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Casey's Hy-Vee Rewards Deal Helps Create Momentum

Major remodels, 24-hour conversions, expanded pizza delivery on tap for fiscal 2014

ANKENY, Iowa -- Casey's General Stores Inc. chairman and CEO Robert J. Myers cited the company's Fuel Saver rewards program with grocer Hy-Vee Inc. and "cigarette pricing adjustments" as reasons for sales gains in its fiscal 2013.

The Fuel Saver program provides fuel discounts to shoppers who purchase grocery items featured in Hy-Vee's weekly Fuel Saver ad. The discounts--ranging from 2 cents to 25 cents per item--are loaded onto the customer's Fuel Saver card, which the customer scans at the pump at Hy-Vee and Casey's stores to "roll down" the retail price of gasoline. Depending on how many items they buy, customers can save $2 or more per gallon on their fuel purchases each week.

"This program will reward consumers for everyday grocery purchases with lower prices at the pump," Myers said when Casey's announced the program in late Oct. 2012.

The Ankeny, Iowa-based regional retailer reported 60 cents in diluted earnings per share for the fourth quarter of fiscal year ended April 30, 2013, compared to 60 cents for the same period a year ago. For the year, diluted earnings per share were $2.86 versus $3.04 for the same period last year.

The company incurred approximately $3.5 million in noncash charges in the fourth-quarter related to the writedown of an unrecoverable accounts receivable balance, as well as charges pertaining to accelerated depreciation and impairment for replaced, closed and seven underperforming stores.

"A difficult cigarette environment and challenging weather comparisons adversely impacted sales during fiscal 2013," Myers said. "However, in the fourth quarter we saw strong sales gains with the recent implementation of a Fuel Saver program in partnership with Hy-Vee grocery stores and competitive cigarette pricing adjustments made earlier in the fiscal year. We expect this momentum will continue into fiscal 2014."

  • Gasoline: The company's annual goal for fiscal 2013 was to increase same-store gasoline gallons sold 1% with an average margin of 14 cents per gallon. For the quarter, same-store gallons sold rose 1% with an average margin of 17 cents per gallon.

"The fourth quarter gas margin benefited from our ability to sell 10.3 million renewable fuel credits for $4.8 million." said Myers.

For the fiscal year, total gallons sold were up 4% to 1.5 billion with an average margin of 15.2 cents, while gross profit rose 2.7%. Same-store gallons for the year were relatively flat compared to a year ago.

  • Grocery & Other Merchandise: Casey's fiscal 2013 goal was to increase same-store sales 6.2% with an average margin of 32.7%. For the quarter, same-store sales were down 0.2% from the same period a year ago with an average margin of 31.7%. For the year, same-store sales finished up 0.8% with an average margin of 32.6%.

"Challenging weather comparisons throughout the entire quarter hindered sales while cigarette price adjustments adversely impacted margins," said Myers. "However we are encouraged by the recent stabilization in cigarette sales and expect continued growth in beer and beverage sales during fiscal 2014."

Total annual sales for the category were up 3.9% compared to the prior year, and gross profit rose 4.4% to $462.7 million.

  • Prepared Food & Fountain: The goal for fiscal 2013 was to increase same-store sales 11% with an average margin of 61.1%. Same-store sales for the fourth quarter increased 4.4% with an average margin of 60.5%. For the year, same-store sales were up 8.6% with an average margin of 61.8%.

"Unfavorable weather and higher input costs impacted fourth-quarter results," said Myers. "Looking ahead to fiscal 2014, we will continue to grow this category by implementing major remodels, 24-hour conversions and pizza delivery where appropriate."

Year to date, total sales were up 13% to $564.9 million, and gross profit rose 15.1% to $349 million.

  • Operating Expenses: For the fiscal year, operating expenses increased 10.4% to $760.4 million. For the quarter, operating expenses were up 8.6%. In the fourth quarter, the company wrote off an accounts receivable balance of $1.5 million from a check collecting service that went out of business. The company also incurred an impairment charge of approximately $700,000 for seven underperforming stores that are expected to be closed in fiscal 2014.

"The majority of the operating expense increase was due to various initiatives implemented to grow the business, particularly newly constructed, acquired and replaced stores along with expanded hours, pizza delivery and major remodels," said Myers.

For the year, store-level operating expenses increased less than 4% for the remaining unchanged base of stores.

  • Expansion: The fiscal 2013 goal was to increase the total number of stores 4-6%. For the fiscal year, the company opened 26 acquired stores and built 31 new stores, bringing the year-end store count to 1,749 in 12 states. In addition to this activity, Casey's also replaced 26 stores during the year.

"We currently have 15 new stores and 16 replacement stores under construction, as well as 20 stores under contract to acquire," said Myers. "We have entered into several new markets this past year, and we are excited about our growth opportunities in fiscal 2014."

The company has more than 70 locations under contract for both new-store and replacement-store construction.

The corporate performance goals for fiscal 2014 are to increase same-store gasoline gallons sold 1.5% with an average margin of 15 cents per gallon; increase same-store grocery and other merchandise sales 5% with an average margin of 32.3%; increase same-store prepared food and fountain sales 9% with an average margin of 62.0%; and build or acquire 70 to 105 stores (4% to 6%) and replace 20 existing locations.

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