % 61.0 % 36.5 % 22.7 % Fuel gallons 667,534 Prepared Grocery & Food & General Dispensed Three Months Ended July 31, 2020 Fuel Merchandise Beverage Other Total Revenue $ 1,085,981 $ 731,861 $ 270,766 $ 16,413 $ 2,105,021Revenue less cost of goods sold (excluding depreciation and amortization) $ 210,030 $ 235,599 $ 161,648 $ 16,226 $ 623,50319.3 % 32.2 % 59.7 % 98.9 % 29.6 % Fuel gallons 549,508 Total revenue for the first quarter of fiscal 2022 increased by $1,076,973(51.2%) over the comparable period in fiscal 2021. Retail fuel sales increased by $881,174(81.1%) as the average retail price per gallon increased 49.1% (amounting to a $533,363increase), and the number of gallons sold increased by 118,026 (21.5%). During this same period, retail sales of grocery and general merchandise increased by $103,624(14.2%), due to operating 166 more stores than a year ago and strong sales of packaged beverage, salty snacks, and meat snacks. Prepared food and dispensed beverage sales increased by $37,674(13.9%), due to operating 166 more stores than a year ago and improving sales of pizza slices. The other revenue category historically has primarily consisted of lottery, which is presented net of applicable costs, and car wash. As a result of the Buchanan Energy acquisition, we acquired a dealer network of 81 stores where Casey's will manage fuel wholesale supply agreements to these stores. The activity related to this dealer network is included in the other category and is presented gross of applicable costs. Other revenues increased $54,501(332.1%) for the first quarter of fiscal 2022 driven primarily by activity related to the dealer network. Revenue less cost of goods sold (excluding depreciation and amortization) was 22.7% of revenue for the first quarter of fiscal 2022, compared to 29.6% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 11.9% of fuel revenue during the first quarter of fiscal 2022, compared to 19.3% in the first quarter of the prior year, largely attributable to higher average retail price of fuel per gallon. Revenue per 16 -------------------------------------------------------------------------------- Table of Contents gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was 35.1 centsin the first quarter of fiscal 2022, compared to 38.2 centsfor the comparable period in the prior year. Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) increased from 32.2% of revenue for the comparable period in the prior year to 33.0% in the current period. Grocery and general merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) was positively impacted by mix shift, including gaining market share on the private label program, and procurement initiatives. Prepared food and dispensed beverage revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 61.0% of revenue, compared to 59.7% for the comparable period in the prior year, primarily due to the resurgence in pizza slices and procurement initiatives. Operating expenses increased $92,840(24.0%) in the first quarter of fiscal 2022 from the comparable period in the prior year, primarily due to restoring store operation hours to pre-COVID levels, operating 166 more stores compared to the same period a year ago, a 39% increase in credit card fees from higher retail fuel pricing along with higher sales volume, and one-time deal and integration costs associated with the Buchanan Energy and Circle Kacquisitions. Depreciation and amortization expense increased by 15.3% to $75,888in the first quarter of fiscal 2022 from $65,820for the comparable period in the prior year. The increase was primarily due to operating 166 more stores than a year ago and capital expenditures during the previous twelve months. The effective tax rate decreased to 23.3% in the first quarter of fiscal 2022 compared to 23.8% in the same period of fiscal 2021. The decrease in the effective tax rate was driven by an increase in excess tax benefits recognized on share-based awards (190 basis points) and a one-time benefit from adjusting the Company's deferred tax assets and liabilities for state law changes enacted during the quarter (100 basis points). The effect of these favorable items was partially offset by a one-time expense to update the state deferred tax rate following the Buchanan Energy and Circle Ktransactions (200 basis points). Net income decreased by $1,433(1.2%) to $119,159from $120,592in the comparable period in the prior year. The decrease in net income was primarily attributable to higher operating expenses and depreciation driven primarily from an increase in store hours and operating 166 more stores than a year ago, offset by increased fuel and merchandise contribution from improved guest traffic. Use of Non-GAAP Measures We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Neither EBITDA nor Adjusted EBITDA are considered GAAP measures, and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management for internal purposes including our capital budgeting process, evaluating acquisition targets, assessing performance, and awarding incentive compensation. Because non-GAAP financial measures are not standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies. The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three months ended July 31, 2021and 2020: 17
Three months ended
July 31, 2021 July 31, 2020 Net income
