Casey’s General Stores Inc. has released its first quarter of fiscal 2011 results ended July 31, 2010, and with it an announcement that it has signed commitments to acquire an additional 52 locations, which it anticipates purchasing by the end of the calendar year.
Casey’s reported basic earnings per share of $0.73 and approximately $6.2 million in legal and advisory fees pertaining to the evaluation of the unsolicited offer and related actions by Alimentation Couche-Tard Inc. Without those fees, basic earnings per share would have been approximately $0.81 for the quarter, in line with analysts’ consensus estimates. For the same quarter a year-ago, basic earnings per share were $0.87, a record quarter for the Company, and which included a one-time tax benefit of $2.2 million.
“The solid first quarter results demonstrate that Casey’s continues to execute well on our strategic plan,” said President and CEO Robert Myers. “In addition to rolling out our in-store redesign program, we are expanding Casey’s footprint in the Midwest through acquisitions and construction of new stores. Our substantial progress to date, coupled with our robust acquisition pipeline, has us ahead of schedule in achieving our fiscal 2011 goal of increasing the total number of Casey’s stores by 4-6%. With Casey’s strong post-recapitalization balance sheet, we expect to continue executing our growth initiatives and driving shareholder returns, including increasing our dividend.”
Casey’s has rejected Couche-Tard’s most recent offer of $38.50 per common share, saying it substantially undervalues Casey’s. Yesterday CSD reported that 7-Eleven has offered Casey’s a preliminary bid regarding a consensual transaction at $40 per share in cash. The Board reviewed the proposal and unanimously determined that it also substantially undervalues Casey’s.
While the Board firmly believes that Casey’s value substantially exceeds $40 per share, it has authorized discussions with 7-Eleven to explore whether a transaction can be reached that reflects Casey’s true value and is in the best interests of Casey’s, its shareholders and other constituencies. Casey’s noted that there can be no assurances that a transaction will be reached and that it is under no legal obligation to provide an update on the discussions with the third party.
At a September meeting, the Board of Directors declared a quarterly dividend of $0.135 per share; a 35% increase. Myers added, “We are pleased to continue our commitment to returning cash to shareholders through our increased dividend. This quarter the Board is allocating the same aggregate dollars as last quarter even though the total share count is approximately 37.8 million, 26% lower than it was prior to the recapitalization. Thus, our ongoing shareholders are receiving the considerable benefits of one of the highest dividend payout ratios in the convenience store industry and the significant EPS accretion that has resulted from the successful recapitalization.” The dividend is payable Nov.15, 2010 to shareholders of record on Nov. 1, 2010.
The quarter’s same-store gallons sold were up 1.5% with an average margin of 16.4 cents per gallon. “Our gasoline margin continues to benefit from a responsive pricing environment, which we expect to continue,” said Myers. “Despite strong comparisons from a year ago, gasoline volumes and margins remain strong year-over-year. We’re pleased to be ahead of our fiscal 2011 goals of increasing same-store gasoline gallons sold by 1% with an average margin of 13.5 cents per gallon. Given our gas sales volumes, Casey’s is well positioned to benefit from the favorable trends in gasoline pricing.” Total gallons sold were up 6.8% to 358.6 million from 335.8 million, and gross profit was $58.9 million compared with $52.7 million, in the same period a year ago.
Grocery & Other Merchandise
For the quarter, same-store sales rose 2.0% with an average margin of 32.8%. The margin was under pressure in the quarter due to a more competitive cigarette pricing environment, increased promotional activity in beverages and a higher LIFO charge. “Sales in this category continue to be impacted by consumers trading down to less expensive items, and were also impacted this quarter by adverse weather in parts of our marketing territory,” stated Myers. “However, we are pleased with the upward sales movement we achieved each month as the quarter progressed.” The Company’s goal for fiscal 2011 is to increase same-store sales 6.0% with an average margin of 33.9%. Total sales were up 6.7% to $317.2 million. Gross profit increased 2% to $104 million, which includes a LIFO charge that was approximately $1.6 million higher than in the year-ago quarter.
Prepared Food & Fountain
Same-store sales increased 2.4% during the quarter, with an average margin of 63.8%. Same-store sales were affected by the broader economic conditions as customers continue to be price conscious. “We are pleased that the margin in prepared food and fountain finished above our annual goal, despite rising commodity prices throughout the quarter,” stated Myers. “While we experienced a pull-back by consumers in some of the higher priced items within the category, we have recently launched numerous strategic value-oriented promotions to continue to drive sales,” said Myers. The Company’s annual goal is to increase same-store sales 8.0% with an average margin of 63.1%. Total sales for the category increased 7.6% to $102.4 million, with gross profit up 7.5% to $65.3 million.
For the quarter, operating expenses increased 15.1% to $152.4 million. Excluding fees associated with the unsolicited offer by Couche-Tard, expenses increased 10.4%. “The increase was largely driven by an over-19% rise in credit card fees and the expenses associated with operating more stores this quarter compared to the same period a year ago,” said Myers.
During the first quarter, the Company began construction on 13 new stores and nine replacement stores, and acquired one store and completed one new-store construction. “We are very encouraged by the acquisition environment and the fact that we have signed commitments for an additional 52 stores. This puts us ahead of schedule in achieving our fiscal 2011 goal of increasing the total number of Casey’s stores by 4-6% and we expect to announce additional acquisitions in the near future. We remain very optimistic about our future growth potential,” said Myers.