Casey’s General Stores (NASDAQ:CASY) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Grocery Segment Details
Irene Nattel – RBC Capital Markets: I was just wondering, could you give us a little bit more color on the margin trends in the grocery segment. In other words, if we remove the impact of tobacco, what are you seeing in the rest of the categories?
William J. Walljasper – SVP and CFO: I can tell you cigarettes over the last two quarters of fiscal 2013 Irene have been off about 250 basis points. So, and that’s directly related to the retail price adjustments that we took down throughout the fiscal year. Most of those occurred in October and November. So, as we look forward into fiscal 2014, we’re going to obviously cycle over that toward the end of the second quarter first part of the third quarter, so the margin differential impact will be little bit less at that point. But also keep in mind, I’d like to remind everybody that in the first quarter of last year we did receive a $3.5 million benefit to the margin from the Illinois state tax and that had to do with the fact that there was not a tax on the inventory of cigarettes at the stores, and therefore we did receive a one-time benefit.
Irene Nattel – RBC Capital Markets: So backing that out in price, that the balance of the categories, are seeing some nice margin delivery?
William J. Walljasper – SVP and CFO: Yeah, typically that’s the case. Now, sometimes we’ll do – be a little more promotional in certain aspects of the grocery and general merchandise. For instance, beer and beverages this time, we tend to be a little more promotional, which does impact the actual margin. But at the end of day, we’re trying to drive gross profit dollar, so we’re certainly anticipating some strong gross profit dollar move into those two particular areas for fiscal 2014.
Irene Nattel – RBC Capital Markets: You mentioned where you stand on the coffee hedging, could you tell us where you stand on cheese at this point?
William J. Walljasper – SVP and CFO: Right now, we’re not locked in our price of cheese. We’re buying on the market – the spot market. As I mentioned, the cost is roughly about $2 a pound right now. So, you look forward, Irene from a comparative standpoint in the first quarter of last year, we’re comparing against the $2.11 per pound, in the second quarter to $2.14 last year. So, right now, it’s a little favorable comparison relative to a year ago.
Irene Nattel – RBC Capital Markets: Just one final one if I may. Are you seeing much of any impact from the dollar stores cigarette initiative in your region?
William J. Walljasper – SVP and CFO: Right now, there is not necessarily a discernible difference. Certainly, the dollar stores are competitive with respect to cigarette. We certainly monitor them from a competitive landscape, but we haven’t seen anything at this point.
Kelly Bania – Bank of America Merrill Lynch: I was wondering if you could touch on the remodels, I think you said you’re planning for 25 this year. When are those scheduled to roll-out and if you could just kind of remind us what the comp impact from, I think you ended up with more like 70 or 80 for the current year? What the comp impact was overall from those remodels? I think the returns, it sounds like the returns are coming in better now, just kind of give us an update overall on the remodels?
William J. Walljasper – SVP and CFO: The remodel, the 25 stores that we plan to do in fiscal 2014, all of those will be completed by the end of the second quarter, our fiscal quarter. So, many of those are under construction currently. Last year as you may recall we did 75 remodels and we are certainly gaining traction with respect to the improvement in the returns. Illinois is kind of through a little bit of the wrench into – with that Illinois state tax that impacted. So, as I mentioned if you back out the stores and there is like about 10 of them that we remodeled in the State of Illinois, the returns collectively of the remaining stores are in the low double digits after-tax, so we’re encouraged by that. That would be in line with the returns in the second year of an acquisition and that was the intent coming into the program to have at least that type of return in the second year. So, as far as the comps, we don’t necessarily – I don’t think we ever broken out specifically the comp lift that the remodels, but collectively if you look at the 24 hours, the remodeled stores and pizza delivery stores, those represent a little over half of the same-store sales lift that we had in fiscal 2013 and collectively we anticipate the same in 2014.
Kelly Bania – Bank of America Merrill Lynch: The other question I want to ask was on the fuel saver program. With Hy-Vee it sounds like that’s going well. I think you said that impacts about half of the stores. So, I’m just curious any thoughts on how you think that’s impacting gallons? Then, if you think you’re converting any of that to in-store traffic in that half of the stores?
William J. Walljasper – SVP and CFO: Yeah, absolutely. Certainly, you probably picked up on the same-store gallon goal that we have for fiscal 2014. It’s a little bullish to relatively what we’ve been producing over the last several years. Obviously, one of the primary reasons is the fuel saver program that we implemented back in December. Right now, when you look at it, we have roughly about 1,000 stores that are accepting the fuel saver program, but when you look at — from an analytical perspective, what we do is, if any store that has at least 10 transactions in the month, we throw that into the fuel saver calculation. So, we have about half our stores that have at least 10 transactions per month. So to kind of give you a perspective of what that means, for instance, in a month – like in the third quarter of our business, these stores that had the fuel saver program, same-store sales were about 3.5% to 4% positive, relative to the rest of the stores, we’re down about 1.5%. So that kind of (trends forward) here, we’re gaining a lot of traction as we go forward with this program. The number of transactions has been increasing steadily since we started the program. So that’s one of the reasons we feel very optimistic about the same-store gallon movement for fiscal 2014. Now at this point right now, we’re not seeing a significant pickup in inside traffic or sales relative to those stores that have fuel saver transactions. But certainly, the opportunities are there. For us, to get them on our lot certainly is a big deal for us and we want to make sure that we take opportunities to try to convert them into some cross-sales…
Kelly Bania – Bank of America Merrill Lynch: Then, if I can just squeeze in one last one on the gas margins. Can you just talk about what you are expecting for the RINs? How that’s factoring into your goal of $0.15 for the year, because it seems like if the RINs continue at the prices they are, it could add more than a $0.01, maybe a $0.01 to $0.02 to your gas margins for the year. So, maybe you can just help us think about how you are looking at that?
William J. Walljasper – SVP and CFO: Sure. I’ll probably give a longer answer than what you are looking for.
Kelly Bania – Bank of America Merrill Lynch: That’s fine.
William J. Walljasper – SVP and CFO: I think it’s important for the investment community to understand that the process for RINs is not a new endeavor for us. This all started back when the Renewable Fuel Standard went into effect back in 2005. We started processing RINs. We developed our own internal accounting process that interfaces with the EPA to process the RINs back in 2007. So, we’ve been doing this for quite a long time. The only thing you never heard us talk about it, is it just hasn’t really been material because the value of RINs. The amount of RINs has been relatively consistent that we have sold over the last three years. The range is probably about 42 million in a year up to about 43.8 million in a year. So that really hasn’t changed tremendously. We do see an uptick however slightly in Q1 and Q2 as we sell more gasoline in those periods. So, we’ve been processing for a while now that value of those RINs has escalated roughly about the start of the calendar year. As indicated in my opening comments, the average cost is about $0.46, $0.47 per RIN currently, and the East trade – if you go into Chicago Mercantile and look at the value, that value is just slightly over double that currently. And so, it’s something that we believe is here to stay. It’s been around for quite a long time. So, we anticipate certainly an impact – a positive impact in fiscal 2014. We may not be – it’s hard for us to predict what the value will be for the year, but certainly we are experiencing a strong impact here so far in Q1. We anticipate the impact to continue for – basically the – most of the fiscal year. Now, we do cycle over some of the increased value in the fourth quarter, so maybe a little bit less impactful in Q4, but certainly prior to that, we anticipate that. I hope that gives you some information there, some guidance there.