Casey’s General Stores, Inc. (NASDAQ:CASY) Q4 2024 Earnings Call Transcript - InvestingChannel

Casey’s General Stores, Inc. (NASDAQ:CASY) Q4 2024 Earnings Call Transcript

Casey’s General Stores, Inc. (NASDAQ:CASY) Q4 2024 Earnings Call Transcript June 12, 2024

Operator: Good day and thank you for standing by. Welcome to the Q4 fiscal year 2024 Casey’s General Stores earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-one-one again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.

Brian Johnson: Good morning and thank you for joining us to discuss the results from our fourth quarter and fiscal year ended April 30, 2024. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Board Chair, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer. Before we begin, I’ll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company’s supply chain, business and integration strategies, plans and synergies, growth opportunities, and performance at our stores.

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions, as well as other risks, uncertainties and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q, as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey’s disclaims any intention or obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.

A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as a detailed breakdown of the operating expense increase for the fourth quarter can be found on our website at under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our fourth quarter and fiscal year results. Darren?

Darren Rebelez: Thanks Brian, and good morning everyone. We are excited to share our outstanding results, but I’d like to first begin by thanking our 45,000 Casey’s team members for their commitment and effort in achieving another record fiscal year. As we look back on the first year of the three-year strategic plan that we set out in June of 2023, I have never been more confident in our team and their ability to execute the plan to deliver on our commitments we made to our shareholders. Casey’s is here to make life better for our guests and communities every day. That’s our purpose, and it shows in the positive guest feedback we receive, the delicious food we make, and the impact we have on our communities. This fiscal year, Casey’s along with its generous guests, partners and team members were able to donate over $5.7 million to make a positive impact in our communities.

In addition, thanks to the strong performance this year, the company was able to direct $6 million in additional funding to its charitable fund for donations in future years. Our community giving programs provide improvements for schools and sports fields, meals for those in need, disaster recovery support, and services helping veterans and their families. Thank you to our team members, our guests and our non-profit and supplier partners to make all this possible. We are proud to do so much good across what we call Casey’s Country. Now let’s discuss the results of this past fiscal year. Fiscal ’24 was another record year for diluted earnings per share, finishing at $13.43, a 13% increase from the prior year. The company also generated a record $502 million in net income and $1.1 billion in EBITDA, an increase of 11% from the prior year.

Inside same store sales were up 4.4% or 11.2% on a two-year stacked basis with exceptionally strong results in the prepared food and dispense beverage category, up 6.8% or 14.4% on a two-year stacked basis. We had good performance in grocery and general merchandise as well, with same store sales up 3.5% or 10% on a two-year stacked basis. Inside margin expanded 110 basis points year-over-year to 41%, a testament to our approach of handling commodity volatility while still maintaining a strong value proposition for our guests. We saw excellent results in pizza slices as well as both alcoholic and non-alcoholic beverages. Our food innovation team did a great job with thin crust pizza and our refreshed sandwich menu both performing exceptionally well.

Fuel gross profit was up 4% with total fuel gallons sold up 6% and a fuel margin averaging $0.395 per gallon over the course of the year. Our fuel team continues to take market share while maximizing gross profit dollars with a balance of fuel volume and margin. Our focus on operational efficiency continues to pay dividends. Same store operating expenses excluding credit card fees were up only 2.7% for the year, impacted favorably by a reduction of same store labor hours of 1.6%. The fourth quarter marked the eighth consecutive quarter of same store labor hour reductions. This was done while guest satisfaction scores improved and team member engagement scores hit an all-time high, showing that our store simplification efforts and operational excellence teams are driving efficiencies the right way.

Store growth was also a high priority for the company as we built 42 new stores and acquired 112 more in fiscal ’24. Twenty-two of those acquired stores were in Texas, as we were able to expand our footprint into our 17th state and were excited to bring all of our Casey’s capabilities to that market. We believe our two-pronged approach of both building and acquiring stores is a great way to ratably grow the business every year, and we are well on our way to meet or exceed our three-year goal of at least 350 new stores. The strong results in fiscal ’24, during a time when the broader retail industry has been challenged, illustrates the uniqueness, durability and strategic advantage of the Casey’s business model. I’d now like to turn the call over to Steve to discuss the fourth quarter and our outlook for fiscal ’25.


