Casey General Stores: CASEYS GENERAL STORES INC. Discussion and analysis by management of the financial position and operating results (in thousands of dollars). (form 10-Q)

Overview

Casey's and its direct and indirect wholly-owned subsidiaries operate
convenience stores primarily under the names "Casey's" and "Casey's General
Store" and as of May 13, 2021, approximately 89 stores under the name "Bucky's"
(collectively referred to as the "Company", "Casey's Store" or "Stores")
throughout 17 states, over half of which are located in Iowa, Missouri and
Illinois. The Company also operates two stores selling primarily tobacco
products, one grocery store, and one liquor store. As of July 31, 2021, there
were a total of 2,380 stores in operation. All convenience stores offer fuel for
sale on a self-serve basis and most stores carry a broad selection of food
(including freshly prepared foods such as pizza, donuts and sandwiches),
beverages, tobacco products, health and beauty aids, automotive products and
other non-food items. The Company derives its revenue primarily from the retail
sale of fuel and the products offered in its stores.
Approximately 52% of our stores were opened in areas with populations of fewer
than 5,000 persons, while approximately 23% of all stores were opened in
communities with populations exceeding 20,000 persons. Three distribution
centers are currently in operation (in Ankeny, Iowa adjacent to our corporate
headquarters; which we call the Store Support Center, in Terre Haute, Indiana,
and in Joplin, Missouri) from which certain grocery and general merchandise
items are supplied to our stores. As of July 31, 2021, the Company leased a
combination of land and/or building at 86 locations.
The Company reported diluted earnings per common share of $3.19 for the first
quarter of fiscal 2022. For the same quarter a year-ago, diluted earnings per
common share was $3.24.
The following table represents the roll forward of store growth through the
first quarter of fiscal 2022:
                                  Store Count
Total stores at April 30, 2021      2,243
New store construction                  3
Acquisitions                                139
Acquisitions not opened                (2)
Prior acquisitions opened               2
Closed                                 (5)

Total stores at July 31, 2021 2380


Acquisitions in the table above include, in part, 89 stores which were acquired
from Buchanan Energy on May 13, 2021. The table excludes three sites that were
included in the transaction, but were divested by Casey's shortly after closing
as part of a consent order with the Federal Trade Commission. Additionally, the
Company acquired 48-stores from the Circle K transaction that closed in June.
For additional discussion, refer to Note 6 in the condensed consolidated
financial statements.
Throughout the latter half of the Company's 2021 fiscal year, and into the first
quarter of fiscal 2022, the Company has generally seen an increase in guest
traffic and sales of certain products, for example fuel gallons and pizza
slices, as schools, businesses and the economy in general have gone, or are
going through, various stages of reopening from COVID-19. The Company has,
however, also seen a recent increase in the number of COVID-19 cases reported
amongst its team members and in certain areas of its operating territory, which
in some instances has led to an increase in temporary store closures (which
often times only last for a matter of hours) for COVID-19 cleaning protocols,
labor challenges and the return of various locally imposed governmental
restrictions, including but not limited to mask and social distancing mandates.
As such, the unpredictable nature of the evolving COVID-19 pandemic, including
what, if any, further governmental restrictions or protections may be imposed
upon the Company and its business, team members, guests and communities, could
again lead to additional closures, decreased traffic and demand, and increased
COVID-19-related operating expenses, for the foreseeable future. While COVID-19
continues to result in, and will continue to bring, significant challenges and
uncertainty to our operating environment, we believe that our resilient business
model and the strength of our brand and balance sheet position us well to
navigate, and eventually emerge from, the pandemic.
Same-store sales is a common metric used in the convenience store industry. We
define same-store sales as the total sales increase (or decrease) for stores
open during the full time of both periods being presented. We exclude from the
calculation any acquired stores and any stores that have been replaced with a
new store, until such stores have been open during the full time of both periods
being presented. Stores that have undergone a major remodel, had adjustments in
hours of operation, added pizza delivery, or had other revisions to their
operating format remain in the calculation.
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The first quarter results reflected a 9.0% increase in same-store fuel gallons
sold, with an average fuel revenue less related cost of goods sold (exclusive of
depreciation and amortization) of 35.1 cents per gallon, compared to 38.2 cents
per gallon in the same quarter a year ago. Same-store gallons sold were
positively impacted by higher guest traffic that is lapping COVID-19
restrictions that were in place a year ago. The Company sold 11.3 million
renewable fuel credits for $18.7 million during the quarter, compared to the
sale of 6.4 million renewable fuel credits in the first quarter of the prior
year, which generated $3.4 million.
Same-store sales of grocery and general merchandise increased 7.0% and prepared
food and dispensed beverage increased 10.8% during the first quarter. Note that
we have changed the grocery and other merchandise category to grocery and
general merchandise and the prepared food and fountain category to prepared food
and dispensed beverage to better reflect the composition of the category. There
have been no changes to the makeup of the category, and it remains directly
comparable to prior periods. The increase in grocery and general merchandise
same-store sales was primarily due to stronger sales of packaged beverages and
grocery items, such as salty snacks and meat snacks. The increase in prepared
food and dispensed beverage same-store sales was primarily attributable to a
resurgence in pizza slices, driven in part by increased guest traffic inside the
store.
                  Three Months Ended July 31, 2021 Compared to
                        Three Months Ended July 31, 2020
                       (Dollars and Amounts in Thousands)

