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 ofOctober 31, 2020 , there were a total of 2,219 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 ofOctober 31, 2020 , the Company owned the land at 2,193 locations and the buildings at 2,201 locations, and leased the land at 26 locations and the buildings at 18 locations. The Company reported diluted earnings per common share of$3.00 for the second quarter of fiscal 2021. For the same quarter a year-ago, diluted earnings per common share was$2.21 . The following table represents the roll forward of store growth through the second quarter of fiscal 2021: Store Count Total stores atApril 30, 2020 2,207 New store construction 14 Prior acquisitions opened 1 Closed (3)
Total stores at
The Company had 4 acquisition stores under agreement to purchase and a new store
pipeline of 77 sites, including 23 under construction, as of
Since the fourth quarter of fiscal year 2020, the COVID-19 pandemic has increasingly taken hold throughout our footprint, as the number of reported infections within the sixteen states in which we operate have continued to increase. Governmental restrictions, including shelter in place and stay at home orders, a widespread shift to working from home, school and other business closures, and other efforts to restrict the spread of the outbreak, and our guests' behavior in response to the pandemic and these restrictions, has continued to result in decreased store traffic. The decline in store traffic could remain, or accelerate, due to the recent increase in such restrictions. This has, and will continue to, result in lower demand for our products and a decrease in same-store sales. The COVID-19 pandemic, along with the restrictions and mandates, including the evolving 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 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 second quarter results reflected a 8.6% decrease in same-store fuel gallons sold, with an average fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) of35.3 cents per gallon, compared to22.9 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 13 -------------------------------------------------------------------------------- Table of Contents capability and procurement improvements. The Company sold 6.1 million renewable fuel credits for$3.8 million during the quarter, compared to 18.7 million renewable fuel credits in the second quarter of the prior year, which generated$3.8 million . Same-store sales of grocery and other merchandise increased 6.6% and prepared food and fountain decreased 3.6% during the second quarter. The increase in grocery and other merchandise same-store sales was primarily due to stronger sales of alcohol, packaged beverage and tobacco. The decrease in prepared food and fountain same-store sales was primarily attributable to pressure in the dispensed beverage and bakery categories, though these categories experienced improvements in volume compared to first quarter. Three Months Ended October 31, 2020 Compared to Three Months Ended October 31, 2019 (Dollars and Amounts in Thousands) Grocery & Prepared Other Food & Three Months Ended October 31, 2020 Fuel Merchandise Fountain Other Total Revenue$ 1,193,491 $ 718,226 $ 288,822 $ 15,366 $ 2,215,905 Revenue less cost of goods sold (excluding depreciation and amortization)$ 204,154 $ 238,992 $ 173,661 $ 14,953 $ 631,760 17.1 % 33.3 % 60.1 % 97.3 % 28.5 % Fuel gallons 577,581 Grocery & Prepared Other Food & Three Months Ended October 31, 2019 Fuel Merchandise Fountain Other Total Revenue$ 1,514,474 $ 660,562 $ 297,846 $ 14,704 $ 2,487,586 Revenue less cost of goods sold (excluding depreciation and amortization)$ 140,798 $ 220,134 $ 181,452 $ 14,681 $ 557,065 9.3 % 33.3 % 60.9 % 99.8 % 22.4 % Fuel gallons 614,071 Total revenue for the second quarter of fiscal 2021 decreased by$271,681 (10.9%) over the comparable period in fiscal 2020. Retail fuel sales decreased by$320,983 (21.2%) as the average retail price per gallon decreased 16.2% (amounting to a$245,581 decrease), and the number of gallons sold decreased by 36,490 (5.9%). During this same period, retail sales of grocery and other merchandise increased by$57,664 (8.7%), due to operating 38 more stores than a year ago and strong sales of alcohol, packaged beverage and tobacco. Prepared food and fountain sales decreased by$9,024 (3.0%), due primarily to pressure in the dispensed beverage and bakery categories, though these categories experienced improvements in volume compared to the first quarter. The other revenue category primarily consists of lottery, which is presented net of applicable costs, and car wash. These revenues increased$662 (4.5%) for the second quarter of fiscal 2021. Revenue less cost of goods sold (excluding depreciation and amortization) was 28.5% of revenue for the second quarter of fiscal 2021, compared to 22.4% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 17.1% of fuel revenue during the second quarter of fiscal 2021, compared to 9.3% in the second quarter of the prior year. Revenue per gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was35.3 cents in the second quarter of fiscal 2021, compared to22.9 cents in the prior year, due in part to our centralized retail pricing capability and procurement improvements. Grocery and other merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) was consistent at 33.3% of grocery and other merchandise revenue, compared to the prior year. Prepared food and fountain revenue less related cost of goods sold (exclusive of depreciation and amortization) decreased to 60.1% of revenue, compared to 60.9% in the prior year, primarily due to increased promotional activity. Operating expenses increased$36,965 (9.9%) in the second quarter of fiscal 2021 from the comparable period in the prior year, due to operating 38 more stores compared to the same period a year ago as well as incurring$5 million in COVID-related expenses and over$9 million in incremental short and long-term incentive compensation costs due to the strong performance of the Company. Same store operating expenses excluding credit card fees were up 5.4% for the quarter. 