CASEY'S GENERAL STORES, INC. Overview
Casey's and its direct and indirect wholly-owned subsidiaries operate convenience stores under the names "Casey's" and "Casey's General Store " (hereinafter referred to as the "Company", "Casey's Store " or "Stores") in 16 Midwestern states, primarilyIowa ,Missouri andIllinois . The Company also operates two stores selling primarily tobacco products, one grocery store, and one liquor store. As ofJuly 31, 2020 , there were a total of 2,214 stores in operation. All convenience stores offer fuel for sale on a self-serve basis and most stores carry a broad selection of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco products, health and beauty aids, automotive products and other non-food items. The Company derives its revenue primarily from the retail sale of fuel and the products offered in its stores. Approximately 55% of our stores were opened in areas with populations of fewer than 5,000 persons, while approximately 19% of all stores were opened in communities with populations exceeding 20,000 persons. Two distribution centers are currently in operation, which supply grocery and general merchandise items to stores. One is adjacent to the Store Support Center facility inAnkeny, Iowa , and the other is located inTerre Haute, Indiana . In addition, a third distribution center is currently under construction inJoplin, Missouri . As ofJuly 31, 2020 , the Company owned the land at 2,188 locations and the buildings at 2,196 locations, and leased the land at 26 locations and the buildings at 18 locations. The Company reported diluted earnings per common share of$3.24 for the first quarter of fiscal 2021. For the same quarter a year-ago, diluted earnings per common share was$2.31 . The following table represents the roll forward of store growth through the first quarter of fiscal 2021: Store Count Total stores atApril 30, 2020 2,207 New store construction 9 Closed (2)
Total stores at
The Company had 4 acquisition stores under agreement to purchase and a new store pipeline of 86 sites, including 20 under construction, as ofJuly 31, 2020 . Since the fourth quarter of fiscal year 2020, the COVID-19 pandemic has taken hold throughout our footprint, as the number of reported infections within the sixteen states in which we operate have continued to increase. Starting in mid-March, governmental restrictions, including shelter in place and stay at home orders, a widespread shift to working from home, other efforts to restrict the spread of the outbreak, and our guests' behavior in response to the pandemic resulted in a sharp, overall decline in store traffic. This has resulted in lower demand for our products and a decrease in same-store sales. As various shelter in place and stay at home orders have been lifted, we have experienced an increase in store traffic, but not yet at the levels experienced during the same quarter in the previous fiscal year. These mandates, including the ongoing patchwork of return to work and return to school restrictions (and our guests' responses and choices with respect to such matters), will continue to unfold and evolve, and will have an impact on our store traffic and sales for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty, we believe that the strength of our brand and balance sheet position us well to emerge from the COVID-19 pandemic. However, given the uncertainties, we are currently unable to forecast or estimate the potential impact to our future operating results. Same-store sales is a common metric used in the convenience store industry. We define same-store sales as the total sales increase (or decrease) for stores open during the full time of both periods being presented. We exclude from the calculation any acquired stores and any stores that have been replaced with a new store, until such stores have been open during the full time of both periods being presented. Stores that have undergone a major remodel, had adjustments in hours of operation, added pizza delivery, or had other revisions to their operating format remain in the calculation. The first quarter results reflected a 14.6% decrease in same-store fuel gallons sold, with an average fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) of38.2 cents per gallon, compared to24.4 cents per gallon in the same quarter a year ago. Current quarter same-store gallons sold were impacted by softer demand in the Midwest due to the COVID-19 pandemic. Fuel margin for the quarter was impacted favorably due in part to our centralized retail pricing strategy and procurement improvements. The Company sold 6.4 million renewable fuel credits for$3.4 million during the quarter, compared to 18.6 million renewable fuel credits in the first quarter of the prior year, which generated$3.5 million . 