                                                                                   Prepared
                                                               Grocery &            Food &
                                                                General            Dispensed
Three Months Ended July 31, 2021             Fuel             Merchandise          Beverage             Other              Total
Revenue                                 $ 1,967,155          $  835,485          $  308,440          $ 70,914          $ 3,181,994
Revenue less cost of goods sold
(excluding depreciation and
amortization)                           $   234,474          $  275,408          $  188,106          $ 25,899          $   723,887
                                               11.9  %             33.0  %             61.0  %           36.5  %              22.7  %
Fuel gallons                                667,534

                                                                                   Prepared
                                                               Grocery &            Food &
                                                                General            Dispensed
Three Months Ended July 31, 2020             Fuel             Merchandise          Beverage             Other              Total
Revenue                                 $ 1,085,981          $  731,861          $  270,766          $ 16,413          $ 2,105,021
Revenue less cost of goods sold
(excluding depreciation and
amortization)                           $   210,030          $  235,599          $  161,648          $ 16,226          $   623,503
                                               19.3  %             32.2  %             59.7  %           98.9  %              29.6  %
Fuel gallons                                549,508



Total revenue for the first quarter of fiscal 2022 increased by $1,076,973
(51.2%) over the comparable period in fiscal 2021. Retail fuel sales increased
by $881,174 (81.1%) as the average retail price per gallon increased 49.1%
(amounting to a $533,363 increase), and the number of gallons sold increased by
118,026 (21.5%). During this same period, retail sales of grocery and general
merchandise increased by $103,624 (14.2%), due to operating 166 more stores than
a year ago and strong sales of packaged beverage, salty snacks, and meat snacks.
Prepared food and dispensed beverage sales increased by $37,674 (13.9%), due to
operating 166 more stores than a year ago and improving sales of pizza slices.

The other revenue category historically has primarily consisted of lottery,
which is presented net of applicable costs, and car wash. As a result of the
Buchanan Energy acquisition, we acquired a dealer network of 81 stores where
Casey's will manage fuel wholesale supply agreements to these stores. The
activity related to this dealer network is included in the other category and is
presented gross of applicable costs. Other revenues increased $54,501
(332.1%) for the first quarter of fiscal 2022 driven primarily by activity
related to the dealer network.
Revenue less cost of goods sold (excluding depreciation and amortization) was
22.7% of revenue for the first quarter of fiscal 2022, compared to 29.6% for the
comparable period in the prior year. Fuel revenue less related cost of goods
sold (exclusive of depreciation and amortization) was 11.9% of fuel revenue
during the first quarter of fiscal 2022, compared to 19.3% in the first quarter
of the prior year, largely attributable to higher average retail price of fuel
per gallon. Revenue per
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gallon less cost of goods sold per gallon (exclusive of depreciation and
amortization) was 35.1 cents in the first quarter of fiscal 2022, compared to
38.2 cents for the comparable period in the prior year.
Grocery and general merchandise revenue less related cost of goods sold
(exclusive of depreciation and amortization) increased from 32.2% of revenue for
the comparable period in the prior year to 33.0% in the current period. Grocery
and general merchandise revenue less related cost of goods sold (exclusive of
depreciation and amortization) was positively impacted by mix shift, including
gaining market share on the private label program, and procurement initiatives.
Prepared food and dispensed beverage revenue less related cost of goods sold
(exclusive of depreciation and amortization) increased to 61.0% of revenue,
compared to 59.7% for the comparable period in the prior year, primarily due to
the resurgence in pizza slices and procurement initiatives.
Operating expenses increased $92,840 (24.0%) in the first quarter of fiscal 2022
from the comparable period in the prior year, primarily due to restoring store
operation hours to pre-COVID levels, operating 166 more stores compared to the
same period a year ago, a 39% increase in credit card fees from higher retail
fuel pricing along with higher sales volume, and one-time deal and integration
costs associated with the Buchanan Energy and Circle K acquisitions.
Depreciation and amortization expense increased by 15.3% to $75,888 in the first
quarter of fiscal 2022 from $65,820 for the comparable period in the prior year.
The increase was primarily due to operating 166 more stores than a year ago and
capital expenditures during the previous twelve months.

