CASEYS GENERAL STORES INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Team Appreciation: Thanked the Casey's team for another outstanding quarter and welcomed the Fikes team to the Casey's family. Raised over $1 million for veterans and their families through annual fundraising campaign.
• Second Quarter Results: Diluted earnings per share finished at $4.85 per share, net income was $181 million, and EBITDA was $349 million, all up 14% from the prior year. Showcased strength of differentiated business model, expanding gross profit while controlling operating expenses.
• Inside Store Performance: Same-store inside sales up 4% (7.1% on two-year stack) with average margin 42.2%. Prepared food and dispense beverage sales up 5.2% (11.6% on two-year stack) with average margin 58.7%. Grocery and general merchandise sales up 3.6% (5.4% on two-year stack) with average margin 35.6%, up 160 basis points due to product mix and asset protection.
• Operating Expenses: Operating expense management remained a focus, with same-store excluding credit card fee basis up 2.3%. Same-store labor hours down 1%.

Segment Performance

• Inside Sales: Total inside sales for the quarter were $1.47 billion, an increase of $121 million or 9% from the prior year. Prepared food and dispensed beverage sales rose by $35 million to $418 million, a 9.2% increase. Grocery and general merchandise sales increased by $85 million to $1.05 billion, a 8.8% increase.
• Fuel: Retail fuel sales were down $232 million in the quarter due to a $0.51 decline in retail price of fuel. Same-store gallons sold were down 0.6% with a fuel margin of 40.2 cents per gallon. Fuel gross profit included almost $5 million from the sale of RINs, down $3.5 million from the prior year.
• Gross Profit: Casey's had gross profit of $959 million in the quarter, an increase of $73 million or 8.2% from the prior year. Inside gross profit margin was 42.2%, up 110 basis points. Prepared food and dispense beverage margin was 58.7%, down 30 basis points due to cheese headwind. Grocery and general merchandise margin was 35.6%, up 160 basis points.

Guidance

• Fiscal Year 2025: EBITDA expected to increase at least 10%. Operating expenses expected to increase 11%-13%, including $15M-$20M one-time deal and integration costs primarily in third quarter. Net interest expense expected to be approximately $90 million. Depreciation and amortization expected to be approximately $410 million. Purchases of PP&E expected to be approximately $550 million.
• Fikes Impact: Fikes expected to contribute over $200 million of inside sales and approximately 200 million gallons of fuel for the second half of fiscal '25. Third quarter total operating expense expectation is an increase of approximately 20% primarily due to Fikes acquisition and one-time costs. Fikes will be dilutive to earnings in third and fourth quarters.
• Leverage: Plan to delever to two-times leverage ratio within the first year of closing Fikes transaction.

Risks

• Integration of Acquisitions: Uncertainties related to integrating recent acquisitions, including Fikes, and realizing benefits from strategic plan.
• Geopolitical Impact: Impact and duration of conflict in Ukraine and related governmental actions.
• Execution Risks: Ability to execute on strategic plan and potential differences between actual results and forward-looking statements.

Question and Answer

• Q: Bobby Griffin on grocery and general merchandise margin: A: Darren explained margin improvement due to mix shift in higher margin items (alcohol, tobacco), asset protection efforts, and structural nature of mix shift.
• Q: Bobby Griffin on Fikes seasonality: A: Steve noted some seasonality with Fikes, but not as significant as Casey's, with second half of year not as big as first half.
• Q: Bonnie Herzog on inside sales guidance: A: Steve and Darren discussed that inside same-store sales guidance of 3%-5% remains appropriate based on year-to-date performance and seasonality considerations.
• Q: Jacob Aiken-Phillips on prepared food competition: A: Darren stated prepared food competitive dynamics, with strength in sandwich QSR value proposition and no pressure in pizza segment due to geography and pricing/promotions.
• Q: Anthony Bonadio on Fikes synergy capture: A: Steve discussed no fundamental change in existing Casey's business outlook, with Fikes synergy capture expected in fuel, SG&A, and inside store remodeling over 3-4 years.
• Q: Michael Montani on inside margins and prepared food headwinds: A: Darren and Steve noted no significant headwinds for grocery/general merch margins, with cheese headwind improving but still unfavorable, and no major headwinds for prepared food outside cheese.
• Q: Krisztina Katai on Fikes store labor initiatives: A: Darren stated opportunity to implement labor hour saving initiatives in Fikes stores, with detailed plans for next fiscal year.
• Q: Corey Tarlowe on energy drinks momentum and store ramp: A: Darren discussed energy drinks momentum from assortment optimization and promotional activity. Steve discussed store ramp expectations, with new stores expected to generate positive returns quickly and Fikes stores having different ramp dynamics.