Steve Bramlage: Thank you Darren, and good morning. Before I get to the financials, I’d also like to take a moment to recognize the entire Casey’s team. The outstanding financial results for the quarter and the full year are a remarkable accomplishment for the whole organization, and the phenomenal team members that we have make it possible due to their hard work and dedication. Now as a reminder, during the fourth quarter, Casey’s had one additional operating day due to the leap year. This impacted same store and total results for the quarter by approximately 100 basis points. The impact for the full year was therefore approximately 25 basis points. The fourth quarter financial results were outstanding as diluted EPS was $2.34, a 57% increase from the prior year, and I’ll now dive further into those results.

A close-up of a hand selecting a food or beverage item from a store shelf.

Total inside sales rose 11.9% from the prior year to nearly $1.3 billion, with an average margin of 41.2% which resulted in total inside gross profit dollars up $72.1 million or 16% from the prior year. Total prepared food and dispensed beverage sales rose by $42.7 million to $357 million – that’s an increase of 14%, and total grocery and general merchandise sales increased by $91 million to $900 million, an increase of 11%. Same store prepared food and dispensed beverage sales were up 8.8% for the quarter. The average margin for the quarter was 58.1%, up 130 basis points from a year ago. Hot sandwiches and dispensed beverages performed well in the quarter. Margin benefited from some modest retail price adjustments by approximately 90 basis points.

Cheese costs were down $0.08 per pound from the prior year to $2.12, and this had an approximately 20 basis point benefit to the margin. Same store grocery and general merchandise sales were up 4.3% and the average margin was 34.4%, which is an increase of 140 basis points from the same period a year ago. Sales were particularly strong in our non-alcoholic and alcoholic beverages, and we experienced a favorable mix shift towards smaller pack sizes in the alcohol category. Retail price adjustments, the growth of our private label program and cost of goods management were all positive contributors to the margin for the quarter. During the fourth quarter, same store fuel gallons sold were up 0.9% with a fuel margin of $0.365 per gallon – that’s up approximately $0.019 per gallon compared to the same period last year.

Our same store gallon volume outperformed relevant Opus geographic data by several hundred basis points. Retail fuel sales were up $139 million in the fourth quarter, due primarily to a 9% increase in the total gallons sold to 695 million, and was partially offset by a 3% decline in the average retail price of fuel from $3.36 last year to $3.28. Total operating expenses were up 11% or $57 million in the fourth quarter. Approximately 6% of that increase was due to operating 137 more stores than a year ago. Another 2% of the increase was due to higher same store employee expenses. Approximately 1% of the change is related to an increase in accrued costs for incentive compensation due to strong financial performance, and finally approximately 1% of the increase was due to the discretionary charitable giving and special team member bonus.

Depreciation in the quarter was $92.3 million, up $11.7 million versus the prior year primarily due to operating more stores. Net income was up versus the prior year to $87 million, an increase of 55%. EBITDA for the quarter was $209 million, an increase of 32%. Our balance sheet remains in excellent condition and we have ample financial flexibility. On April 30, we had total available liquidity of $1.1 billion, and furthermore, we have no significant maturities coming due until fiscal 2026. Our leverage ratio, calculated in accordance with our senior notes, is 1.5 times EBITDA, and we continue to have sufficient capacity to make good strategic investments as they present themselves. For the quarter, net cash generated by operating activities of $288 million less purchases of property and equipment of $196 million resulted in the company generating $92 million in free cash flow.

This brought our total free cash flow for the year to $371 million. Return on invested capital for the fiscal year finished at 12.1% – that’s up 30 basis points from the prior year. At the June meeting, the board of directors voted to increase the dividend to $0.50 per share, a 16% increase, and that marks the 25th consecutive year that the dividend has been increased. During fourth quarter, we also repurchased approximately $15 million of stock to bring the total for the year to $105 million, and we still have $295 million remaining on the existing share repurchase authorization. Our primary capital allocation priority remains investing in EBITDA and ROIC accretive growth opportunities, but we will continue to be opportunistic in regards to share repurchase.

