What Will Wage Increase Cost Casey’s?
By Greg Lindenberg on Dec. 08, 2016ANKENY, Iowa -- Although the requirement has been temporarily blocked by a U.S. district court ruling, Casey’s General Stores Inc. will move ahead with increases in the minimum salary for exempt employees that it has already announced, CFO Bill Walljasper said on the company’s earnings call for the second quarter of fiscal 2017.
The increases are in connection with the proposed Federal Labor Standards Act (FLSA) rule from the U.S. Department of Labor that was scheduled to go into effect Dec. 1.
Click through for details on Casey's earnings for the second quarter of fiscal 2017 ...
Wages
“We estimated the impact from this change to be in the neighborhood of $10 million over the 12 months following the effective date,” said Walljasper. “This new ruling came just eight days before the implementation date. At this point in time, like many other employers, we have already communicated changes to our employees and have taken the steps necessary to make payroll adjustments.”
He said the company remains “committed to offering competitive wages and benefits in an effort to be the employer of choice. With this in mind, we fell that this is the right decision to uphold the commitment that we made to our employees, and we will go forward with the applicable salary changes.”
Increases in foodservice prices will offset most of the effect of these changes, he said.
“Most of the employers that have proceeded forward are going to continue with their commitment," he said. "That was a really late-in-the-game ruling, so I think most employers feel that, having made that commitment, it would be very challenging to pull that back. From our perspective, and it’s probably true for any employer, we want to be the employer of choice in our market area, so part of that for us is to have competitive wages. This is just an offshoot of that philosophy.”
Second-Quarter 2017
Casey’s has reported net income of $57.2 million for the second quarter of fiscal 2017 ended Oct. 31, 2016, compared to net income of $79 million for the same quarter a year ago.
“The second-quarter fuel margin was 6.1 cents per gallon lower than the 24.7-cents-per-gallon record quarterly fuel margin from a year ago, which impacted the second-quarter diluted earnings by approximately 52 cents per share,” said Terry Handley, president and CEO.
“For the second quarter, gross-profit dollars excluding fuel were up 7.5% and total fuel gallons sold increased 7.1%,” he said. “Given the ongoing challenges in the broader convenience and foodservice industries, we are pleased with the performance of our stores. In addition, we are well positioned for future expansion as the number of sites under contract for new-store construction has grown to 84, which is nearly double from a year ago.”
Fuel
The company’s annual goal for fiscal 2017 is to increase same-store gallons sold 2.0% with an average margin of 18.4 cents per gallon. For the quarter, same-store gallons sold were up 3.7%, with an average margin above goal at 18.6 cents per gallon.
“Same-store gallons sold for the quarter were well ahead of the annual goal as retail fuel prices remained low and the fuel-saver programs continued to drive incremental gallon sales,” Handley said. “Fuel margin per gallon for the quarter was lower than the same quarter in the prior year due to decreased volatility in wholesale fuel costs.”
The company sold 17.8 million renewable fuel credits (RINs) for $15.9 million during the second quarter. For the six months ended Oct. 31, 2016, total gallons sold were up 7.0% to 1.1 billion gallons. Gross-profit dollars for the same time period were down 3.3% to $203.5 million primarily due to a lower margin. Year to date, same-store sales were up 3.3% with an average margin of 19.1 cents per gallon.
Grocery and Other Merchandise
Casey’s annual goal for fiscal 2017 is to increase same-store sales 6.2% with an average margin of 32.0%. For the quarter, same-store sales were up 3.1% with an average margin of 32.0%.
“A slowing of in-store traffic and tightening of consumer spending caused by the ongoing pressures in our operating area adversely impacted same-store sales throughout the quarter,” Handley said. “However, the company continues to be an industry leader in same-store sales growth of many key products within the category, including cigarettes.”
Year to date, same-store sales were up 3.8%, with an average margin of 31.8%. Total sales for the first six months were up 6.5% to $1.1 billion while total gross-profit dollars increased 5.8% to $353.7 million.
Prepared Food and Fountain
The goal for fiscal 2017 is to increase same-store sales 10.2% with an average margin of 62.5%, the company said. Same-store sales for the quarter were up 5.1% with an average margin of 62.9%.
“Consistent with reports from other foodservice operators, we continued to experience a softening of in-store traffic that resulted in same-store sales below our annual goal. Total sales for the second quarter were up 8.3%, while our same-store sales remained consistent with first-quarter results,” Handley said. “The growth programs continue to provide strong sales lifts, and we are encouraged by the growth in sales coming from online orders.”
Year to date, total prepared-food and fountain sales were up 8.7% to $492 million, and total gross-profit dollars were up 8.5% to $309.4 million. For the first six months, same-store sales were up 5.1% with an average margin of 62.9%.
Operating Expenses
In the second quarter, operating expenses increased 10.2% to 295.3 million. Year to date, operating expenses increased 10.5% to $587.4 million.
“Both the quarter-to-date and year-to-date increases were in-line with our expectations, and primarily driven by an increase in wages due to operating more stores this year compared to the same period one year ago, the continued rollout of the various growth programs and wage-rate increases,” said Handley.
Store-level operating expenses for the quarter were up 4.9% at stores not affected by growth programs.
Expansion
The company’s annual goal for fiscal 2017 is to build or acquire 77 to 116 stores, replace 35 existing locations and complete 100 major remodels. Through six months, the company built and opened 11 new stores, acquired six stores, completed 12 replacements and remodeled 24 stores. In addition, the company has 39 new stores, 22 replacement stores and 37 major remodel stores under construction. The company also has 84 sites under contract for future new store construction and 15 acquisition stores under contract to purchase.
“We have made strides in ramping up store growth as the number of sites under contract for new builds continues to accelerate,” Handley said. “There has been increased dialogue with acquisition targets compared to a year ago; however, we will remain disciplined in our evaluation of these opportunities. We are excited about the company’s future growth.”
Casey's, based in Ankeny, Iowa, operates more than 1,940 convenience stores in 14 states in the Midwest.