14 -------------------------------------------------------------------------------- Table of Contents Depreciation and amortization expense increased by 2.2% to$64,294 in the second quarter of fiscal 2021 from$62,888 for the comparable period in the prior year. The increase was primarily due to operating 38 more stores than a year ago and capital expenditures during the previous twelve months. Interest expense decreased by$2,049 (16.2%), attributable to the refinancing of the 5.69% senior notes to lower interest rate debt during the quarter. The effective tax rate decreased to 23.6% in the second quarter of fiscal 2021 compared to 24.2% in the same period of fiscal 2020. The decrease in the effective tax rate was primarily due to a reduction in state tax expense. Net income increased by$30,002 (36.6%) to$111,983 from$81,981 in the comparable period in the prior year. The increase in net income was primarily attributable to higher fuel contribution and operating 38 more stores than a year ago. Six Months Ended October 31, 2020 Compared to Six Months Ended October 31, 2019 (Dollars and Amounts in Thousands) Prepared Grocery & Food & Six Months Ended October 31, 2020 Fuel Other Merchandise Fountain Other Total Revenue$ 2,279,472 1,450,087 559,588 31,779 4,320,926 Revenue less cost of goods sold (excluding depreciation and amortization) 414,184 474,591 335,309 31,179 1,255,263 18.2 % 32.7 % 59.9 % 98.1 % 29.1 % Fuel gallons 1,127,089 Prepared Grocery & Food & Six Months Ended October 31, 2019 Fuel Other Merchandise Fountain Other Total Revenue$ 3,142,042 $ 1,348,480 $ 593,723 $ 29,970 $ 5,114,215 Revenue less cost of goods sold (excluding depreciation and amortization)$ 291,787 $ 435,587$ 365,464 $ 29,913 $ 1,122,751 9.3 % 32.3 % 61.6 % 99.8 % 22.0 % Fuel gallons 1,233,155 Total revenue for the first six months of fiscal 2021 decreased by$793,289 (15.5%) over the comparable period in fiscal 2020. Retail fuel sales decreased by$862,570 (27.5%) as the average retail price per gallon decreased 20.6% (amounting to a$648,058 decrease), and the number of gallons sold decreased 106,066 (8.6%). During this same period, retail sales of grocery and other merchandise increased by$101,607 (7.5%) due to operating 38 more stores than a year ago and strong sales of alcohol, packaged beverage and tobacco. Prepared food and fountain sales decreased by$34,135 (5.7%), due primarily to pressure in the dispensed beverage and bakery categories. The other revenue category primarily consists of lottery, which is presented net of applicable costs, and car wash. These revenues increased$1,809 (6.0%) through the second quarter of fiscal 2021. Revenue less cost of goods sold (excluding depreciation and amortization) was 29.1% of revenue for the first six months of fiscal 2021, compared to 22.0% for the comparable period in the prior year. Fuel revenue less related cost of goods sold (exclusive of depreciation and amortization) was 18.2% of fuel revenue for the first six months of fiscal 2021 compared to 9.3% for the first six months of the prior year. Revenue per gallon less cost of goods sold per gallon (exclusive of depreciation and amortization) was36.7 cents for the first six months of fiscal 2021 compared to23.7 cents in the prior year, due in part to our centralized retail pricing capability and procurement improvements. Grocery and other merchandise revenue less related cost of goods sold (exclusive of depreciation and amortization) increased to 32.7% of grocery and other merchandise revenue, compared to 32.3% in the prior year, primarily due to an out-of-period inventory adjustment that adversely impacted the prior year by$6.6 million or 0.5%. Prepared food and fountain revenue 15 -------------------------------------------------------------------------------- Table of Contents less related cost of goods sold (exclusive of depreciation and amortization) decreased to 59.9% of revenue, compared to 61.6% in the prior year, due to higher commodity costs and increased promotional activity. Operating expenses increased by$43,212 (5.7%) in the first six months of fiscal 2021 from the comparable period in the prior year, primarily due to operating 38 more stores than a year ago, as well as incurring$20 million in COVID-related expenses and over$12 million in incremental short and long-term incentive compensation costs due to the strong performance of the Company. Same store operating expenses excluding credit card fees were down 0.1% for the first six months of fiscal 2021. Depreciation and amortization expense increased 6.0% to$130,114 for the first six months of fiscal 2021 from$122,696 for the comparable period in the prior year. The increase was due