13 -------------------------------------------------------------------------------- Table of Contents Same-store sales of grocery and other merchandise increased 3.6% and prepared food and fountain decreased 9.8% during the first quarter. The increase in grocery and other merchandise was primarily due to stronger sales of alcohol and packaged beverages. The decrease in prepared food and fountain same-store sales was primarily attributable to a decline in store traffic along with restrictions limiting self-serve prepared food items, such as bakery and dispensed beverages. Three Months Ended July 31, 2020 Compared to Three Months Ended July 31, 2019 (Dollars and Amounts in Thousands) Grocery & Prepared Other Food & Three Months Ended July 31, 2020 Fuel Merchandise Fountain Other Total Revenue$ 1,085,981 $ 731,861 $ 270,766 $ 16,413 $ 2,105,021 Revenue less cost of goods sold (excluding depreciation and amortization)$ 210,030 $ 235,599 $ 161,648 $ 16,226 $ 623,503 19.3 % 32.2 % 59.7 % 98.9 % 29.6 % Fuel gallons 549,508 Grocery & Prepared Other Food & Three Months Ended July 31, 2019 Fuel Merchandise Fountain Other Total Revenue$ 1,627,568 $ 687,918 $ 295,877 $ 15,266 $ 2,626,629 Revenue less cost of goods sold (excluding depreciation and amortization)$ 150,989 $ 215,453 $ 184,012 $ 15,232 $ 565,686 9.3 % 31.3 % 62.2 % 99.8 % 21.5 % Fuel gallons 619,084 Total revenue for the first quarter of fiscal 2021 decreased by$521,608 (19.9%) over the comparable period in fiscal 2020. Retail fuel sales decreased by$541,587 (33.3%) as the average retail price per gallon decreased 24.8% (amounting to a$404,085 decrease), and the number of gallons sold decreased by 69,576 (11.2%). During this same period, retail sales of grocery and other merchandise increased by$43,943 (6.4%) due to operating 53 more stores than a year ago and strong sales of alcohol and packaged beverages. Prepared food and fountain sales decreased by$25,111 (8.5%), due to restrictions limiting self-serve prepared food items, such as bakery and dispensed beverages. The other revenue category primarily consists of lottery, which is presented net of applicable costs, and car wash. These revenues increased$1,147 (7.5%) for the first quarter of fiscal 2021. Revenue less cost of goods sold (excluding depreciation and amortization) was 29.6% of revenue for the first quarter of fiscal 2021, compared to 21.5% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 19.3% of fuel revenue during the first quarter of fiscal 2021, compared to 9.3% in the first quarter of the prior year. Revenue per gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was38.2 cents in the first quarter of fiscal 2021, compared to24.4 cents in the prior year, due in part to our centralized retail pricing strategy and procurement improvements. Grocery and other merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 32.2% of grocery and other merchandise revenue, compared to 31.3% in the prior year, primarily due to an out-of-period inventory adjustment that adversely impacted the prior year by$6.6 million or 1.0%. Prepared food and fountain revenue less related cost of goods sold (exclusive of depreciation and amortization) decreased to 59.7% of revenue, compared to 62.2% in the prior year, primarily due to higher commodity costs and increased promotional activity. Operating expenses increased$6,247 (1.6%) in the first quarter of fiscal 2021 from the comparable period in the prior year, due to operating 53 more stores compared to the same period a year ago and incremental expenses associated with the COVID-19 pandemic. Same store operating expenses excluding credit card fees were down 5.6% for the quarter due to reductions in store hours related to the COVID-19 pandemic. Depreciation and amortization expense increased by 10.1% to$65,820 in the first quarter of fiscal 2021 from$59,808 for the comparable period in the prior year. The increase was due primarily to capital expenditures during the previous twelve 14 -------------------------------------------------------------------------------- Table of Contents months and a$4.1 million adjustment recorded in the first quarter of the prior year related to the useful life of underground storage tanks. The effective tax rate increased to 23.8% in the first quarter of fiscal 2021 compared to 23.6% in the same period of fiscal 2020. The increase in the effective tax rate was primarily due to an increase in unfavorable permanent differences. Net income increased by$34,777 (40.5%) to$120,592 from$85,815 in the comparable period in the prior year. The increase in net income was primarily attributable to higher fuel contribution. Use of Non-GAAP Measures We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Neither EBITDA nor Adjusted EBITDA are considered GAAP measures, and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management for internal purposes including our capital budgeting process, evaluating acquisition targets, and assessing performance. Because non-GAAP financial measures are not standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies. The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three months endedJuly 31, 2020 and 2019:
Three months ended
July 31, 2020 July 31, 2019
Net income $ 120,592 85,815
Interest, net 13,407 13,721
Federal and state income taxes 37,596 26,501
Depreciation and amortization 65,820 59,808
EBITDA $ 237,415 185,845
Loss on disposal of assets and impairment charges 340 527
Adjusted EBITDA $ 237,755 186,372
For the three months ended July 31, 2020 , EBITDA and Adjusted EBITDA increased
27.7% and 27.6%, respectively, when compared to the same period a year ago. The
increases are primarily due to a higher fuel contribution.
