Caseys General Stores, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter fiscal year 2020 Casey's General Store earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Bill Waljasper, Chief Financial Officer. Please go ahead, sir.

Good morning, and thank you for joining us to discuss Casey's results for the quarter ended April 30th. I'm Bill Wall, Jasper, Executive Advisor and former Chief Financial Officer. Darren Rebelez, Chief Executive Officer, and Steve Bramlage, Chief Financial Officer, are also here. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These four looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and needs, the company's supply chain, business strategies, growth opportunities, performance at our stores, and the potential effects of the COVID-19 outbreak. There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially for many future results expressed or implied by those forward-looking statements, including but not limited to our ability to execute on the strategic plan, the impact and duration of the COVID-19 outbreak, and related governmental actions, or to realize benefits from that strategic plan, as well as other risks, uncertainties, and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events, and Casey disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. This morning, we'll first take a few minutes to update you on our response to the coronavirus pandemic, highlight a few trends that we experienced during the fourth quarter, and then summarize the results of the quarter, followed by a question-and-answer session. I would now like to turn the call over to Darren.

Thanks, Bill, and good morning, everyone. We hope that you and all of your families are doing well and are safe during this time. Given the current environment, before we discuss the results of our fourth quarter and recent trends, I'd like to take a few minutes to update all of you on our response to COVID-19. I'd first like to say how grateful I am to all of our team members and their efforts throughout this crisis. This is arguably one of the most challenging environments our industry has ever faced, and I couldn't be more proud of the way our team has responded. I would also be remiss in not recognizing the tremendous efforts of all the everyday heroes across our country, especially the medical professionals. We're very grateful for everything they do for our communities. As we begin to navigate through this pandemic, our top priority has always been the health and well-being of our team members, our guests and the communities that we serve. As a result, we've implemented the following changes across our company. We increased pay and provided free meals for all store and distribution center team members, provided additional operational bonuses for key field and support team members, provided additional paid leave for impacted team members, provided personal protective equipment for team members, installed plexiglass shields at our cash registers, enhanced cleaning and hygiene practices, implemented health checks in all our distribution centers, designated exclusive shopping times for higher risk guests, established six-foot markings in our stores to encourage social distancing and implemented contactless delivery. We've also recognized the increased need in our communities during this crisis. Within our communities or with our communities facing new challenges as a result of the coronavirus, we identified two significant ways to make an immediate impact for our neighbors. First, we launched the Slice of Thanks program to recognize and show gratitude to essential workers during the crisis. Since April, Casey's team members and our partners have donated nearly 15,000 slices of pizza for health care workers and first responders. Second, in May, we announced a year-long partnership with Feeding America that will focus on having a local impact in our communities through food banks that serve the neighborhoods we call home. Through this partnership, we aim to make a positive impact on hunger needs for children, families, and rural communities. I look forward to sharing more on these efforts as our partnership continues this year. Moving forward, Casey's will continue to engage our guests, partners, and team members to demonstrate that we are here for good in our communities. Now before I provide a few comments on the fourth quarter results, I'd like to take a moment to reflect on my first year with the company. When I started with Casey's, I mentioned to all of you how excited I was about the opportunity to be part of such a successful organization and how I admired the three distinct elements of our business model, fuel, convenience and food service. This diversity in our business puts us in the unique position of having multiple levers to pull to manage through challenging times such as the one we're currently experiencing and continue to drive shareholder value. Even though we have near-term uncertainty, I feel even better about our long-term outlook and our ability to execute on our strategic initiatives. I'm confident that we're on the right path forward and we will come out of this pandemic in excellent financial position with better capabilities and be an even stronger company. We will continue to be disciplined in our capital spending to drive long-term value for our shareholders. With that, I'll now walk you through the results of the fourth quarter. As you've seen in the press