Business context and reporting period
Casey’s General Stores, Inc. operates convenience stores primarily in the Midwest. This unaudited Form 10-Q covers the quarter and six months ended October 31, 2022, the second quarter of fiscal 2023. The company operated 2,463 stores in 16 states at quarter-end, 83 more than a year earlier. Its business is seasonal, with higher sales and profitability generally in the first half of the fiscal year.
Financial and operating performance
| Metric | Three months ended October 31, 2022 | Six months ended October 31, 2022 |
|---|---|---|
| Revenue | $3.979 billion, up 21.9% | $8.433 billion, up 30.9% |
| Net income | $137.6 million, up 42.1% | $290.5 million, up 34.5% |
| Diluted EPS | $3.67, versus $2.59 | $7.75, versus $5.78 |
| Operating cash flow | Not separately provided for the quarter | $486.1 million, versus $455.4 million |
| Capital expenditures | Not separately provided for the quarter | $177.3 million |
Quarterly revenue growth reflected higher retail fuel prices, increased gallons sold, store growth, and strategic retail pricing. Fuel revenue rose 28.7%; grocery and general merchandise rose 10.6%; and prepared food and dispensed beverage rose 13.5%. Same-store sales were up 0.3% for fuel gallons, 6.9% for grocery and general merchandise, and 10.5% for prepared food and dispensed beverage.
Revenue less cost of goods sold, excluding depreciation and amortization, was 20.4% of revenue for the quarter, down from 22.0%. Fuel contribution per gallon increased to 40.5 cents from 34.7 cents, while prepared-food margin declined to 56.7% from 60.6%, primarily due to higher ingredient costs, especially cheese. Grocery and general merchandise margin was 33.3%, unchanged. Quarterly operating expenses increased 7.7%; management cited store growth, higher credit-card fees, impairment expense, and internal fuel expense. A one-time benefit from state tax-law changes helped lower the quarterly effective tax rate to 23.6% from 25.0%.
At October 31, cash and cash equivalents were $414.8 million, versus $158.9 million at April 30. Current assets were $993.3 million and current liabilities $921.3 million, a 1.08 current ratio. Long-term debt and finance lease obligations totaled approximately $1.674 billion, including current maturities; the company had no borrowings under its $450 million revolving facility or bank line. The bank line had approximately $19 million available after letters of credit. Six-month capital spending and acquisitions totaled $180.0 million, compared with $749.6 million a year earlier, when major acquisitions occurred.
Changes, outlook, risks, and contingencies
- Compared with the prior-year quarter, net income and diluted EPS rose substantially, supported by higher fuel and in-store contribution. The higher fuel price environment also lifted reported revenue and credit-card costs.
- Management expected elevated fuel prices, labor challenges, and supply-chain disruptions to continue through fiscal 2023. It noted supplier delivery delays and product availability issues, and said store traffic had not fully returned to pre-pandemic levels. The filing provides no specific earnings or revenue guidance.
- Management cautioned that fuel margins can fluctuate unpredictably and could be affected by fuel prices, rising interest rates, macroeconomic conditions, and geopolitical disruptions. A 100-basis-point interest-rate move was estimated to change annualized interest expense by approximately $2.7 million.
- The company is defending a collective-action lawsuit alleging Store Managers were misclassified under the Fair Labor Standards Act. Approximately 1,950 current or former managers had opted in; management said it had provisions for probable losses and did not expect the matter to be material.
- Gross unrecognized tax benefits were $12.2 million at October 31. Michigan was examining tax years 2017–2020; management estimated a possible $2.1 million decrease in unrecognized benefits over the next 12 months, mainly from statute expirations.
- The board’s $400 million share-repurchase authorization remained in place, with no shares repurchased during the quarter. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether fuel margins and elevated fuel prices persist, and how changes in fuel prices affect reported revenue, per-gallon contribution, and credit-card expense.
- Whether prepared-food margins recover from higher ingredient costs and elevated stales, and whether strategic price increases affect sales volumes.
- Progress in addressing labor and supplier constraints, and any further effect on store traffic, product availability, or operating costs.
- Debt maturities, variable-rate exposure, capital spending, and the availability of committed credit facilities.
- Developments in the Store Manager litigation and Michigan tax examination, including any change to recorded accruals or estimated exposure.