Critical Accounting Policies
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results of operations. The Company's critical accounting policies are described
in the Form 10-K for the year ended April 30, 2020 , and such discussion is
incorporated herein by reference. There have been no changes to these policies
in the three months ended July 31, 2020 .
Liquidity and Capital Resources
Due to the nature of the Company's business, cash provided by operations is the
Company's primary source of liquidity. The Company finances its inventory
purchases primarily from normal trade credit aided by the relatively rapid
turnover of inventory. This turnover allows the Company to conduct its
operations without large amounts of cash and working capital. As
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of July 31, 2020 , the Company's ratio of current assets to current liabilities
was 1.05 to 1. The ratio at July 31, 2019 and April 30, 2020 was 0.76 to 1 and
0.36 to 1, respectively. The increase in the ratio is primarily attributable to
an increase in cash and cash equivalents associated with an increase in cash
provided by operations, and the reclassification of $569,000 5.22% senior notes
from current to long-term as the outstanding balance was refinanced with
proceeds from the Series G and Series H notes subsequent to quarter-end. Refer
to Note 4 for additional discussion on the Series G and Series H notes.
Management believes that the Company's current Bank Line of $25,000 , its Credit
Facility of $300,000 , combined with the current cash and cash equivalents and
the future cash flow from operations will be sufficient to satisfy the working
capital needs of our business.
Net cash provided by operations increased $173,293 (96.9%) in the three months
ended July 31, 2020 from the comparable period in the prior year, due to an
increase in net income and increases in accounts payable and accrued expenses.
Cash used in investing in the three months ended July 31, 2020 decreased $61,116
(58.4%) over prior year, due to governmental delays in zoning and licensing and
a reduction in discretionary spending related to the COVID-19 pandemic. Cash
used in financing increased $99,605 (244.4%), primarily due to payments on the
Credit Facility during the period.
Capital expenditures typically represent the single largest use of Company
funds. Management believes that by acquiring, building, and reinvesting in
stores, the Company will be better able to respond to competitive challenges and
increase operating efficiencies. During the first three months of fiscal 2021,
the Company expended $45,146 , primarily for property and equipment, resulting
from the construction, remodeling, and acquisition of stores, compared to
$106,266 for the comparable period in the prior year. The decrease in capital
expenditures from the prior year is due to a reduction in discretionary spending
related to the COVID-19 pandemic. Due to the continued uncertainty of COVID-19,
guidance around capital expenditures will not be provided at this time. This
will be reevaluated as conditions warrant.
As of July 31, 2020 , the Company had long-term debt (net of related debt
issuance costs) of $1,281,741 (net of current maturities of $2,269 ), primarily
consisting of $569,000 in principal amount of 5.22% Senior Notes, $150,000 in
principal amount of 3.67% Senior Notes Series A, $50,000 in principal amount of
3.75% Senior Notes Series B, $50,000 in principal amount of 3.65% Senior Notes
Series C, $50,000 in principal amount of 3.72% Senior Notes Series D, $150,000
in principal amount of 3.51% Senior Notes Series E, $250,000 in principal amount
of 3.77% Senior Notes Series F, and $13,828 of finance lease obligations. The
Company also has a $25,000 Bank Line with $0 outstanding at July 31, 2020 , and a
$300,000 Credit Facility with $0 outstanding at July 31, 2020 . Current
maturities of long-term debt is comprised of the current portion of finance
lease obligations.
To date, the Company has funded capital expenditures primarily from the proceeds
of the sale of Common Stock, issuance of debt, existing cash, and funds
generated from operations. Future capital needs required to finance operations,
improvements and the anticipated growth in the number of stores are expected to
be met from cash generated by operations, the Credit Facility, the Bank Line,
and additional long-term debt or other securities as circumstances may dictate,
and are not expected to adversely affect liquidity.
Cautionary Statements (Dollars in Thousands)
This Form 10-Q, including the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995. The words "may," "will,"
"believe," "expect," "anticipate," "intend," "estimate," "project," "continue,"
and similar expressions are used to identify forward-looking statements.
