Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Casey's General Stores Inc (CASY, Financial) reported a 7% increase in diluted EPS, reaching $4.83 per share.
- Net income rose by 6% to $180 million, and EBITDA increased by 9% to $346 million.
- Inside same-store sales were up 2.3%, with Prepared Food and Dispensed Beverage sales leading the way.
- The company managed to balance fuel volume and margin effectively, with same-store gallons sold up 0.7% and a fuel margin of $0.407 per gallon.
- Casey's General Stores Inc (CASY) is on track to achieve its three-year strategic plan ahead of schedule, with plans to grow the number of units to approximately 500 stores.
Negative Points
- Same-store grocery and general merchandise sales growth was modest at 1.6%, indicating potential softness in this category.
- The company faced a modest headwind in cheese costs, which increased by 2% year-over-year.
- Total operating expenses increased by 8.7%, driven by unit growth, higher insurance expenses, and modest increases in wage rates.
- The effective tax rate for the quarter increased to 24.1% from 23.6% in the prior year.
- The company is not updating its fiscal year guidance until after the Fikes transaction closes, creating some uncertainty for investors.
Q & A Highlights
Q: Can you discuss the underlying health of your consumer in light of some of the crosscurrents we've been seeing lately?
A: Darren Rebelez, CEO: About three-quarters of our guests make over $50,000 a year, and we haven't seen significant changes in their purchasing habits. Lower-income consumers are buying fewer items per visit, but overall, our guest base is holding up well.
Q: On the gross margin front, can you enact hedging or take modest pricing to offset cheese costs?
A: Steve Bramlage, CFO: About a quarter of our cheese requirements are hedged for the remainder of the fiscal year. We focus on managing total inside store profitability rather than specific margins for prepared food, and we've made some price adjustments while maintaining a strong value proposition.
Q: Can you unpack some newer examples of what's driving continuous improvements in operating expenses?
A: Darren Rebelez, CEO: Recent initiatives include a digital production planner in our kitchens, which reduces manual work and improves accuracy, and the 5S system for organizing inventory, which reduces footsteps and improves efficiency.
Q: Are you seeing any notable differences in prepared food business performance across different geographic markets?
A: Darren Rebelez, CEO: We haven't seen significant differences. Despite value offers from QSRs, our lunch daypart was the strongest, driven by our sandwich lineup and competitive pricing.
Q: Can you explain the softer-than-expected inside same-store sales growth, especially in grocery and general merchandise?
A: Darren Rebelez, CEO: We cycled a strong quarter from last year and experienced some traffic softness due to not having over $1 billion lottery jackpots, which drive additional traffic. However, August sales returned to the expected range.
Q: How is your private label business performing, and have you made progress on building out a tiered offering?
A: Darren Rebelez, CEO: Our private label performance has held steady, contributing significantly to our grocery margin. We are working on tiering our private label offerings but are not ready to launch yet.
Q: Will you be looking at any other deals ahead of closing the Fikes acquisition?
A: Darren Rebelez, CEO: We are always looking at deals. While larger deals comparable to Fikes might be challenging due to balance sheet considerations, we will continue to pursue smaller acquisitions and organic growth.
Q: What kind of CapEx will Fikes need to update kitchens, etc.?
A: Steve Bramlage, CFO: We anticipate about $145 million to $150 million in incremental CapEx over three to four years to renovate and retrofit Fikes stores with Casey's kitchens.
Q: How do you see Casey's positioned in terms of pricing and value proposition, especially with recent retail price adjustments in grocery and general merchandise?
A: Darren Rebelez, CEO: We are prudent with pricing, primarily passing on cost increases from tobacco manufacturers. Our pricing has increased less than CPI over the last four years, reflecting our conservative approach and strong cost management.
Q: What is your perspective on the broader M&A activity in the convenience store industry?
A: Darren Rebelez, CEO: The challenging operating environment and the need for scale are driving M&A activity. Smaller operators are under pressure, creating opportunities for acquisitions by larger players like us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
