Casey’s General Stores Earnings Call Insights: Margins Details and Hy-Vee Program

Casey’s General Stores, Inc. (NASDAQ:CASY) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Margins Details

Karen Short – Deutsche Bank: Just a couple of questions on margins. First question on your grocery margins. I’m looking at the kind of 20 – approximately 20 basis points when you back out the one-time last year. Was there any inventory gain or anything? I know in last quarter, there was some discussion about some benefit on the inventory side from the increase in pricing?

William J. Walljasper – SVP and CFO: No. We did not have any price increasing that ran through the growth in general merchandise category. I mean, when you pull out that one-time benefit, you’re correct, our margin would have been up about 20 basis points in spite of all the price decreases that we took in the prior year. Really what’s driving that is increased margin and contribution for ice, salty snacks, bread and cakes, just a number of things that are driving the overall margin even in light of those price decreases.

Karen Short – Deutsche Bank: So that, I mean, depending on the weather and things like that and sales, that should continue into the second quarter like we’ve cycled the tobacco pressures?

William J. Walljasper – SVP and CFO: Yes. The big chunk of the price decreases that we took last fiscal year occurred in October and November. So once we cycle those, we won’t necessarily have that comparative headwind. It’s been pretty modest as far as price decreases subsequent to that time period…

Karen Short – Deutsche Bank: And then on the prepared food side, by my math I guess dairy or cheese kind of negatively impacted margins by about 90 basis points. I know there was some offset from coffee benefit, but anything else to point to in terms of prepared food margin pressure?

William J. Walljasper – SVP and CFO: There are couple more items, albeit smaller from the cheese impact, but we have supplies that went up in the period as well as some meat cost that went up. And so the combination of all of those would get you to that 165 bps down.

Karen Short – Deutsche Bank: And then in terms of the RIN accounting, I guess if price has peaked in July, that’s something that you would be showing in your August gas margin, correct?

William J. Walljasper – SVP and CFO: Yeah, the trigger, and just to clarify, just the trigger for us as far as the timing goes as we enter into the contract to sell at a definite price, that would be the period that that benefit will go into. Now I will say, in the month of July as you probably know and many of you know, RINs spiked up to about $1.48. We did take advantage and did a mid-month sale in July and took advantage of that which is why you got to that $1.02 average. Now they’ve since come back down that $0.70 range.

Karen Short – Deutsche Bank: Then, just last question, what was the absolute dollar of credit card fees in the quarter?

William J. Walljasper – SVP and CFO: Just about $3.2 million – I’m sorry the $25.6 million.

Hy-Vee Program

Ben Brownlow – Raymond James: On the Hy-Vee program, that’s obviously been extremely successful. Is there an opportunity to implement a similar program with another grocery? Are you guys looking into that at all?

William J. Walljasper – SVP and CFO: That’s a great question, Ben, and I guess the answer would be we’re always looking for opportunities to grow our business and so the Hy-Vee Fuel Saver program does have a pretty wide reaching impact. We have about roughly 1,200 stores that technically would be in the program, which leaves a significant amount that are not in the program. So, we are continuing to looking at opportunities to partner and try to facilitate that area.

Ben Brownlow – Raymond James: And I know you weren’t previously seeing any carryover into a non-fuel transaction growth with that program. Is that still the case or is that changed at all?

William J. Walljasper – SVP and CFO: We are starting to get a little bit of traction in that area, Ben. We’re starting to see a little bit uptick inside the store in relationship to the, what I’ll say, the fuel saver stores and the non-fuel saver stores. So, we are encouraged by that type of uptick and we’ll keep you posted as we go forward in that regard…

Ben Brownlow – Raymond James: And just one more from me on the OpEx side. Can you just update us on your thoughts? Obviously, I guess, if you back out the bonus accrual and the credit card fees, that roughly 10.8% or 11% was in line with your kind of low double-digit guidance for the year. Are you still comfortable with that low double-digit OpEx for the year and just update us based on where you’re trended for the first quarter, how you’re thinking about the outlook?

William J. Walljasper – SVP and CFO: To answer your question, yes, we still are comfortable with that outlook for the fiscal year. As you might expect, as we have a very solid quarter, obviously, we have a bonus structure to reward our employees and that’s part of that. So, that’s a piece of it. The credit card fee – the retail fuel price only went up about 5%. Typically when you see a spike in retail fuel price, you would see an increase in credit card utilization. But in this regard with the RINs escalating as they did in the quarter, certainly are paying for the gasoline more with credit cards and our transactions went up about 16% in the quarter. And so we will cycle over the implementation of the Fuel Saver program in December and so you might see a little moderation there. Now the retail fuel price, Ben, could go any directions, so it’s hard to predict that. But to answer your question overall, we feel pretty good about that low double-digit comment that you made.

A Closer Look: Casey’s General Stores Earnings Cheat Sheet>>