Caseys General Stores Inc (CASY) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Casey's General Store conference call.

My name is Carlo, and I will be your coordinator today.

If during the call you require assistance, please press star-zero, and a coordinator will be happy to assist you.

This call is being recorded today, Wednesday, September 3rd, 2003.

I would now like to turn the call over to Mr. Jim Shaffer.

Good morning.

Thank you for joining us on this Call to discuss Casey’s results for the first quarter ended July 31.

I'm Jim Shaffer.

Ron Lamb, CEO and John Harmon, secretary-treasurer, are also here.

If you haven't seen the press release, let me know.

My direct telephone number is 515-965-6107.

Before I begin, I will remind you that certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

As discussed in the press release and the 2003 annual report, such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from future results, express or implied, by those statements.

Casey's disclaims any obligation do revise any statements whether as a result of new information, future events or otherwise.

I'll take a few minutes to summarize and then open for questions.

This was a solid quarter, with progress made toward our annual goals.

We earned 28 cents a share, up from 25 cents in the first quarter last year.

We met our goal of increasing gasoline gross profit.

The increase was $1.7 million, to $25.2 million.

The reason for the improvement was the 9% increase in gallons.

The margin per gallon was 9.7 cents, down from 9.9 cents a year ago, and below our 10.5 cent historical average.

We managed to show improvement in a difficult environment.

The wholesale cost of gasoline has been increasing all summer, and retailers have been reluctant to keep up with increases in the pump.

That is often the case in a rising cost environment.

We generally fare better in a market with prices dropping.

Hopefully, we will experience that situation later in our fiscal year.

Grocery and merchandise sales were up 3% and the margin improved 50 basis points in the quarter.

The gross profit was $59.2 million, up 4.6%.

Most of the margin gain came from groceries, which includes ice and such items as bottled water, juices, and novelties.

We also had strong growth in beer sales and a modest increase in cigarette and pop gross profit.

We are encouraged by the value of the data from the point of sale roll-out.

The Ben at this time are from products selection and where we put the products in the store, which we believe enhance both sales and margin.

What we have accomplished so FARP has been with a relatively small sample of stores on POS.

Let than 10% of the stores had POS for the whole quarter.

Prepared food sales were up 8.7% and the margin improved 167 basis points, providing gross profit of $28.8m, up 11.8%.

We had strong sales in fountain, bakery and pizza and sandwiches.

We continue to introduce new products and have several scheduled to launch this fall.

We have improved the prepared food margin with our purchasing procedures and doing a better job of production planning.

We have reduced the cost of stales in part from the data available from our POS systems.

The technology roll-out has been important to Casey's.

We have effectively completed the pay at the pump conversion and have a relatively small number remaining.

The POS roll-out is going well with 212 stories done and we're adding eight a week.

We have 827 stores operational on the satellite communication system and should be chain-wide by next April.

That system is contributing to more efficient gasoline delivery improved communication with the stores and lower credit card processing costs.

Credit card costs should improve significantly in the last two quarters of this fiscal year as we gain critical [mass].

We have continued to improve the relationship between operating expenses and gross profit.

This quarter, operating expense increased 5.8% and gross profit increased 6.8%.

On a same-store basis, the improvement is even more pronounced.

Same-store operating expenses are up 3.3% and same-store gross profits are up 5.7%.

I believe this supports our improved efficiency and also demonstrates we are adding new stores at a manageable rate.

Our [store] acquisition program provides a source of gross profit growth without an [expense] penalty associated with early [figures] of new stores.

We required two non-franchised stores, and have signed contracts with four more this calendar year.

We have reached agreements with owners of [11] franchise stores and should complete the purchase of those stores in the second and third quarters.

Perhaps the most important trend is the pipeline of deals.

We are in active negotiations with the owners of 11 more franchise stores.

That source of growth is limited to 30 more stores beyond those already in the works.

The progress in the non-franchise program is expect to do fill the future needs.

We are in negotiations with 24 stores and have recently identified at least that many more to consider.

We have a team working on this task.

Over the past four years, we have acquired over 90 stores.

During that time, we have improved our skills at due diligence and valuation, and we have strong financial resources to take advantage of opportunities.

At the recent meeting, the board of directors declared a quarterly dividend of 3.5 cents a share for shareholders of [record] [November 3rd] (inaud) November 7th.

That concludes my remarks.

We will now take your questions.

Ladies and gentlemen, at this time if you would like to ask a question, press star-1 on your Touch-Tone telephone.

If your question has been answered or you would like to withdraw your registration, please press star-2.

Our first question comes from Dennis Tellsrow (ph) from Stevens incorporated.

Great quarter, gentlemen.

Thank you Dennis..

With regard to gas margin, assuming that crude keeps coming down, I guess we'll see a benefit here, or is that a presumption on my part?

You're cutting out on me, Dennis.

I said I assume if we see crude owl come down here in the next few weeks that will help.

That's a presumption on my part that it keeps coming down?

Well, just recently -- well, costs have been high all summer.

What we've had is gradually increasing costs throughout the summer, and there's been a real reluctance on the part of retailers to raise the price at the pump.

And so that's really the most difficult market we can operate in.