The effective tax rate decreased to 23.3% in the first quarter of fiscal 2022
compared to 23.8% in the same period of fiscal 2021. The decrease in the
effective tax rate was driven by an increase in excess tax benefits recognized
on share-based awards (190 basis points) and a one-time benefit from adjusting
the Company's deferred tax assets and liabilities for state law changes enacted
during the quarter (100 basis points). The effect of these favorable items was
partially offset by a one-time expense to update the state deferred tax rate
following the Buchanan Energy and Circle K transactions (200 basis points).
Net income decreased by $1,433 (1.2%) to $119,159 from $120,592 in the
comparable period in the prior year. The decrease in net income was primarily
attributable to higher operating expenses and depreciation driven primarily from
an increase in store hours and operating 166 more stores than a year ago, offset
by increased fuel and merchandise contribution from improved guest traffic.
Use of Non-GAAP Measures
We define EBITDA as net income before net interest expense, income taxes,
depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by
excluding the gain or loss on disposal of assets as well as impairment charges.
Neither EBITDA nor Adjusted EBITDA are considered GAAP measures, and should not
be considered as a substitute for net income, cash flows from operating
activities or other income or cash flow statement data. These measures have
limitations as analytical tools, and should not be considered in isolation or as
substitutes for analysis of our results as reported under GAAP. We strongly
encourage investors to review our financial statements and publicly filed
reports in their entirety and not to rely on any single financial measure.
We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our
operating performance because securities analysts and other interested parties
use such calculations as a measure of financial performance and debt service
capabilities, and they are regularly used by management for internal purposes
including our capital budgeting process, evaluating acquisition targets,
assessing performance, and awarding incentive compensation.
Because non-GAAP financial measures are not standardized, EBITDA and Adjusted
EBITDA, as defined by us, may not be comparable to similarly titled measures
reported by other companies. It therefore may not be possible to compare our use
of these non-GAAP financial measures with those used by other companies.
The following table contains a reconciliation of net income to EBITDA and
Adjusted EBITDA for the three months ended July 31, 2021 and 2020:

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Contents

Three months ended

                                                                        July 31, 2021           July 31, 2020
Net income                                                            $      119,159          $      120,592
Interest, net                                                                 13,730                  13,407
Federal and state income taxes                                                36,182                  37,596
Depreciation and amortization                                                 75,888                  65,820
EBITDA                                                                $      244,959          $      237,415
(Gain) loss on disposal of assets and impairment charges                      (1,770)                    340
Adjusted EBITDA                                                       $      243,189          $      237,755


For the three months ended July 31, 2021, EBITDA and Adjusted EBITDA increased
3.2% and 2.3%, respectively, when compared to the same period a year ago. The
increases in both periods are primarily due to a higher fuel and merchandise
contribution from improved guest traffic, offset by higher operating expenses
due to restoring store operation hours to pre-COVID levels, operating 166 more
stores compared to the same period a year ago, a 39% increase in credit card
fees from higher retail fuel pricing along with higher sales volume, and
one-time deal and integration costs associated with the Buchanan Energy and
Circle K acquisitions.

