While fiscal 2023 may not be on par with 2022, which was the “most acquisitive year” in Casey’s General Stores’ history, mergers and acquisitions are still very much on the table for the convenience-store company along with organic store growth, said President and CEO Darren Rebelez in reporting a “stellar” fiscal third-quarter 2023.
In 2022, Ankeny, Iowa-based Casey’s acquired the 94-unit Bucky’s c-store chain from Buchanan Energy, Omaha, Nebraska; 49 sites from Alimentation Couche-Tard Inc., Laval, Quebec; and 40 c-stores from Pilot Co., Tulsa, Oklahoma, among other smaller deals. Historically, Casey’s did not expand via large deals, preferring to grow by building new-to-industry (NTI) stores.
- Casey’s General Stores is No. 3 on CSP’s 2023 Top 40 update to the 2022 Top 202 ranking of convenience-store chains by total number of company-owned locations.
Operating approximately 2% more stores on a year-over-year basis favorably affected results, Casey’s said. Higher profitability both inside the store and in fuel was partially offset by higher operating expenses due to operating 41 more stores than the previous year, it said.
As of Jan. 31, 2023, Casey’s had 2,472 convenience stores in 16 states, up from 2,452 as of April 30, 2022. That growth included the opening of 16 new-to-industry (NTI) sites, 12 newly acquired stores and two previously acquired stores, as well as four unopened acquired stores. It also closed six locations.
Casey’s expects to add approximately 80 stores in fiscal 2023 and expects to exceed its stated three-year goal of 345 units, it said.
“In this current environment, we’re seeing a lot of potential acquisition activity. Our business development team is really busy talking to a lot of folks,” said Rebelez. “We have a number of smaller deals under agreement right now that will close before the end of the fiscal year, so we’re very confident we’ll get to the number for this year.”
Casey’s is looking to both organic store growth and expansion via acquisition, Rebelez said. “We do have a lot of cash on the balance sheet relative to what we’ve had historically, he said. “We’re going to have a very busy April realistically in terms of opening and buying stores. It seemed the most prudent for us to hold that cash over the course of the year because we knew we were going to have uses for it.”
He added that the company will “remain disciplined” on valuations and what it pays for any acquisitions, “so we need to let that process play out. But … we have not in any way told our real estate team to slow down on finding new sites, and so we’ll keep that optionality. If the M&A deals don’t come to fruition, we’ll just lean heavier on our organic growth to accelerate that store development.”
Rebelez is seeing “a variety of expectations” on the part of sellers. Some “are sitting on historically high fuel margins that would love to be able to sell at that rate. We don’t necessarily believe that those margins … are reflective of the long-term trend … and so we’re having those ongoing discussions. But I think if I step back a minute and look at the environment overall, it’s an interesting dynamic because we have sellers that obviously are trying to maximize value, but we also have really high interest rates, so there’s fewer participants in the process than maybe otherwise would have been because of that. We’re in the midst of a lot of different discussions, so I have yet to see how this is all going to play out.”
And rather than an anomaly, more deals of size such as Bucky’s could be coming. “We certainly look at larger deals of that scale, or even bigger,” said Rebelez. “Our issue isn’t around the size of the deal. I’d say our balance sheet speaks for itself. We have plenty of balance sheet strength and, frankly, from a capability standpoint now that we’ve integrated three larger acquisitions, we have a team that has a rhythm and has a process and understands how to do this. We have more confidence in our ability to integrate successfully a larger acquisition. From our perspective, it’s really more about finding the right deal that’s strategic for us, that’s in the right geography, that’s at the right valuation and so we continue to work on those opportunities, but we’re looking at all types of deals, large and small.”
Quarterly Performance
Casey’s net income for the three months ended Jan. 31, 2023, was $100.1 million, compared to $64 million for the three months ended Jan. 31, 2022.
Rebelez cited the Casey’s team for “driving inside gross profit while managing operating expenses efficiently. Inside same-store sales were spurred by grocery and general merchandise, notably non-alcoholic and alcoholic beverages, snacks and candy. Prepared food and dispensed beverage performed well due to strong pizza slice and doughnut sales. The fuel team continues to strike the right balance between gallon volume and gross profit margin.”
Rebelez praised “the team’s ability to continue to effectively manage operating expenses in a challenging inflationary period.”
Inside same-store sales increased 5.6% in third-quarter 2023 compared to third-quarter 2022, with an inside margin of 40.6%. Total inside gross profit increased 11.6% to $450.6 million compared to the prior-year period.
Casey’s saw “strong” performance in pizza slices and bakery, he said. And “the third quarter showed positive momentum in alcoholic beverage sales,” Rebelez said on the earnings call, with “strong performances in non-alcoholic beverage and private-label sales. Margin was favorably impacted by a product mix shift towards higher-margin items like energy drinks and candy, as well as further penetration from private label.”
Same-store prepared food and dispensed beverage sales were up 5%, and up 12.8% on a two-year stacked basis.
Same-store fuel gallons were down 0.5% in third-quarter 2023 compared to prior-year period with a fuel margin of 40.7 cents per gallon (CPG). Total fuel gross profit increased 10.4% to $262.6 million compared to the prior-year period.
Same-store operating expense excluding credit card fees were up 4.6%, favorably affected by a 1% reduction in same-store labor hours.
Casey’s has modified its fiscal 2023 outlook. The company now expects same-store inside sales growth to be approximately 6% to 7%, and it now expects same-store fuel gallons to be somewhere between 1% down to 1% up. The company is not updating its outlook for inside margin, which it expects to be approximately 40%. It expects a total operating expense increase to be near the low end of the annual range of approximately 9% to 10%.
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