Casey’s General Stores, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended July 31, 2023; compared with the three months ended July 31, 2022. Casey’s operated 2,536 stores in 16 states at quarter-end. Figures below are in U.S. dollars; “million” denotes millions.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $3,869.3 million | $4,454.6 million | Down 13.1% |
| Income before taxes | $221.5 million | $202.9 million | Up |
| Net income | $169.2 million | $152.9 million | Up 10.7% |
| Diluted EPS | $4.52 | $4.09 | Up |
| Revenue less cost of goods sold, excluding D&A | $877.8 million; 22.7% of revenue | $836.3 million; 18.8% of revenue | Higher |
| Operating cash flow | $229.1 million | $276.2 million | Down |
| EBITDA (non-GAAP) | $316.9 million | $293.0 million | Up 8.2% |
| Adjusted EBITDA (non-GAAP) | $315.5 million | $293.2 million | Up 7.6% |
Revenue fell mainly because the average retail fuel price per gallon declined 24.3%; fuel gallons sold rose 3.6%. Fuel revenue was down 21.6%. Grocery and general merchandise revenue increased 8.0%, and prepared food and dispensed beverage revenue increased 8.5%. Same-store fuel gallons rose 0.4%; same-store grocery and general merchandise sales rose 5.2%, and prepared food and dispensed beverage sales rose 5.9%.
Fuel revenue less cost of goods sold was 12.2% of fuel revenue versus 10.0% a year earlier, but fuel gross profit per gallon declined to 41.6 cents from 44.7 cents. Grocery margin was 34.1% versus 33.9%; prepared food and dispensed beverage margin was 58.2% versus 55.6%. The latter benefited from a one-time $4.8 million reduction in the Casey’s Rewards/digital box-top liability following planned program changes, as well as softer ingredient costs.
Operating expenses increased 3.2% to $560.9 million, partly reflecting 82 more stores year over year. Depreciation and amortization rose 8.7% to $82.9 million. Net interest expense declined to $12.5 million, primarily because of higher interest income. The effective tax rate decreased to 23.6% from 24.6%, including a one-time benefit from state tax-law changes.
Cash, debt and liquidity
- Cash and cash equivalents were $439.1 million at July 31, 2023, versus $378.9 million at April 30, 2023. Cash increased $60.2 million during the quarter.
- Operating cash flow was $229.1 million. Cash purchases of property and equipment were $68.9 million; acquisition payments, net of cash acquired, were $13.3 million. Net cash used in investing was $76.4 million.
- Total debt and finance lease obligations were $1,652.2 million, including $100.9 million of finance leases; $53.6 million was current. The company had no borrowings under its $850 million revolving facility or $50 million bank line. Cash less reported debt and finance lease obligations was approximately $1.2 billion.
- The current ratio was 1.09, compared with 0.99 at April 30, 2023. Management said cash, operating cash flow and available credit would be sufficient for working-capital needs.
- Cash dividends paid were $14.9 million. Casey’s repurchased 123,569 shares for approximately $29.9 million; $370.1 million remained under its $400 million repurchase authorization. Dividends declared were $0.43 per share, up from $0.38.
Outlook, risks and other developments
- No specific earnings or revenue guidance is provided in the filing. Management expects fuel prices to remain comparatively elevated into fiscal 2024 and believes fuel margins may remain above historical levels, while cautioning that fuel profitability can fluctuate significantly and unpredictably.
- After quarter-end, Casey’s entered into agreements to acquire 92 stores for an aggregate purchase price of $221.5 million, subject to customary adjustments and regulatory approvals. The transactions are expected to close later in the fiscal year and are expected to be funded with cash on hand.
- Management said store traffic had not fully returned to pre-pandemic levels, which it associates in part with the persistence of work-from-home trends. Risks discussed include fuel and food-cost volatility, interest rates, competition, labor availability, supply-chain disruption, food safety, cybersecurity, regulation and changing fuel preferences.
- In the McColley lawsuit, the plaintiff alleges store managers were improperly classified as exempt under the Fair Labor Standards Act. Approximately 1,400 current or former managers remain opted in. Casey’s disputes the allegations, intends to defend the case, and says accrued and reasonably possible excess losses are not material.
- Gross unrecognized tax benefits were $12.0 million. The company estimated these could decrease by $2.5 million over the next 12 months, mainly due to statute-of-limitations expirations. The filing reports no ongoing federal or state income-tax examinations.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- How much of the improvement in net income and food margins is repeatable, given the $4.8 million one-time program adjustment and tax benefit.
- Whether fuel gross profit per gallon and overall fuel profitability hold up as fuel prices and industry margins change.
- Progress, purchase-price adjustments, funding and integration plans for the proposed 92-store acquisitions.
- Operating cash flow and inventory trends, including the effects of working-capital timing and planned capital spending.
- Developments in the store-manager classification lawsuit and changes in unrecognized tax benefits.