ANKENY, Iowa — “In one of the most difficult retail environments of our lifetime,” Casey’s General Stores Inc. “achieved remarkable results” for its fiscal year even during a pandemic, CEO Darren Rebelez said during the convenience-store retailer’s fourth-quarter and full-year 2021 earnings call. “The past 12 months have been like no other, and that includes our astounding financial results,” he said. “Casey’s 2021 fiscal year yielded the strongest results in our 53-year history.”
“The entire Casey’s team proved themselves resilient in spite of these challenges and made excellent progress on our long-term strategic plan while keeping our people and communities safe,” Rebelez (pictured) said. “We have great momentum behind our digital engagement efforts, our private-brand products have resonated with our guests, our prepared foods business is regaining traction and we are in the process of welcoming two large acquisitions to the Casey’s family. We are now poised to emerge from the pandemic an even stronger company.”
Casey’s recently closed on its acquisition of the 94-store Bucky’s convenience-store chain, and it expects to close on its purchase of 49 Circle K c-stores in late June.
Here are the highlights of the earnings report and call …
Casey’s net income in the quarter was down compared to the prior year’s fourth quarter due primarily to lower fuel margin and higher operating expenses, partially offset by higher inside gross profit. But total revenue was up for the period.
For the three months ended April 30, net income was $41.7 million, 41.7 compared to $62.1 million for the same period in 2020. For the 12 months ended April 30, however, net income was $312.9 million, up 18.6% from $263.8 million in the previous year.
Total revenue for fourth-quarter 2021 was $2.38 billion, compared to $1.81 billion for fourth-quarter 2020. For the year, total revenue was $8.7 billion, compared to $9.18 billion in 2020.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fourth-quarter 2021 were $140.6 million, compared to $159 million for the previous year’s period. But for the full year, EBITDA was $728.9 million, compared to $650.1 million in 2020.
“We finished fiscal 2021 with an all-time-record diluted [earnings per share] of $8.38 a share, an 18% increase from the prior year,” said Rebelez. “The company also finished with an all-time-high adjusted EBITDA of $729 million. This is a tremendous accomplishment considering the extreme environment companies navigated through since the start of the pandemic last March.”
Casey’s expects to build on the momentum of fiscal 2021, but uncertainty remains regarding the timing of recovery from the pandemic, it said. The company expects same-store fuel and inside sales to increase by mid-single digit percentages. It expects total operating expenses to increase by mid-teen percentages, driven primarily by adding approximately 200 stores during fiscal 2022, as well as expenses related to adding back operating hours to the stores and expected wage pressures.
Casey’s same-store gallons sold were up significantly in the back half of the quarter due to the favorable comparison to the start of the pandemic a year ago. The company’s overall fuel gross profit was down 11% primarily due to the unusually high fuel margin achieved last year via supply and demand shocks from COVID-19 and macroeconomic conditions in the oil industry, the company said. The centralized fuel team, combined with procurement improvements, contributed to the company’s fuel margin of 33 cents per gallon (CPG) on 535.3 million gallons for the quarter, compared to 40.8 CPG on 487.7 million gallons in fourth-quarter 2020.
For fiscal 2021, fuel margin was 34.9 CPG on 2.18 billion gallons, compared to 26.8 CPG on 2.29 billion gallons for fiscal 2020.
“Fuel profitability was a primary driver as our centralized fuel team helped drive a gross profit increase of nearly 24%, while offsetting COVID-driven pressures on gallons sold. We finished the year down 8.1% in same-store gallons sold with an all-time-high annual fuel margin of $34.09 per gallon,” said Rebelez.
Inside same-store sales were driven by a resurgence in sales of pizza slices, dispensed beverage and bakery as Casey’s began making up for COVID-19-related traffic disruption. Whole pizza sales remained strong throughout the quarter as well. Inside margins improved primarily due to strategic sourcing initiatives and previous merchandise resets, along with a favorable mix shift of private brands, packaged beverage and prepared foods, the company said.
For the three months ended April 30, inside sales were $913.4 million, compared to $797.9 million for the same period in 2020. For the 12 months ended April 30, inside sales were $3.9 billion, compared to $3.6 billion in the previous year.
Quarter over quarter, inside sales were 39.9%, compared to 38.9% Inside margin dipped slightly from the prior year to 40% from 40.8%, due primarily to a mix shift of higher pack sizes and lower prepared food sales.
Grocery and other merchandise same-store sales increased 12.5% for the quarter compared to the same period in 2020, and margins were up 31.8%. For the year, grocery and other merchandise same-store sales increased 6.6% over 2020, and margins were up 32%.
“Our merchandise team had to be just as agile” as our fuel team, Rebelez said, “as they were forced to react to constantly changing guest needs. Grab-and-go and single-serve items were replaced with larger pack sizes, grocery and PPE needs, as well as higher demand for beer and alcohol as people began to consume more at home versus restaurants and bars.”
Prepared food and fountain same-store sales increased 13.4% for the quarter compared to the same period in 2020, and margins were up 60.1%. For the year, grocery and other merchandise same-store sales increased 6.6% over 2020, and margins were up 32%.