partially to capital expenditures during the previous twelve months. Additionally, the expense for the first six months of fiscal 2020 was lower than expected, due to an approximately$5.0 million adjustment related to the useful lives of underground storage tanks. Interest expense decreased by$2,363 (8.9%), primarily attributable to the refinancing of the 5.69% senior notes to lower interest rate debt. The effective tax rate decreased to 23.7% in the second quarter of fiscal year 2021 compared to 23.9% in the same period of fiscal year 2020. The decrease in the effective tax rate was primarily due to a reduction in state tax expense. Net income increased by$64,779 (38.6%) to$232,575 from$167,796 in the prior year. The increase in net income was primarily due to growth in fuel gross profit dollar and operating 38 more stores than a year ago. Use of Non-GAAP Measures We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets as well as impairment charges. Neither EBITDA nor Adjusted EBITDA are considered GAAP measures, and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities, and they are regularly used by management for internal purposes including our capital budgeting process, evaluating acquisition targets, and assessing performance. Because non-GAAP financial measures are not standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies. The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three and six months endedOctober 31, 2020 and 2019: Three months ended Six months ended October 31, October 31, October 31, October 31, 2020 2019 2020 2019 Net income$ 111,983 $ 81,981 $ 232,575 $ 167,796 Interest, net 10,634 12,683 24,041 26,404 Federal and state income taxes 34,501 26,130 72,097 52,631 Depreciation and amortization 64,294 62,888 130,114 122,696 EBITDA$ 221,412 $ 183,682 $ 458,827 $ 369,527 Loss on disposal of assets and impairment charges 1,819 730 2,159 1,257 Adjusted EBITDA$ 223,231 $ 184,412 $ 460,986 $ 370,784 16
-------------------------------------------------------------------------------- Table of Contents For the three months endedOctober 31, 2020 , EBITDA and Adjusted EBITDA increased 20.5% and 21.1%, respectively, when compared to the same period a year ago. For the six months endedOctober 31, 2020 , EBITDA and Adjusted EBITDA increased 24.2% and 24.3%, respectively, when compared to the same period a year ago. The increases in both periods are primarily due to a higher fuel contribution and operating 38 more stores than a year ago. 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 endedApril 30, 2020 , and such discussion is incorporated herein by reference. There have been no changes to these policies in the six months endedOctober 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 ofOctober 31, 2020 , the Company's ratio of current assets to current liabilities was 1.30 to 1. The ratio atOctober 31, 2019 andApril 30, 2020 was 0.36 to 1 for each period. 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 a decrease in cash used in investing. Additionally, current liabilities decreased due to the payment of$569,000 5.22% senior notes which matured onAugust 9, 2020 using a portion of the proceeds from the Series G and Series H notes. Refer to Note 4 for additional discussion on the Series G and Series H notes. Management believes that the Company's currentBank 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$240,548 (77.2%) in the six months endedOctober 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 six months endedOctober 31, 2020 decreased$89,276 (36.4%) 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 decreased$15,906 (18.6%), primarily due to incremental proceeds on the Series G and Series H notes, offset by 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 six months of fiscal 2021, the Company expended$158,815 , primarily for property and equipment, resulting from the construction, remodeling, and acquisition of stores, compared to$248,364 for the comparable period in the prior year. The decrease in capital expenditures from the prior year is due to governmental delays in zoning and licensing and 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 ofOctober 31, 2020 , the Company had long-term debt (net of related debt issuance costs) of$1,361,925 (net of current maturities of$2,297 ), primarily consisting$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,$325,000 in principal amount of 2.85% Senior Notes Series G,$325,000 in principal amount of 2.96% Senior Notes Series H and$13,122 of finance lease obligations. The Company also has a$25,000 Bank Line with$0 outstanding atOctober 31, 2020 , and a$300,000 Credit Facility with$0 outstanding atOctober 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. 17 -------------------------------------------------------------------------------- Table of Contents Cautionary Statements 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 endedApril 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; 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. 18 -------------------------------------------------------------------------------- Table of Contents 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 ofOctober 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 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 theSEC'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 ended
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