Forward-looking statements represent the Company's current expectations or
beliefs concerning future events and trends that we believe may affect our
financial condition, results of operations, business strategy, strategic plans,
short-term and long-term business operations and objectives, and financial
needs. The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, the
following risk factors described more completely in the Company's Form 10-K for
the fiscal year ended April 30, 2020 :
Industry. Pandemics or disease outbreaks, such as the novel coronavirus
("COVID-19"), responsive actions taken by governments and others to mitigate
their spread, and guest behavior in response to these events, have, and may in
the future, adversely affect our business operations, supply chain and financial
results; our business and our reputation could be adversely affected by a data
security incident or the failure to protect sensitive guest, team member or
supplier data, or the failure to comply with applicable regulations relating to
data security and privacy; the convenience store industry is highly competitive;
the volatility of wholesale petroleum costs could adversely affect our operating
results; general economic conditions that are largely out of the Company's
control may adversely affect the Company's financial condition and results of
operations;
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governmental action and campaigns to discourage tobacco and nicotine use and
other tobacco products may have a material adverse effect on our revenues and
gross profit; consumer or other litigation could adversely affect our financial
condition and results of operations; increased credit card expenses could
increase operating expenses; developments related to fuel efficiency, fuel
conservation practices, climate change, and changing consumer preferences may
decrease the demand for motor fuel; and, wholesale cost and tax increases
relating to tobacco and nicotine products could affect our operating results.
Our Business: Food-safety issues and food-borne illnesses, whether actual or
reported, or the failure to comply with applicable regulations relating to the
transportation, storage, preparation or service of food, could adversely affect
our business and reputation; any failure to anticipate and respond to changes in
consumer preferences, or to introduce and promote innovative technology for
guest interaction, could adversely affect our financial results; we rely on our
information technology systems, and a number of third-party vendor platforms, to
manage numerous aspects of our business, and a disruption of these systems could
adversely affect our business; a significant disruption to our distribution
network, to the capacity of the distribution centers, or timely receipt of
inventory could adversely impact our sales or increase our transaction costs,
which could have a material adverse effect on our business; we may experience
difficulties implementing and realizing the results of our strategic plan;
unfavorable weather conditions can adversely affect our business; because we
depend on our management's and other team members' experience and knowledge of
our industry, we could be adversely affected were we to lose, or experience
difficulty in recruiting and retaining, any such members of our team; we may
experience increased costs, disruptions or other difficulties with the
implementation, operation and functionality of our enterprise resource planning
system; control deficiencies could prevent us from accurately and timely
reporting our financial results; our operations present hazards and risks which
may not be fully covered by insurance, if insured; we may not be able to
identify, acquire, and integrate new properties and stores, which could
adversely affect our ability to grow our business; covenants in our senior notes
and credit facility agreements require us to comply with certain covenants and
meet financial maintenance tests. Failure to comply with these requirements
could have a material impact to us; compliance with and changes in tax laws
could adversely affect our performance; we are subject to extensive governmental
regulations; and, the dangers inherent in the storage and transport of motor
fuel could cause disruptions and could expose to us potentially significant
losses, costs or liabilities.
Other: The market price for our common stock has been and may in the future be
volatile, which could cause the value of your investment to decline; any
issuance of shares of our common stock in the future could have a dilutive
effect on your investment; and, Iowa law and provisions in our charter documents
may have the effect of preventing or hindering a change in control and adversely
affecting the market price of our common stock.
We further caution you that other factors we have not identified may in the
future prove to be important in affecting our business and results of
operations. We ask you not to place undue reliance on any forward-looking
statements because they speak only of our views as of the statement dates. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to our investment portfolio and long-term debt obligations. We place
our investments with high-quality credit issuers and, by policy, limit the
amount of credit exposure to any one issuer. Our first priority is to attempt to
reduce the risk of principal loss. Consequently, we seek to preserve our
invested funds by limiting default risk, market risk, and reinvestment risk. We
attempt to mitigate default risk by investing in only high-quality credit
securities that we believe to be low risk and by positioning our portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity. We believe an immediate 100-basis-point move in interest rates
affecting our floating and fixed rate financial instruments as of July 31, 2020
would have no material effect on pretax earnings.
We do from time to time, participate in a forward buy of certain commodities.
These contracts are not accounted for as derivatives as they meet the normal
purchases exclusion under derivative accounting.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer of the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rule
240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer have concluded that the Company's current disclosure
controls and
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procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms and such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the quarter endedJuly 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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