“Fortunately, we’re now seeing recovery in our prepared food and fountain business, as the world moves towards normal traffic patterns,” he said. “Guest traffic is rising, and we’re seeing a resurgence in pizza slices, dispensed beverages and bakery, as our guests return to their normal daily routines. The fact that our prepared food business in such a large part of our mix will create a tailwind after the pandemic that not too many of our peers will enjoy.”
Digital engagement efforts
Even through the pandemic, Casey’s has been executing on its long-term strategic plan. Its three pillars include reinventing the guest experience, creating capacities through efficiencies and being where the customer is through disciplined store growth, supported by investment and talent, said Rebelez.
“We made a significant impact on the guest experience, particularly with respect to digital engagement,” he said. “Our Casey’s Rewards Program launched just prior to the pandemic now includes more than 3.6 million members and continues to grow. We now have over 700 stores that offered DoorDash delivery service, and we just recently launched Uber Eats to another 700 stores.”
He added, “We’re listening to and building deeper relationships for our guests to better serve them. Through a new, more robust guest insights and analytics capability, we’re growing our knowledge and understanding of our guests, and we’ll have greater visibility into our customer’s preferences and needs than ever before. … We have a captive audience that will enable us to target and effectively communicate promotions that can influence guest behavior.
Casey’s Rewards members spend more per transaction then a typical customer, he said. “Also, guests who actively redeem promotional offers shop at significantly higher frequency than those who don’t. Using loyalty program data allows us to tailor segmented campaigns for our guests that will be even more effective.”
Casey’s private-label initiative is “off to a great start, capitalizing on the brand equity we have built up for over 50 years,” said Rebelez. “We recently eclipsed 3% of grocery and other merchandised sales significantly outperforming our goal of 2% for fiscal 2021.”
Optimized placement of private-label products was a key component of the chain’s merchandise reset. “We’ve already become the No. 1 brand for packaged bakery, meat snacks, as well as nuts and seeds in store. Looking ahead, we plan to double the number of SKUs offered under the Casey’s brand to keep the momentum rolling on this initiative.”
Culinary innovation within Casey’s prepared food and fountain category will drive results in fiscal 2022, Rebelez said. “We’re seeing positive momentum for our prepared food items, from pizza to bakery and beverages. We expect that trend to continue. “
In April, Casey’s rolled out a new, made-from-scratch Cheesy Breadsticks product that Rebelez said has been a big hit with customers. The product uses the chain’s made-from-scratch pizza dough. “Our dough, the key differentiator from our competitors, will leverage this strength to springboard other innovation in the not-so-distant future.”
Casey’s had 2,207 stores in 16 states as of April 30, 2020. In fourth-quarter 2021, the company built 40 stores and acquired five stores, opened 5 prior acquisitions and closed 11 locations. It also acquired but has not yet opened three stores, for a total of 2,243 c-stores as of April 30, 2021.
“We continue to see tremendous growth opportunities in our business and remain bullish to add 345 stores over the next three years,” said Rebelez. “We also built 40 new stores in fiscal 2021 despite pandemic delays. Our two-pronged balanced approach to store growth, the organic build and acquisitions, enables us to be selective and disciplined, which we believe is the most effective way to drive shareholder value.”
He is also “very bullish” on Casey’s ability to grow store count through acquisition “given our strong balance sheet, recently completed Joplin distribution center and the macroeconomic pressures that smaller operators may have difficulty navigating through. Our dedicated M&A team is making considerable outreach, and given the likely changing tax environment, the timing might be right for those operators to exit the industry. We will be ready to assist them when the time is right to transition their business, and we believe we’re excellent stewards of their businesses as we add our compared foods to their stores.”
On May 13, 2021, Casey’s closed on its acquisition of Buchanan Energy, adding 94 Bucky’s c-stores. Prior to its acquisition, Buchanan Energy was No. 75 in CSP’s 2021 Top 202 ranking of the largest U.S. c-store chains.
Omaha, Neb.-based Buchanan Energy operated 56 Bucky's locations in Illinois and 26 in Nebraska, as well as five in Iowa, four in Texas and three in Missouri. The acquisition deepens Casey’s Midwestern presence, especially in Nebraska and Illinois. The transaction included 79 dealer locations, as well as multiple parcels of real estate for future new-store construction, which increases Casey’s footprint of owned and operated stores by 4% to more than 2,300 stores.
Casey’s has divested six stores as part of the consent order the company agreed to with the Federal Trade Commission (FTC). It sold the units—three Casey’s outlets and three Bucky’s outlets—to Western Oil II LLC, Valentine, Neb.
The acquisition marks the most significant transaction in Casey’s 52-year history, the company said. “The Buchanan Energy transaction is a perfect strategic fit and will pair our outstanding pizza program with their well-located, high-volume stores,” Rebelez said.
Circle K deal
As part of a decision following a strategic review to divest 355 sites in North America, Alimentation Couche-Tard Inc. in March agreed to sell 49 Circle K sites in Oklahoma to Casey's for $39 million in an all-cash transaction.
The transaction includes 46 leased and three owned properties. Casey’s will supply these stores through the company’s new distribution center in Joplin, Mo., it said.
Casey’s expects the acquisition of the Circle K stores to close by the end of June, Rebelez said.