release, diluted earnings per share for the fourth quarter were $1.67 compared to 68 cents a year ago. The results were primarily impacted by a significantly higher fuel margin versus the fourth quarter year ago, offset by the adverse impact in guest traffic related to COVID-19. However, as with many companies, our fourth quarter was the tale of two periods within the quarter. We started the quarter with strong momentum as many of our strategic initiatives were gaining traction. This momentum continued and actually accelerated through the first two weeks of March with inside same-store sales up in the mid single digits and same store gallons up in the low single digits, excluding the extra day for leaf year. However, as COVID-19 restrictions became more prevalent starting in the middle of March, we began to experience a rapid decline in our guest traffic, resulting in compression of our same store sales. This compression had the most impact in the month of April, where we experienced the following results in same store sales. Fuel gallons were down 34%, but were more than offset by an unprecedented average fuel margin of 63 cents per gallon. Grocery and other merchandise was down 9%, and prepared food and fountain was down 30%. In response to the adverse impact on our business, we made significant adjustments in our operations to mitigate the impact, which we'll discuss later in our prepared remarks. Since the middle of April, we've seen a steady improvement in comps across our business as these adjustments gain traction, weather improves, and state and local restrictions ease. I will provide additional details on the current trends we're experiencing as we discuss each category. Year-to-date saluted earnings per share were $7.10, up 29% from the same period a year ago. As we navigate through this near-term challenge, We've made numerous adjustments in our business to maintain flexibility to ensure our continued long-term success. Some of these actions include deferring some discretionary capital spending, adjusting store hours to meet guest demand to optimize profitability, expanding third-party delivery opportunities, expanding delivery items beyond prepared foods, expanding online assortment available for sale, and modifying prepared food production to reduce food waste. In parallel with these changes, we continue to move forward in executing on key elements of our long-term strategic plan, which will position us well for future growth. I would now like to go over our results and some of the details in each of the categories. During the quarter in the fuel category, we experienced an unprecedented environment in both fuel demand and margin. As a result of the decrease in demand beginning in mid-March due to various state and local restrictions, Same sort gallons in the quarter were down 14.7%. As indicated earlier, we experienced the largest impact in April with the trough being down between 35 and 40%. Same sort gallons stabilized during the middle of April and have been steadily moving upwards since. At the same time the pandemic began to impact our business, the macro environment for fuel supply was disrupted, creating a significant fuel margin benefit throughout the industry. Our average fuel margin in the fourth quarter was 40.8 cents per gallon. Fuel margins peaked around the first of April and moderated throughout the rest of the month. The average retail price of fuel during the fourth quarter was $2.05 a gallon compared to $2.46 a gallon a year ago. Total gallons sold for the quarter were down 10.7% to 488 million gallons, while gross profit dollars increased 96% due to the margin environment discussed previously. For the fiscal year, same-store gallons were down 5.1%, while gross profit dollars in the fuel category were up 32% compared to the same period a year ago. During the quarter, we completed the conversion of our stores to digital price signage. This sign conversion is the final step in our plan that will allow us increased flexibility in adjusting retail prices to react more quickly to the changing fuel environment. We are also pleased with the progress we made in fuel procurement in the fourth quarter, allowing us to finish the fiscal year with approximately 50% of our total fuel volume under contract. Lastly, in the fuel category, we continue to gain traction in our fleet card program. Over the course of the fourth quarter, we continue to add new cardholders. To date, we now have over 8,100 accounts and 20,000 cardholders. We remain optimistic about the potential of all of these initiatives going forward. Same store gallons have improved sequentially throughout the first quarter and for the past 14 days are trending down in the mid teens while the average fuel margin is trending in the low to mid 30 cents per gallon range. We anticipate same store gallons to continue to improve as we head into the summer months and the state of Illinois recently lifted their stay at home mandate in June. For context, Illinois represents approximately 20% of our store base. Moving to inside the store, total sales in the grocery and other merchandise category were $568.1 million, up slightly from a year ago in the fourth quarter. Same store sales were down 2% during the quarter, adversely impacted by stay-at-home restrictions related to COVID-19. To put this in perspective, for the first six weeks of the quarter, same-store sales in this category, excluding the extra day for leap year, were up