Remodels, 24-Hour Locations and Pizza Delivery Drive Casey's Results

ANKENY, Iowa -- Casey's General Stores, the 1,699-unit convenience store chain based here, is poised for strong growth after reporting record earnings for its fiscal 2012 fourth quarter which ended April 30, 2012.

For the quarter, basic earnings per share were 61 cents, compared with 60 cents per share for the same period a year ago. For the year, the Iowa-based convenience store chain reported basic earnings per share were $3.07 vs. 2.24 the previous year. After adjusting for the $17.6 million post-tax impact of the costs associated with the failed Alimentation Couche-Tard takeover attempt, basic earnings per share last year would have been $2.65.

In a conference call this morning, Casey's CFO William Walljasper attributed much of the retailer's strong growth to the successful rollout of the chain's remodeling program and two new initiatives -- converting select stores to 24-hour operations and adding pizza delivery. According to Walljasper, approximately 130 stores have undergone major remodels and another 75 have been identified for remodeling this year. A total of about 600 stores are candidates for refurbishment over the next two years, said the CFO.

Meanwhile, Casey's has converted approximately 175 stores to 24-hour operations and another 100 are slated to go to around-the-clock operations by October 31 of this year, said Walljasper, who added that the retailer has seen 20 to 30 percent sales lifts in these locations with expanded hours.

Pizza delivery, which is available now in about 75 stores, will be expanded to another 100 stores by the end of October and 226 stores by the end of the current fiscal year. Delivery of Casey's signature pizzas has resulted in a 25 to 30 percent lift in prepared foods sales, said Walljasper.

Overall, for the year, total revenue for fiscal 2012 was $6.99 billion, up 24 percent from $5.64 billion the previous year. For the most recent quarter, revenues was $1.752 billion, up 13 percent from $1.549 billion the year-ago quarter.

"In the fourth quarter, the gas margin was down nearly 2 cents per gallon from the same period a year ago, which reduced basic earnings per share by approximately 12 cents," said President and CEO Robert J Myers in a prepared statement. "We were pleased with our ability to offset this decline with strong sales and margin gains inside our stores. Inside gross profit dollars for the quarter were up nearly 19 percent and we are optimistic about our growth potential in fiscal 2013 with the various operational initiatives we are implementing."

Walljasper also discussed various other aspects of Casey's business on the conference call with investors.

Gasoline: In the fourth quarter, same-store gallons sold rose 2.5 percent with an average margin of 13.7 cents per gallon, due primarily to more favorable weather this year compared to a year ago. Casey's goal is to increase same-store gasoline gallons sold by 1 percent annually, with an average margin of 13.5 cents per gallon. For the fiscal year, same-store gallons sold were down 1.5 percent -- due to higher prices -- with an average margin of 15.3 cents. Total gallons sold for the year were up 5.9 percent and gross profit dollars rose 6.8 percent.

Grocery and Other Merchandise: For the quarter, same-store sales rose 8.5 percent over the year-ago period, with an average margin of 33 percent. The combination of favorable weather and the positive results from the major remodels and stores converted to 24-hour operations helped increase same-store customer count by 7.4 percent and drove total sales for the quarter up 12.7 percent. Gross profit dollars were up 15.9 percent for the quarter and 15.1 percent for the fiscal year.

Casey's annual goal was to increase same-store sales 5.8 percent with an average margin of 32.8 percent. The retailer ended the year with a 6.7 percent increase in same-store sales on an average margin of 32.5 percent. Fiscal 2012 total sales were $1.4 billion, up 14.2 percent from a year ago.

Walljasper noted that cigarette sales were flat to slightly down the last couple of months, but that margins stabilized after competitive pressures during last year's second and third quarters.

Prepared Food & Fountain: Same-store sales for the quarter were up 16.8 in foodservice compared with the year-ago period. The average margin for the quarter was 60.8 percent, up 60 basis points from last year's fourth quarter, primarily due to lower commodity costs. Casey's was able to lock in a favorable price on coffee with a bulk buy (saving about 70 cents per pound), said Walljasper. However, he noted that the company has not had an opportunity to lock down a similar deal on cheese, although cheese prices have retreated from the highs ($2.11 per pound and $2.14 per pound, respectively) of last year's first and second quarter.

The same-store sales gain comes following an impressive 11.8-percent increase experienced the prior year, as the major remodels and 24-hour conversions and expansion of the pizza delivery program have had a big impact. Walljasper noted that the rollout of pizza delivery has not cannibalized sales at other Casey's that don't offer delivery, nor has it hurt inside the store sales at the stores in the delivery program.

The goal for fiscal 2012 was to increase same-store sales by 7.7 percent with an average margin of 61.8 percent. Same-store sales for fiscal 2012 bested that goal substantially with a 14.3-percent gain, with an average margin of 60.7 percent. Total sales for the fiscal year were $499.7 million, up 20.3 percent from the previous year.

Operating Expenses: For the fiscal year, operating expenses increased 13.3 percent to $688.4 million, and were up 16.9 percent for the quarter. After adjusting for the $16 million in expenses associated with the unsolicited offer by Couche-Tard in the prior year, expenses increased 16.4 percent for the just completed fiscal year. Casey's estimated that $61 million of the operating expense increase for the year came from newly constructed, acquired or replaced stores during the past two fiscal years, along with other stores impacted by the remodels, 24-hour operation expansion and pizza delivery. Store level operating expenses for the fiscal year increased less than 5 percent for the remaining store base.

Walljasper noted that credit card transaction fees last year were up 12.5 percent compared to the previous year.

Expansion: Casey's achieved its annual goal of increasing store count by 4 to 6 percent by acquiring 35 stores and completing 30 new-store constructions, bringing the year-end count to 1,699. In addition, Casey's also replaced 10 stores during the year and plans to open its first stores in Kentucky and Tennessee in the coming year. The corporate performance goals for fiscal 2013 are:

• Increase same-store gasoline gallons sold by 1 percent with an average margin of 14 cents per gallon;
• Increase same-store grocery and other merchandise sales by 6.2 percent with an average margin of 32.7 percent;
• Increase same-store prepared food and fountain sales by 11 percent with an average margin of 61.1 percent;
• Increase the total number of stores by 4 to 6 percent, while replacing 20 stores and completing 50 to 70 major remodels.

Despite Casey's robust earnings results, Wall Street analysts expected the c-store chain to earn 67 cents per share, which led shares of its stock to trade lower this afternoon.