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ANKENY, Iowa -- Casey's General Stores Inc. today reported earnings for the fourth quarter and the fiscal year ended April 30, 2005. After showing decreased earnings in both the second and third quarters of 2005, the company ended the year with fourth-quarter increases in retail sales, gross profit and earnings from continuing operations.
"We finished the year with a very solid quarter," said chairman and CEO Ronald M. Lamb. "Our retail sales grew 23.2 percent from the same quarter a year ago, gross profit was up 15.6 percent, and earnings from continuing operations rose to 15 cents per share."
Earnings from continuing operations for the fiscal year were 85 cents per share; net earnings after discontinued operations were 73 cents per share. The 36 stores identified as impaired assets in the third quarter were reclassified as discontinued operations that reported a loss of 12 cents per share. "In fiscal 2005," Lamb stated, "we increased combined sales from our three business categories an impressive 21.1 percent and raised total gross profit 8.7 percent."
The company addressed a number of key issues related to earnings:
Gasoline. The fiscal 2005 goal was to increase same-store gallons sold at least 2 percent with a margin of at least 10.5 cents. "We strengthened our sales trend, raising same-store gallons sold 2.8 percent in the third quarter and 5.6 percent in the fourth to put us close to goal at 1.9 percent for the year," said Lamb. "For the first time in our history, total gallons sold exceeded 1 billion." The average margin of 10.7 cents was above goal, and gross profit rose 10 percent to $108.3 million. "Our gross profit improvement demonstrates our effectiveness at managing gasoline in a difficult market," Lamb added. "We'll work to sustain our positive trends in fiscal 2006 by continuing to price competitively, refining efficiencies and attracting more customer traffic."
Grocery and other merchandise. The goal for this category was to increase same-store sales 2.9 percent with a margin of at least 32 percent. Same-store sales improved from a 2.1 percent increase in the first quarter to a 6.3 percent gain in the fourth and resulted in a 4.8 percent increase for the twelve months. Total sales rose 7.2 percent to $714 million with a margin of 30.9 percent, and gross profit was up 6.4 percent to $220.9 million. The margin was affected by a LIFO adjustment brought about by wholesale price increases, primarily for cigarettes. Lamb said, "Cigarette unit sales were up for fiscal 2005, and we'll work to gain more market share in fiscal 2006. We'll continue to benefit from improved product mix and strategic price increases taken in the last half of fiscal 2005. We'll also have the lottery rolled out in all our stores by the end of summer." Management expects lottery tickets to become another destination item, increasing store traffic and boosting overall sales as they contribute directly to gross profit.
Prepared food and fountain. The fiscal 2005 goal was to increase same-store sales 6 percent with a margin over 60 percent. Annual same-store sales were up 8.4 percent -- well over goal -- and total sales rose 12.5 percent to $204.8 million. Despite the high cost of cheese during much of the year, the margin was 60.3 percent. Gross profit rose 11.8 percent to $123.6 million. "We are pleased with this category's outstanding performance," Lamb said. "Point of sale is giving us the information we need to help each store manager handle inventory and kitchen production effectively. We're maintaining tight quality control on our menu items, introducing new products, pricing to specific markets and controlling stales to maximize profit. Fiscal 2006 should be another good year for prepared food and fountain."
Point of sale (POS). The company's goal was to have more than 900 stores with full POS by the fiscal year-end. "Part of our success at increasing gross profit was due to our use of POS technology," said Lamb. By April 30, Casey's had 1,011 stores operating with POS and had installed 781 hand-held scanners to help store managers control direct-to-store deliveries. In fiscal 2006, management will use new data-mining software to tailor marketing and inventory to individual stores.
Operating expenses. Lamb stated, "Our annual goal was to hold the percentage increase in operating expenses to no more than the percentage increase in inside sales. Despite a substantial increase in bank charges from customers using credit cards to pay for increasingly expensive gasoline, we were able to achieve this goal." Inside sales were up 8.4 percent to $918.8 million while operating expenses grew 7.6 percent to $329.3 million. "When I share our corporate goals for fiscal 2006," Lamb added, "investors will notice we'll be measuring operating expenses against gross profit to align more closely with our corporate focus on profitable growth."
Expansion. Adding more stores primarily through acquisitions is an ongoing growth strategy at Casey's. The fiscal 2005 goal was to acquire at least 43 stores and build 15 new stores. At year-end, the company had built and opened 13 stores, had acquired 29 stores and was in negotiation for the purchase of a regional chain. On May 19, 2005, Casey's announced the signing of a letter of intent to acquire up to 58 stores from Gas 'N Shop Inc. of Lincoln, Neb. Lamb stated, "We expect to close the transaction in the second quarter and to have the sites contribute to earnings in their first year as Casey's General Stores. Our operating efficiencies and our proprietary prepared food program should enhance profitability."
Part of the company plan for accommodating anticipated acceleration in acquisition activity is expanding the distribution center by adding nearly 100,000 square feet of warehouse space and 20,000 square feet of office space. The expansion will provide capacity to serve at least 1,000 more stores. The company broke ground in May and expects to complete construction in twelve months.
Fiscal 2006 goals. Lamb concluded, "Coming off a solid fourth quarter situates us well for a strong fiscal 2006." These are Casey's corporate goals for the coming year:
-- Increase same-store gasoline gallons sold 2 percent with an average margin of 10.5 cents per gallon.
-- Increase same-store grocery and other merchandise sales 3 percent with an average margin of 31.5 percent.
-- Increase same-store prepared food and fountain sales 5.5 percent with an average margin of 60.5 percent.
-- Hold the percentage increase in operating expenses to less than the percentage increase in gross profit.
-- Acquire 30 stores (in addition to the GNS acquisition) and build 10 new stores.