over 5%, compared to the last six weeks where we saw a decline in comps by approximately 9%. There were several subcategories that were more resilient during this time, such as beer and alcohol, as well as tobacco. The average margin in the quarter was 30.4%, down 110 basis points from a year ago in the same period, due primarily to an adverse product-mix shift to lower margin items related to COVID-19. As a result, gross profit dollars for the quarter in the category were down slightly to $173 million. For the fiscal year, same store sales were up 1.9% with an average margin of 32%. As you may recall, the year-to-date margin was adversely impacted by a $6.6 million one-time adjustment that occurred in the first quarter. Without that adjustment, the margin was 32.3%. Same-store sales have improved sequentially throughout the first quarter and for the past 14 days are trending positive in the low single digits. Given the current environment and recent regulatory changes in tobacco, during the fourth quarter we paused on the rollout of additional items to the price optimization platform inside our stores. We'll update you on this area as we continue to navigate through the current environment. The prepared food and fountain category has been one of the areas most impacted by the effects of the coronavirus pandemic. Through the first six weeks of the quarter, excluding the extra day for leap year, we experienced same store sales of 5.5%. The last six weeks, we saw a decline of approximately 30%, resulting in same store sales down 13.5% for the fourth quarter. Historically, whole pies make up about 25% of this category, with the remainder coming from items that are primarily self-serve offerings, either in our food warmers, our bakery cases, or from our coffee and fountain. Our whole pie business as a destination item has been very resilient during this time, showing significant double-digit same-store sales gains. In contrast, the remaining 75% of this category is more dependent upon everyday traffic that comes from people commuting to and from work or other activities. As a result, this is where we have experienced the greatest adverse impact in prepared foods from the pandemic. Also during this time, several areas in our footprint restricted our ability for self-service food items, as well as our coffee and fountain offerings. In addition to this, to protect the well-being of our guests, we voluntarily suspended self-service across our entire chain for a period of time. We have since reopened our self-service platform were allowed as restrictions began to ease across our territory. Subsequently, we have seen gradual improvement in self-service items while maintaining strong double-digit sales for whole pies. As a result of these events, total sales for the quarter were down 9.5% to $230 million. The prepared food margin in the quarter was down 220 basis points to 60% due to an increase in promotional activity and higher commodity costs. We were pleased with the acceleration in our comps prior to the impact of COVID-19 in the quarter as many of our initiatives were maturing and gaining momentum. Despite the current environment, we're excited about the traction we're gaining with our digital platform and how our guests are responding to our rewards program. We currently have over 2.2 million active members enrolled, compared to just under 1 million members five months ago when we launched the program, and this number continues to climb. Approximately 50% of all pizza orders are conducted digitally now, and over 20% of all of our transactions have a rewards participant. We look forward to the opportunity to learn more about our guest preferences, which will allow us to serve them even better. We believe that our new suite of digital platforms will continue to drive additional traffic. Year-to-date, same-store sales were down 1.5%, with an average margin of 60.9%. The margin was down from a year ago, primarily due to higher cheese costs and the adverse impact from a special promotion we ran in November to launch our new coffee program. The average cost of cheese for the fourth quarter was $2 per pound, compared to $1.73 in the same quarter last year. With cheese costs currently trending down, we are successful in locking in a portion of our cheese costs through the end of the calendar year. We'll continue to monitor the market closely, looking for additional buying opportunities. Same-store sales have improved sequentially throughout the first quarter and for the past 14 days are trending down in the low teens. We anticipate same-store sales to continue to improve as additional areas in our territory ease self-service food restrictions, we head into the summer months, and the state of Illinois recently lifted their stay-at-home mandate in June. Currently, we still have approximately 25% of our store base adversely impacted by self-service restrictions. Again, Illinois represents approximately 20% of our store base. We continue to move forward with our Culinary Innovation Initiative as part of our long-term strategic plan. We completed the initial phase of this plan with the hiring of our new Vice President of Food Service, Michelle Wickham. Michelle is a 30-year veteran of the food service industry, and we look forward to her energy and passion to enhance our already successful food service business. I'd now like to turn the call over to Bill to discuss operating expenses and the financial statements.