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    Casey's Reports Record Earnings; Projects More Sales, Store Growth in Coming Year

    CFO Bill Walljasper tells analysts more acquisitions are on the menu for the Iowa-based c-store chain.

    By Don Longo

    ANKENY, Iowa -- Casey’s General Stores, the 1,478-store chain based here, yesterday reported record earnings for its fiscal year ended April 30, 2009. The retailer’s earnings per share for the fourth quarter were 31-cents, up from 28-cents a year ago. For the year, basic earnings per share were $1.69, up from $1.68 in fiscal 2008.

    Bill Walljasper, senior vice president and CFO, told analysts in a conference call yesterday morning earnings would have been higher without the effect of a $9.1 million pre-tax charge related to the settlement of two wage and hour lawsuits. Without the charge, earnings would have been $1.82 per share for the year and 42-cents per share for the quarter, said Walljasper.

    The positive results were driven by a number of factors, according to the CFO, including higher than normal gas margins in the fourth quarter, higher in-store margins on cigarettes and beverages, and strong growth in prepared food and fountain sales while keeping the lid on expense increases.

    Last year, Casey’s increased store count by approximately 2 percent, with 16 new store constructions and 16 acquired stores. The retailer also replaced 14 existing locations and completed two remodels utilizing the features of its newest store design.

    Walljasper said the company currently has 15 oral agreements for acquisitions (including one medium-sized chain). Responding to a question, Walljasper observed that compared to a year ago, "we’re seeing seller expectations come down to a more reasonable range."

    The new builds and acquisitions would most likely fill in markets where Casey’s already operates, or be in states directly adjacent to the retailer’s nine-state market reach (Iowa, Illinois, Missouri, Kansas, Nebraska, Minnesota, Indiana, South Dakota and Wisconsin).

    Commenting on the 2009 results, Walljasper said same-store gasoline gallons sold were up 1 percent last year with an average margin of 12.9 cents per gallon. Last year’s high retail gas prices held same-store gallons down during the first half of the year, according to Walljasper, who noted volume improved in the second half of the year as retail prices declined. In the latest quarter, same-store gallons sold were up 1.2 percent with an average margin of 12.1 cents per gallon.

    "The gasoline category is off to a good start this year, with same-store volume up 3.7 percent in May," said Walljasper.

    In grocery and other in-store merchandise, Casey’s achieved a same-store sales increase of 5.9 percent (slightly below the company’s goal of 7 percent). Average margin for the category was 33.5 percent, up 40 basis points from the previous year. For the latest quarter, same-store sales in grocery and other merchandise grew 8 percent with an average margin of 32.9 percent.

    "Approximately 4 percent of the same-store sales increase in the quarter was due to cigarettes, which included the new federal excise tax hike that went into effect in April," said Walljasper, who added the continued popularity of high-margin beverages also contributed to in-store sales and profit growth.

    In response to a question, Walljasper acknowledged higher cigarette prices have accelerated consumer trade-down from premium to mid-tier brands, and from mid-tier to lower-tier brands. However, higher prices also mean the retailer is selling more high-margin single packs (73 percent of transactions vs. 60 percent a year ago) than lower-margin cartons.

    Same-store sales in prepared food and fountain increased 9.1 percent last year (comfortable beating the company’s goal of 6.8 percent). Average margin in prepared food and fountain was 61.4 percent, primarily due to taking "strategic" price increases early in the year and locking in a lower cost of cheese by negotiating a forward buy agreement that runs through October 2009, according to Walljasper. The agreement locks in the price of cheese at $1.68 per pound, compared to spending more than $2 per pound a year earlier.

    The executive said Casey’s will expand its coffee and fountain selections in 2010, introduce new menu items and continue to roll-out its made-to-order sub sandwich program to more stores. Total sales in prepared food and fountain were up 11.2 percent to $335.6 million. In the fourth quarter, same-store sales rose 7.2 percent, with a margin of 62.7 percent, up 180 basis points from the fourth quarter a year ago. "And, we’ve had an excellent start to this year, with same-store sales up 6.5 percent in May," added Walljasper.

    In the coming year, Casey’s will add another 200 to 300 iced coffee machines, 200 to 300 additional 10-head fountain machines (replacing older six-head units) and continue to introduce new menu items, such as a new dessert pizza set to debut this fall.

    Operating expenses rose 6.2 percent for the fiscal year, and 7.1 percent in the fourth quarter. However, most of that was due to the settlement of the lawsuit. Without the effect of the settlement, operating expenses would have been up only 4.3 percent for the year and 0.6 percent for the quarter. Walljasper noted lower fuel prices in the second half of the year greatly reduced both transportation costs and credit card fees.

    Credit card use by customers started to decline in October as retail prices on gasoline fell. "The increase in credit card use was only 7 percent in the fourth quarter compared to 20 percent a year ago," said the executive. Credit card transactions as a percent of total sales fell to 48 percent, from 52 percent a year earlier, and "we should see similar numbers and benefit on credit card fees if this [lower pricing trend] continues," said Walljasper.

    The company also shared four performance goals for 2010:

    -- Increase same-store gasoline sales sold by 2 percent with an average margin of 11 cents per gallon.
    -- Increase same-store grocery and other merchandise sales 8.9 percent with an average margin of 33.9 percent.
    -- Increase same-store prepared food and fountain sales 7.5 percent with an average margin of 62 percent.
    -- Increase total number of stores by 4 percent.

    Related News:

    Casey's Offers Nickel Off Ethanol Purchases -- June 15, 2009

    Casey's Settles Wage and Hour Lawsuits -- May 12, 2009

    Casey’s Keeps Eye on ROI -- March 9, 2009

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