$ 119,159 $ 120,592Interest, net 13,730 13,407 Federal and state income taxes 36,182 37,596 Depreciation and amortization 75,888 65,820 EBITDA $ 244,959 $ 237,415(Gain) loss on disposal of assets and impairment charges (1,770) 340 Adjusted EBITDA $ 243,189 $ 237,755For the three months ended July 31, 2021, EBITDA and Adjusted EBITDA increased 3.2% and 2.3%, respectively, when compared to the same period a year ago. The increases in both periods are primarily due to a higher fuel and merchandise contribution from improved guest traffic, offset by higher operating expenses due to restoring store operation hours to pre-COVID levels, operating 166 more stores compared to the same period a year ago, a 39% increase in credit card fees from higher retail fuel pricing along with higher sales volume, and one-time deal and integration costs associated with the Buchanan Energy and Circle Kacquisitions. Critical Accounting Policies Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company's financial condition and results of operations. The Company's critical accounting policies are described in the Form 10-K for the year ended April 30, 2021, and such discussion is incorporated herein by reference. There have been no changes to these policies in the three months ended July 31, 2021. Liquidity and Capital Resources Due to the nature of the Company's business, cash provided by operations is the Company's primary source of liquidity. The Company finances its inventory purchases primarily from normal trade credit aided by the relatively rapid turnover of inventory. This turnover allows the Company to conduct its operations without large amounts of cash and working capital. As of July 31, 2021, the Company's ratio of current assets to current liabilities was 0.91 to 1. The ratio at July 31, 2020and April 30, 2021was 1.05 to 1 and 1.18 to 1, respectively. The decrease in the ratio is primarily attributable to a decrease in cash and cash equivalents associated with payments for the acquisitions of Buchanan Energy and 48 stores from Circle K, offset by an increase in inventory due to operating 166 more stores than a year ago and higher fuel pricing. Additionally, current liabilities have increased primarily attributable to an increase in accounts payable, attributable to increasing store count, higher fuel pricing, as well as an effort to better utilize available payment terms. Management believes that the Company's unsecured Bank Lineof $25,000and its Revolving Facility of $450,000, combined with the current cash and cash equivalents and the future cash flow from operations will be sufficient to satisfy the working capital needs of our business. Net cash provided by operations decreased $110,491(31.4%) in the three months ended July 31, 2021from the comparable period in the prior year, due to changes in inventories, accounts payable, and accrued expenses. Cash used in investing in the three months ended July 31, 2021increased $600,884over prior year, due primarily to cash paid for the acquisition of Buchanan Energy for $571,725and 48 Circle Kstores for $41,416, net of cash acquired. For additional discussion, refer to Note 6 in the condensed consolidated financial statements. Cash provided by financing increased $405,517(288.9%), primarily due to a $300,000draw on the Term Loan Facility, also discussed in Note 6. Capital expenditures typically represent the single largest use of Company funds. Management believes that by acquiring, building, and reinvesting in stores, the Company will be better able to respond to competitive challenges and increase operating efficiencies. During the first three months of fiscal 2022, the Company expended $662,336, compared to $45,146for the comparable period in the prior year. The increase in capital expenditures from the prior year is due to the Buchanan Energy and Circle Kacquisitions and lower prior year capital expenditures due to governmental delays in zoning and licensing, as well as a deliberate reduction in discretionary spending due to uncertainties surrounding COVID-19. 18
3.67% Senior Notes (Series A) maturing in 7 installments starting
Senior 3.75% Notes (Series B) due in 7 installments starting
3.65% Senior Notes (Series C) due in 7 installments starting
3.72% Senior notes (Series D) maturing in 7 installments from
3.51% Senior notes (Series E) due
June 13, 2025
3.77% Senior notes (Series F) due
August 22, 2028
2.85% Senior notes (Series G) due
August 7, 2030
2.96% Senior notes (Series H) due
August 6, 2032
Variable rate term loan facility, requiring quarterly installments ending
June 6, 2026296,250 Less debt issuance costs (2,591) 1,716,272 Less current maturities (34,101) 1,682,171 The Company has funded capital expenditures primarily from the issuance of debt, existing cash, and funds generated from operations. Future capital needs required to finance operations, improvements and the anticipated growth in the number of stores are expected to be met from cash generated by operations, the Revolving Facility, the Bank Line, and additional long-term debt or other securities as circumstances may dictate, and are not expected to adversely affect liquidity. Cautionary Statements This Form 10-Q, including the foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words "may," "will," "believe," "expect," "anticipate," "intend," "estimate," "project," "continue," and similar expressions are used to identify forward-looking statements. Forward-looking statements represent the Company's current expectations or beliefs concerning future events and trends that we believe may affect financial condition, liquidity and needs, supply chain, results of operations and performance at our stores, business strategy, strategic plans, growth opportunities, integration of acquisitions, acquisition synergies, short-term and long-term business operations and objectives including our long-term strategic plan, and the potential effects of COVID-19 on our business. