Business context and reporting period
Casey’s General Stores, Inc. operates convenience stores primarily in the Midwest. This Form 10-Q covers the first quarter of fiscal 2021, the three months ended July 31, 2020, and compares results with the three months ended July 31, 2019. The company operated 2,214 stores at quarter-end, up from 2,207 at April 30, 2020.
Financial performance and liquidity
- Revenue: $2.105 billion, down 19.9% year over year. Fuel revenue fell 33.3%, reflecting a 24.8% decline in average retail fuel price and lower gallons sold. Grocery and other merchandise revenue rose 6.4%; prepared food and fountain revenue declined 8.5%.
- Profit: Net income was $120.6 million, up 40.5%; diluted EPS was $3.24 versus $2.31. The effective tax rate was 23.8%, compared with 23.6%.
- Margins and contribution: Revenue less cost of goods sold, excluding depreciation and amortization, was $623.5 million, or 29.6% of revenue, versus $565.7 million, or 21.5%. Fuel contribution margin was 38.2 cents per gallon versus 24.4 cents. Prepared food and fountain margin declined to 59.7% from 62.2%.
- Cash flow: Operating cash flow was $352.1 million, compared with $178.8 million. Investing activities used $43.5 million, including $45.1 million of property and equipment purchases. Financing activities used $140.4 million. Cash increased to $246.5 million from $78.3 million at April 30.
- Debt and liquidity: Long-term debt and finance lease obligations totaled $1.284 billion, including current maturities; cash was $246.5 million. No borrowings were outstanding under the $300 million revolving credit facility or $25 million bank line at quarter-end. The current ratio was 1.05, versus 0.36 at April 30, partly reflecting a debt reclassification following refinancing arrangements.
- Shareholder returns: The quarterly dividend declared was $0.32 per share, unchanged year over year. No shares were repurchased; the remaining authorization was $300 million.
Material changes versus the prior-year quarter
Lower fuel prices and reduced demand drove the revenue decline, while higher fuel contribution—supported in part by centralized pricing and procurement improvements—was the primary driver of higher net income. Same-store fuel gallons sold fell 14.6%; total company fuel gallons fell 11.2%, with the difference reflecting store growth. Same-store grocery and other merchandise sales increased 3.6%, while prepared food and fountain sales declined 9.8%. Operating expenses rose 1.6%, including incremental COVID-19 costs, although same-store operating expenses excluding credit card fees fell 5.6%. EBITDA, a non-GAAP measure, increased 27.7% to $237.4 million.
Outlook, risks and notable items
- Management reported that COVID-19-related restrictions and guest behavior reduced traffic and sales. Traffic had improved as restrictions eased but remained below the prior-year quarter. The company said it could not estimate the pandemic’s future impact and provided no capital expenditure guidance because of continued uncertainty.
- Capital expenditures declined from $106.3 million to $45.1 million, reflecting governmental delays in zoning and licensing and reduced discretionary spending. Management said cash, expected operating cash flow, and available credit were expected to meet working-capital needs.
- On August 7, 2020, after quarter-end, the company issued $650 million of senior notes: $325 million at 2.85% due 2030 and $325 million at 2.96% due 2032. Proceeds were used in part to repay the $569 million of 5.22% notes that matured August 9, 2020.
- Management cited ongoing risks from COVID-19, fuel-price volatility, competition, food safety, supply and distribution disruptions, information technology and data security, regulation, and other factors. It said pending or threatened legal matters were not expected to have a material adverse effect. Gross unrecognized tax benefits were $9.9 million at July 31; management estimated a possible $1.8 million decrease over the next 12 months.
- Prior-year comparisons include a $6.6 million inventory adjustment that adversely affected the prior-year grocery margin, and a $4.1 million prior-year adjustment related to underground storage tank useful lives, which affected depreciation comparisons.
Important facts for investors to verify
- How COVID-19-related traffic, restrictions, and customer behavior affect same-store sales and margins in subsequent quarters.
- Whether the unusually strong fuel contribution and operating cash flow are sustainable; operating cash flow benefited from a $117.8 million increase in accounts payable.
- The completion and terms of the post-quarter refinancing, and resulting interest expense and debt maturities.
- The timing and amount of capital spending as store construction and the distribution center project proceed; the company has not provided capex guidance.
- How prepared-food margin pressure, fuel demand and prices, and the possible tax-benefit changes develop.