Casey's Capitalizing on 'Robust' Acquisition Environment

ANKENY, Iowa -- Casey's General Stores increased its store count nearly 7 percent in fiscal year 2011, which ended April 30, exceeding its stated goal to boost the total number of stores by 4 to 6 percent. The convenience chain constructed 20 new stores and acquired 89 locations, while also replacing 15 stores and completing 120 major remodels, company executives reported.

The company is off to a strong start this fiscal year as well, having already written agreements to acquire an additional 33 locations. Casey's goal for fiscal year 2012 is to increase its total number of stores another 4 to 6 percent, CFO Bill Walljasper said during an earnings call today.

Characterizing the acquisition environment as "robust," he said the retailer has a "large variety" of other acquisitions in different stages of the process. "We are very encouraged by the environment," he said, so much so that the chain may revisit its store growth goal as the year progresses.

Casey's recently entered the Arkansas market, and Walljasper said they are "unbelievably happy" with the way those stores are performing. "They have taken off greater than our expectations," he said, adding that the company is actively looking for more opportunities in the state.

The chain is actively looking for opportunities in Tennessee and Kentucky, too.

According to the CFO, most of the acquisitions in its pipeline are smaller chains -- "20 there, 30 there." Given the current environment, with commodity prices raising the costs on a variety of goods and new legislative issues continuing to pop up, Walljasper said smaller retailers are facing additional pressures, giving them that extra nudge to sell their businesses.

If a bigger acquisition opportunity emerged, though, Casey's has the balance sheet to make it happen, according to Walljasper, who said valuations these days are between five and seven times EDITDA (earnings before interest, taxes, depreciation and amortization).

Aside from acquisitions, Casey's sees great opportunity in remodels as well. The company has completed about 130 major remodels to date. It is currently taking a break for the next couple of quarters to reevaluate and ensure it's making the most efficient decisions. But Walljasper said they certainly expect to pick the program back up again and have identified another roughly 400 locations that would be a fit for the remodel program.

"We just want to make it as efficient as possible going forward," he said on the earnings call.

Currently, Casey's is going back to the acquisitions it made in the third quarter of the 2011 fiscal year and putting kitchens in those stores, which will allow them to offer the chain's sub sandwich program. Completion is targeted for the end of this fiscal year.

"[For] anything we touch going forward, we'll put in the sub sandwich program," said Walljasper. The program is now in about 10 to 15 percent of its stores. "It continues to gain traction and is very popular with our customers. It is certainly in demand," he added.

Fourth Quarter and Full Year 2011 Results

Also on today's conference call, Casey's executives reported financial results for the fourth quarter and full fiscal year. The year-end results include approximately $27.4 million in expenses pertaining to the company's recapitalization plan completed in the second quarter, as well as the unsolicited hostile offer and related actions by Alimentation Couche-Tard Inc.

"We are pleased with our ability to drive double-digit gross profit increases across all of our major categories during the fourth quarter," President and CEO Robert J. Myers said in a released statement. "Despite the challenges impacting our industry, we are optimistic about our ability to continue to drive shareholder value next fiscal year."

Gasoline -- The company's annual goal was to increase same-store gasoline gallons sold 1 percent with an average margin of 13.5 cents per gallon. For the quarter, same-store gallons sold were down 1.9 percent, adversely impacted by a 30-percent increase in retail gas prices during the same period. However, the strong gas margin environment continued in the fourth quarter resulting in an average margin of 15.6 cents per gallon.

Same-store gallons sold for the year increased 1.6 percent with an average margin of 15.2 cents. Total gallons sold were up 8.6 percent to 1.4 billion, while gross profit dollars rose 19 percent from the prior year.

"The favorable gasoline margin environment continued in the fourth quarter, resulting in a record gas margin for the fiscal year. We anticipate this favorable environment continuing into the first quarter of fiscal 2012," Myers said.

Grocery and other merchandise -- Casey's annual goal was to increase same-store sales 6 percent with an average margin of 33.9 percent. For the quarter, same-store sales rose 4.8 percent with an average margin of 32.1 percent. For the second consecutive quarter, the company experienced double-digit sales growth across all major areas of this category. As a result, total sales in the category were up 14 percent during the fourth quarter.

"The margin was impacted by a competitive cigarette pricing environment and indirect commodity pressures," said Myers. "Despite these adversities, we were able to drive gross profit 10.7 percent in this category during the quarter."

Total sales for the year were up 11.4 percent, compared to fiscal year 2010, to $1.2 billion. Same-store sales for the year were up 4.6 percent with an average margin of 32.2 percent.

Prepared food and fountain -- The goal for fiscal 2011 was to increase same-store sales 8 percent with an average margin of 63.1 percent. For the quarter, same-store sales were up 11.8 percent with an average margin of 60.2 percent, down in the same period a year ago primarily due to a rise in commodity costs throughout the category. Gross profit rose more than 10 percent during the quarter, compared to the same time period in 2010, primarily due to an increase in total sales of 17.5 percent.

"The retail price increases taken earlier in the quarter, along with the new store design and continued promotional activity, are driving sales," Myers stated. "Over the last five years, same-store sales increases have averaged 8.5 percent, and we expect this strong performance to continue."

Same-store sales for the year were up 7.7 percent, compared to 2010, with an average margin of 62.2 percent. Year to date, total sales were up 13.5 percent to $415.2 million, compared to $365.8 million.

Operating expenses -- For fiscal year 2011, operating expenses increased 15.5 percent to $607.6 million. Excluding approximately $16 million in expenses related to the unsolicited hostile offer by Couche-Tard, expenses would have increased 12.4 percent. For the quarter, operating expenses were up 11.4 percent, compared to last year, driven by a combined increase in credit card fees and fuel expenses, as well as operating more stores this quarter compared to the same period a year ago.

"The higher retail gas price environment drove credit card fees to a record quarterly amount of over $18 million," said Myers.

Fiscal 2012 Goals

Casey's also released its corporate performance goals for fiscal 2012. They are to:
• Increase same-store gasoline gallons sold 1 percent, with an average margin of 13.5 cents per gallon.
• Increase same-store grocery and other merchandise sales 5.8 percent, with an average margin of 32.8 percent.
• Increase same-store prepared food and fountain sales 7.7 percent, with an average margin of 61.8 percent.
• Increase the total number of stores 4 to 6 percent.