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the following risk factors described more completely in the Company's Form 10-K for the fiscal year ended April 30, 2021: Business Operations: Pandemics or disease outbreaks, such as COVID-19, responsive actions taken by governments and others to mitigate their spread, and guest behavior in response to these events, have, and may in the future, adversely affect our business operations, supply chain and financial results; our business and our reputation could be adversely affected by a data security incident or the failure to protect sensitive guest, Team Member or supplier data, or the failure to comply with applicable regulations relating to data security and privacy; food-safety issues and food-borne illnesses, whether actual or reported, or the failure to comply with applicable regulations relating to the transportation, storage, preparation or service of food, could adversely affect our business and reputation; a significant disruption to our distribution network, to the capacity of the distribution centers, or timely receipt of inventory could adversely impact our sales or increase our transaction costs, which could have a material adverse effect on our business; we could be adversely affected if we experience difficulties in, or are unable to recruit, hire or retain, members of our leadership team and other distribution, field and store Team Members; any failure to anticipate and respond to changes in consumer preferences, or to introduce and promote innovative technology for guest interaction, could adversely affect our financial results; we rely on our information technology systems, and a number of third-party software providers, to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business; increased credit card expenses could lead to higher operating expenses and other costs for the Company; 19 -------------------------------------------------------------------------------- Table of Contents our operations present hazards and risks which may not be fully covered by insurance, if insured; the dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose to us potentially significant losses, costs or liabilities; consumer or other litigation could adversely affect our financial condition and results of operations; and, covenants in our senior notes and credit facility agreements require us to comply with certain covenants and meet financial maintenance tests and the failure to comply with these requirements could have a material impact to us. Governmental Actions, Regulations, and Oversight: Compliance with and changes in tax laws could adversely affect our performance; we are subject to extensive governmental regulations; governmental action and campaigns to discourage tobacco and nicotine use and other tobacco products may have a material adverse effect on our revenues and gross profit; and, wholesale cost and tax increases relating to tobacco and nicotine products could affect our operating results. Industry: General economic and political conditions that are largely out of the Company's control may adversely affect the Company's financial condition and results of operations; developments related to fuel efficiency, fuel conservation practices, climate change, and changing consumer preferences may decrease the demand for motor fuel; unfavorable weather conditions can adversely affect our business; the volatility of wholesale petroleum costs could adversely affect our operating results; and, the convenience store industry is highly competitive. Growth Strategies: We may experience difficulties implementing and realizing the results of our long-term strategic plan; we may experience increased costs, disruptions or other difficulties with the integration of the Buchanan Energy acquisition; and, we may not be able to identify, acquire, and integrate new properties and stores, which could adversely affect our ability to grow our business. Common Stock: The market price for our common stock has been and may in the future be volatile, which could cause the value of your investment to decline; any issuance of shares of our common stock in the future could have a dilutive effect on your investment; and, Iowalaw and provisions in our charter documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of our common stock. We further caution you that other factors we have not identified may in the future prove to be important in affecting our business and results of operations. We ask you not to place undue reliance on any forward-looking statements because they speak only of our views as of the statement dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Company's exposure to market risk for changes in interest rates relates primarily to our investment portfolio and certain long-term debt obligations. We place our investments with high-quality credit issuers and, by policy, limit the amount of credit exposure to any one issuer. Our first priority is to attempt to reduce the risk of principal loss. Consequently, we seek to preserve our invested funds by limiting default risk, market risk, and reinvestment risk. We attempt to mitigate default risk by investing in only high-quality credit securities that we believe to be low risk and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We believe an immediate 100-basis-point move in interest rates affecting our floating and fixed rate financial instruments as of July 31, 2021would have no material effect on pretax earnings. We do from time to time, participate in a forward buy of certain commodities. These contracts are not accounted for as derivatives as they meet the normal purchases exclusion under derivative accounting. Item 4. Controls and Procedures.
Assessment of disclosure controls and procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC'srules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. 20 -------------------------------------------------------------------------------- Table of Contents We acquired Buchanan Energy, owner of Bucky's Convenience Stores on May 13, 2021and its total assets and revenues constituted approximately 12% and 7%, respectively, of the Company's consolidated total assets and revenues as shown on our condensed consolidated financial statements as of and for the three months ended July 31, 2021. We will exclude Buchanan Energy's control over financial reporting from the scope of management's annual assessment of the effectiveness of the Company's controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the SECthat an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation.
Changes in internal controls over financial reporting
There have been no changes in the Company's internal control over financial reporting during the quarter ended
July 31, 2021that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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