"Strong gas margins and enhanced profitability inside the stores were the primary reasons for the record quarter," said president and CEO Robert J. Myers. "Lower retail fuel prices also brought about significant relief in our operating expenses."
GASOLINE
Regarding gasoline, Casey's annual goal is to increase same-store gasoline gallons sold [image-nocss] by 2% with an average margin of 11 cents per gallon. The quarter's same-store gallons sold were up 3.2% with an average margin of 15.7 cents per gallon. The average retail price per gallon was $2.35, down 38% from the same period a year ago.
"We believe lower retail prices were a factor in exceeding our same-store sales goal," stated Myers in a press release. "Our gasoline margin continues to benefit from a more responsive pricing environment."
CFO Bill Walljasper expanded on that during the company's earnings call with analysts. "Over the course of the last two fiscal years, we've experienced a very favorable gas margin environment," he said. "Retailers in our market area have been much more responsive to upward movement in wholesale costs, which has mitigated the negative impact on our gas margins during a time when gas margins have traditionally come under pressure.
"At the same time, due to increased volatility in this area, we believe retailers have become more hesitant to move prices downward when there are decreases in wholesale costs. With this in mind, in eight out of the last nine quarters, our gasoline margin has been above 12 cents per gallon."
Total gallons sold rose to 335.8 million from 318.2 million; gross profit was $52.7 million compared with $49.6 million.
GROCERY & OTHER MERCHANDISE
The company's goal is to increase same-store sales 8.9% with an average margin of 33.9%. Same-store sales for the first quarter were up 6.4%, with an average margin of 34.3% compared to 34% last year. Gross profit rose 9.2% to $102 million.
"We are pleased with this category's performance despite experiencing one of the coldest summers on record, which particularly affected beverage and beer sales," said Myers. "The gain in gross profit was primarily due to higher cigarette revenue attributable to the federal-excise-tax increase, along with an improved pack-versus-carton sales ratio." Total sales were up 8.4% to $297.4 million.
CIGARETTES
Walljasper said the company is in fact "benefitting" from the excise tax hike, which increase cigarette prices nationwide by 61 cents per pack this past spring. "Gross profit dollars in the cigarette category increase approximately $5.5 million during this first quarter compared to this same quarter a year ago," he said.
While noting that about half of Casey's stores are in fair-trade statesthat is, they require a minimum price on cigarettesWalljasper said both have distinct advantages.
"In those states that do have a state minimum, we're seeing a benefit when that state minimum is applied to a higher retail with the increased tax; we are seeing a benefit in gross-profit dollars," he said. "We actually have gone through an analysis and looked at fair-trade vs. non-fair-trade states to see what the dynamics of the cigarette category are. We have not seen an extremely competitive marketplace with respect to our non-fair-trade states. We are still seeing a very solid margin in those. We're not seeing a lot of [retailers] chase volume. There are pockets where that happens, but overall we have not seen that. And again, that is to our benefit as well."
About cigarette sales in general, Walljasper added, "We also are seeing a shift in the pack-to-carton distribution. In the first quarter, about 70-71% of the cigarettes sold are packs vs. cartons. A year ago that was about 65-66%. So that certainly is helping on the margin side of the equation."
EXPANSION
The goal for fiscal 2010 is to increase the total number of Casey's stores 4%. By the end of the first quarter, the company opened five newly constructed stores and replaced an additional five stores. There were no acquired stores opened during the quarter. That could change in the near future, however, said Walljasper.
"In the upcoming quarters,... we anticipate closing on more acquisitions and accelerating new store construction," he said, noting previous references to oral agreements that need to be solidified. "Over the next several quarters, we should start closing on some of these.... We're still optimistic with respect to our annual goal of 4% unit growth," which amounts to adding about 60 stores.
"Pending any unforeseen issues, we should complete 20 to 25 new-store constructions this fiscal year. We currently have eight new stores under construction and 13 replacement stores under construction," Walljasper said. "We anticipate that the remaining balance of our unit growth in relation to our goal, will come through acquisitions."
PREPARED FOOD & FOUNTAIN
The goal is to increase same-store sales 7.5% with an average margin of 62%. Same-store sales for the quarter were up 6.6% and the average margin was 63.8%, up approximately 330 basis points from the prior year.
"Lower cheese costs, which we have locked in through October, helped increase total gross profit in this category over 17% from the same period a year ago," Myers stated. "We expanded our coffee and fountain offerings and continue to roll out our made-to-order sub sandwich program." Total sales for the category increased 11.1% to $95.2 million.
OPERATING EXPENSES
For the quarter, operating expenses declined 0.3% to $132.4 million. "Credit-card fees and transportation costs combined were down almost $5 million compared to the first quarter a year ago." said Myers. "We are encouraged by the great start to fiscal 2010 and will remain diligent in our efforts to control expenses throughout the year."
DIVIDEND
At its September meeting, Casey's Board of Directors declared a quarterly dividend of $0.085 per share, reflecting the increase approved in June. The dividend is payable Nov. 16, 2009, to shareholders of record on Nov. 2, 2009.
The Ankeny, Iowa-based retailer operates 1,483 corporate stores in Iowa, Illinois, Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin.
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