Costs have continued to increase over the last 30 days, which puts pressure on the margin, and last week I think our cost was the highest in the last two years.

But we recently saw a little relief.

Crude is off this week, and we've seen our costs come down a little bit recently, so hopefully we're at the top here and we'll see some improvement over the course of the fall.

So if that's the case, that should take some pressure off the margin.

If capital spending, I think your budget is $70 million.

How much of that is specifically targeted to acquisitions?

A little less than half, I believe, is --

About $35 million.

Dennis, that's a real wildcard.

We're off to a pretty strong start in terms of the deals we have going and the pipeline we have going, so, you know, we could exceed our internal goal for acquisitions in the course of this year.

That remains to be seen.

And that could call that capital expenditure budget to go up a little bit.

But we have very strong cash flows and a lot of cash, so if we exceeded the $70 million, we can manage that very comfortably.

And, lastly, could you review maybe some of the new prepared food products?

I think you're also testing a couple grocery areas?

Yeah, on the prepared foods side, we -- we have -- over the course of this summer, we had Nathan hot dogs in the stores.

They did very well.

We have expanded the sub sandwich program, and we're slowly rolling that out.

We just increased that to an additional 50 or 75 stores, I think.

I think we're something over 100 stores now with the sub sandwiches, and we like that program.

We just introduced an apple fritter.

We have some chips we're going to introduce this fall that we're pretty stick about, a homemade potato chip that could be interesting, particularly in the combination.

So we have a number of things we're working on.

That whole program is -- you know, we constantly fine-tune that program to provide interesting products to our customers and to keep enhancing the program, and it's doing very well for us.

I think the first quarter is probably an all-time record quarter for the prepared food operation, and it seems to keep getting better.

The other question was on the grocery and merchandise side.

We are questioning some dollar merchandise to get into that category of merchandise, and we think we can fill a niche in many of our markets, particularly in the small towns, with that line of merchandise.

We have set up a store on a test basis, and we're rolling out a 50-store test in the next couple of weeks.

So we're kind of excited about that concept, and think we might serve a need in that market.

Thank you very much.

Thank you, Dennis.

Once again, ladies and gentlemen, as a reminder, if you would like to ask a question at this time, please star-1.

Our next question comes from Ken Cassidy, with Cassidy Investments.

What is your approximate retail selling price right now on the cheapest grade.

Um, that varies from market to market, depending on tax and stuff.

Here in Iowa, I think we're currently $1.62.

I'm in Seattle where we're over $2 already.

So I'm curious.

We don't have any markets at those kinds of rates.

Okay.

Do you have a range on where the lowest market might be and the highest market might be?

Well, Ken, we're just in nine Midwest earn states, and what would the lowest be?

Okay. 140s.

You know, with 1300 stores in nine states, it's kind of hard to give you the full range, but it would be sort of in that range, and I suppose the high end would be, what, 170?

Something like that.

Okay.

Thank you.

Once again, ladies and gentlemen, star-1 for any questions.

Our next question comes from Fred Spees (ph) with Spees Authorsen Capital (ph).

Good morning, Jim.

Good morning, Fred.

The proverbial question.

Can the grocery get north of 32, 33% once you get all the POS in?

I think there's a lot of opportunity for improvement there.

You know, the point of sale data we're using now in our decision making, as I mentioned, in terms of product mix, we're using it to determine where to put products in a store, in merchandising products.

It's helping store efficiency and accuracy.

So I think as we get more data, this will continue to improve.

We have seen some -- you know, we have seen pretty marked results in managing the cigarette category.

That's the area we've been in the longest, but I think we see opportunities of pop and beer, in terms of inventory management, products selection, pricing.

The specialty merchandise is improving, you know.

As we mentioned, we have a buyer just for that special and seasonal merchandise, and then as I mentioned we're testing some product lines, these dollar items, and those are very encouraging based on very early results.

So, yes, I see a lot of opportunities in the grocery category.

One more, if I may.

Even though you're getting more assertive in the acquisition world, your cash probably is still going to grow, and you just did a great bump in the dividend.

Is the board looking at that?

And, also, can you buy back any of these debt you have?

With respect to the debt, I think all of our debt is structured, it's all fixed rate, and the make-hold provisions in that doesn't provide much opportunity to refinance, but it's coming down fairly quickly, you may have noticed it's now $149 million.

We moved another -- you know, we now have 31 of it moved up to current maturities as we added the first quarter of fiscal 05 to the current maturity, so it's coming down fairly rapidly.

I think you should see some improvement in the interest expense as we go forward.

With respect to the dividend, in recent conversations, and road trips with investors, I've had very strong support for that last dividend increase, and I passed that on to the board, and I believe they will look at it on a pretty regular basis.

There seems to be a lot more sentiment towards dividends now than there was a couple years ago, so, yeah, I think that will stay on the table and probably be in front of the board continuously.

Thank you.

Thank you.

Once again, ladies and gentlemen, star-1 for any questions.

Currently we have no questions in queue.

Well, in that case, thank you very much for joining us on the call.

We look forward to reporting our second quarter, and again, thanks a lot, and talk to you next quarter.

Ladies and gentlemen, this does conclude your conference call for today.

We thank you for your participation and ask you may disconnect your line at this time.

Thank you.