The company is providing the following fiscal 2025 outlook. We expect EBITDA to increase at least 8%. We expect inside same store sales to increase 3% to 5% and for inside margin to be comparable to fiscal 2024. The company expects same store fuel gallons sold to be between negative 1% to positive 1%. Total operating expenses are expected to increase approximately 6% to 8%. We expect to add at least 100 stores in fiscal 2025 through a mix of M&A and new store construction. Net interest expense is expected to be approximately $56 million, depreciation and amortization is expected to be approximately $390 million, and the purchase of property and equipment is expected to be approximately $575 million. The tax rate is expected to be approximately 24% to 26% for the year.

Consistent with our past practice, we’re not guiding to a fuel margin CPG figure, nor are we providing EPS estimates. Finally, our May experience was as follows: inside same store sales and same store fuel gallons sold were both consistent with our annual guidance range and expectations. Fuel CPG margin for May was in the low $0.40 per gallon. Current cheese costs are modestly unfavorable versus the prior year, and we expect first quarter operating expense to be up low double digits and first quarter depreciation to be up mid teens due to the timing associated with lapping the prior year acquisitions and new store builds. I’ll now turn the call back over to Darren.

Darren Rebelez: All right, thanks Steve. I’d like to again say thank you and congratulate the entire Casey’s team for delivering another record year. The financial performance is the result of the tireless efforts of the team and the dedication to executing our three-year strategic plan. The plan we laid out in June of 2023 had three pillars: accelerate the food business, grow the number of units, and enhance operational efficiency. We are off to an excellent start on each of these objectives. Our prepared food business, which is Casey’s most significant differentiator in the convenience store industry, proved in fiscal 2024 that we have innovated the right products at the right value for our guests. In June of 2023, we rolled out a thin crust pizza offering that has allowed us to meet the needs of the entire family for their pizza occasion.

In calendar 2024, we launched a refreshed sandwich platform that has become a staple of the lunch depart menu. This innovation, as well as being strategic on retail price to ensure that we are a relative value for our guests, has shown up in our financial results. Our same store inside sales growth has been consistent with the strategic plan, and as expected, prepared food and dispensed beverage has been pacing that growth. Despite lapping a strong fiscal 2023, we were up 6.8% in same store sales during the fiscal year. Our commitment to growing the number of units is also off to a great start. During the fiscal year, we built 42 new stores and acquired another 112 for a total of 154 new and acquired stores. We are ahead of our pace for adding at least 350 stores by the end of fiscal 2026.

Our two-pronged approach allows us the flexibility to build or buy, and our strong balance sheet gives us the freedom to be opportunistic with acquisitions. That was the case in fiscal 2024, where we had our second most acquisitive year in the company’s history. Fiscal 2024 continued a trend of operating the business more efficiently. Our operational excellence team has done a tremendous job identifying areas to improve store efficiency while simultaneously improving guest satisfaction and team member engagement. Two of the highlights from the fiscal year happened inside the kitchen with the digital production planner and our automated voice assistant, or EVA. The digital production planner provides the stores with clear data on what quantities of prepared foods need to be made at certain times throughout the day.

EVA answers the phone and takes the order so the team members in the kitchen can work on what they do best, which is making great food. The team’s work is not done, and we are excited to continue to enhance operational efficiency in fiscal ’25 and beyond. Turning to the guests, Casey’s Rewards now has over 8 million members. As rewards guests visit the store more frequently and spend more per trip, joining the rewards program is a win-win for both the guest and Casey’s. I’d also like to welcome Maria Castañón Moats to the board of directors, effective July 1. Ms. Castañón Moats is retiring from her role as a partner at PriceWaterhouseCoopers on June 30, 2024, and she is a highly accomplished financial expert with over 30 years of experience.

Most recently, Maria served as a leader of PWC’s governance insights center, which helps boards, investors and management teams tackle today’s toughest governance and strategic challenges. We’re excited to have Maria join the board. As we look forward to fiscal 2025 and beyond, I’m very excited about the future of Casey’s. We have the financial resources, people and leadership team to execute our strategic plan and drive shareholder value. We will now take your questions.

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