Critical Accounting Policies
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results of operations. The Company's critical accounting policies are described
in the Form 10-K for the year ended April 30, 2021, and such discussion is
incorporated herein by reference. There have been no changes to these policies
in the three months ended July 31, 2021.
Liquidity and Capital Resources
Due to the nature of the Company's business, cash provided by operations is the
Company's primary source of liquidity. The Company finances its inventory
purchases primarily from normal trade credit aided by the relatively rapid
turnover of inventory. This turnover allows the Company to conduct its
operations without large amounts of cash and working capital. As of July 31,
2021, the Company's ratio of current assets to current liabilities was 0.91 to
1. The ratio at July 31, 2020 and April 30, 2021 was 1.05 to 1 and 1.18 to 1,
respectively. The decrease in the ratio is primarily attributable to a decrease
in cash and cash equivalents associated with payments for the acquisitions of
Buchanan Energy and 48 stores from Circle K, offset by an increase in inventory
due to operating 166 more stores than a year ago and higher fuel pricing.
Additionally, current liabilities have increased primarily attributable to an
increase in accounts payable, attributable to increasing store count, higher
fuel pricing, as well as an effort to better utilize available payment terms.
Management believes that the Company's unsecured Bank Line of $25,000 and its
Revolving Facility of $450,000, combined with the current cash and cash
equivalents and the future cash flow from operations will be sufficient to
satisfy the working capital needs of our business.
Net cash provided by operations decreased $110,491 (31.4%) in the three months
ended July 31, 2021 from the comparable period in the prior year, due to changes
in inventories, accounts payable, and accrued expenses. Cash used in investing
in the three months ended July 31, 2021 increased $600,884 over prior year, due
primarily to cash paid for the acquisition of Buchanan Energy for $571,725 and
48 Circle K stores for $41,416, net of cash acquired. For additional discussion,
refer to Note 6 in the condensed consolidated financial statements. Cash
provided by financing increased $405,517 (288.9%), primarily due to a $300,000
draw on the Term Loan Facility, also discussed in Note 6.
Capital expenditures typically represent the single largest use of Company
funds. Management believes that by acquiring, building, and reinvesting in
stores, the Company will be better able to respond to competitive challenges and
increase operating efficiencies. During the first three months of fiscal 2022,
the Company expended $662,336, compared to $45,146 for the comparable period in
the prior year. The increase in capital expenditures from the prior year is due
to the Buchanan Energy and Circle K acquisitions and lower prior year capital
expenditures due to governmental delays in zoning and licensing, as well as a
deliberate reduction in discretionary spending due to uncertainties surrounding
COVID-19.

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Contents

From July 31, 2021, the Company had long-term debt consisting of: Finance lease debts

72 613

3.67% Senior Notes (Series A) maturing in 7 installments starting June 17, 2022, and ending June 15, 2028

150,000

Senior 3.75% Notes (Series B) due in 7 installments starting
December 17, 2022 and ending December 18, 2028

50,000

3.65% Senior Notes (Series C) due in 7 installments starting May 2, 2025
and ending May 2, 2031

50,000

3.72% Senior notes (Series D) maturing in 7 installments from 28 October 2025 and ending 28 October 2031

50,000

3.51% Senior notes (Series E) due June 13, 2025                             

150,000

3.77% Senior notes (Series F) due August 22, 2028                           

250,000

2.85% Senior notes (Series G) due August 7, 2030                            

325,000

2.96% Senior notes (Series H) due August 6, 2032                            

325,000

Variable rate term loan facility, requiring quarterly installments ending
June 6, 2026                                                                         296,250
Less debt issuance costs                                                              (2,591)
                                                                                   1,716,272
Less current maturities                                                              (34,101)
                                                                                   1,682,171


The Company has funded capital expenditures primarily from the issuance of debt,
existing cash, and funds generated from operations. Future capital needs
required to finance operations, improvements and the anticipated growth in the
number of stores are expected to be met from cash generated by operations, the
Revolving Facility, the Bank Line, and additional long-term debt or other
securities as circumstances may dictate, and are not expected to adversely
affect liquidity.
Cautionary Statements

This Form 10-Q, including the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995. The words "may," "will,"
"believe," "expect," "anticipate," "intend," "estimate," "project," "continue,"
and similar expressions are used to identify forward-looking statements.
Forward-looking statements represent the Company's current expectations or
beliefs concerning future events and trends that we believe may affect financial
condition, liquidity and needs, supply chain, results of operations and
performance at our stores, business strategy, strategic plans, growth
opportunities, integration of acquisitions, acquisition synergies, short-term
and long-term business operations and objectives including our long-term
strategic plan, and the potential effects of COVID-19 on our business. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following risk
factors described more completely in the Company's Form 10-K for the fiscal year
ended April 30, 2021:

Business Operations: Pandemics or disease outbreaks, such as COVID-19,
responsive actions taken by governments and others to mitigate their spread, and
guest behavior in response to these events, have, and may in the future,
adversely affect our business operations, supply chain and financial results;
our business and our reputation could be adversely affected by a data security
incident or the failure to protect sensitive guest, Team Member or supplier
data, or the failure to comply with applicable regulations relating to data
security and privacy; food-safety issues and food-borne illnesses, whether
actual or reported, or the failure to comply with applicable regulations
relating to the transportation, storage, preparation or service of food, could
adversely affect our business and reputation; a significant disruption to our
distribution network, to the capacity of the distribution centers, or timely
receipt of inventory could adversely impact our sales or increase our
transaction costs, which could have a material adverse effect on our business;
we could be adversely affected if we experience difficulties in, or are unable
to recruit, hire or retain, members of our leadership team and other
distribution, field and store Team Members; any failure to anticipate and
respond to changes in consumer preferences, or to introduce and promote
innovative technology for guest interaction, could adversely affect our
financial results; we rely on our information technology systems, and a number
of third-party software providers, to manage numerous aspects of our business,
and a disruption of these systems could adversely affect our business; increased
credit card expenses could lead to higher operating expenses and other costs for
the Company;
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our operations present hazards and risks which may not be fully covered by
insurance, if insured; the dangers inherent in the storage and transport of
motor fuel could cause disruptions and could expose to us potentially
significant losses, costs or liabilities; consumer or other litigation could
adversely affect our financial condition and results of operations; and,
covenants in our senior notes and credit facility agreements require us to
comply with certain covenants and meet financial maintenance tests and the
failure to comply with these requirements could have a material impact to us.

Governmental Actions, Regulations, and Oversight: Compliance with and changes in
tax laws could adversely affect our performance; we are subject to extensive
governmental regulations; governmental action and campaigns to discourage
tobacco and nicotine use and other tobacco products may have a material adverse
effect on our revenues and gross profit; and, wholesale cost and tax increases
relating to tobacco and nicotine products could affect our operating results.

Industry: General economic and political conditions that are largely out of the
Company's control may adversely affect the Company's financial condition and
results of operations; developments related to fuel efficiency, fuel
conservation practices, climate change, and changing consumer preferences may
decrease the demand for motor fuel; unfavorable weather conditions can adversely
affect our business; the volatility of wholesale petroleum costs could adversely
affect our operating results; and, the convenience store industry is highly
competitive.

Growth Strategies: We may experience difficulties implementing and realizing the
results of our long-term strategic plan; we may experience increased costs,
disruptions or other difficulties with the integration of the Buchanan Energy
acquisition; and, we may not be able to identify, acquire, and integrate new
properties and stores, which could adversely affect our ability to grow our
business.

Common Stock: The market price for our common stock has been and may in the
future be volatile, which could cause the value of your investment to decline;
any issuance of shares of our common stock in the future could have a dilutive
effect on your investment; and, Iowa law and provisions in our charter documents
may have the effect of preventing or hindering a change in control and adversely
affecting the market price of our common stock.

We further caution you that other factors we have not identified may in the
future prove to be important in affecting our business and results of
operations. We ask you not to place undue reliance on any forward-looking
statements because they speak only of our views as of the statement dates. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to our investment portfolio and certain long-term debt obligations. We
place our investments with high-quality credit issuers and, by policy, limit the
amount of credit exposure to any one issuer. Our first priority is to attempt to
reduce the risk of principal loss. Consequently, we seek to preserve our
invested funds by limiting default risk, market risk, and reinvestment risk. We
attempt to mitigate default risk by investing in only high-quality credit
securities that we believe to be low risk and by positioning our portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity. We believe an immediate 100-basis-point move in interest rates
affecting our floating and fixed rate financial instruments as of July 31, 2021
would have no material effect on pretax earnings.
We do from time to time, participate in a forward buy of certain commodities.
These contracts are not accounted for as derivatives as they meet the normal
purchases exclusion under derivative accounting.
Item 4. Controls and Procedures.

Assessment of disclosure controls and procedures

  As of the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer of the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rule
240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms and such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosures.
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We acquired Buchanan Energy, owner of Bucky's Convenience Stores on May 13, 2021
and its total assets and revenues constituted approximately 12% and 7%,
respectively, of the Company's consolidated total assets and revenues as shown
on our condensed consolidated financial statements as of and for the three
months ended July 31, 2021. We will exclude Buchanan Energy's control over
financial reporting from the scope of management's annual assessment of the
effectiveness of the Company's controls and procedures. This exclusion is in
accordance with the general guidance issued by the Staff of the SEC that an
assessment of a recent business combination may be omitted from management's
report on internal control over financial reporting in the first year of
consolidation.

Changes in internal controls over financial reporting

There have been no changes in the Company's internal control over financial
reporting during the quarter ended July 31, 2021 that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.

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