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Ann Barry (4:37)

Well, earnings continue to roll in. It's easy to forget about them with all of the headlines, the news at the moment, but we're trying to stay on top of it. And we've heard results from many big names in retail. So today we're going to go with that broad category but dig into a very specific kind of retail and that's convenience stores. Casey's General Store reported earnings night. And just to describe it, the company self described says it quote, combines traditional convenience retailing, fuel, packaged goods and tobacco with a larger emphasis on fresh and prepared foods. Well, if you take a look back in History. The company has had a pretty interesting background and an impressive stock price run more recently. So, John, let's kick off with a little bit of context.

John Grotteau (5:18)

That's right, Casey's General store ticker C A S, Y on the NASDAQ market cap of $25 billion. That's right, yeah. Casey's launch in 1968 as a general store in Bo Boone, Iowa, went public in 1983, over 40 years ago. And today there are nearly 3,000 locations across 19 states. And just to put that count into perspective, it's the third largest convenience store chain in the United States after Seven Eleven, which has about 12,000 locations, and Circle K, which is closer to about 7,000 locations. Casey's is predominantly in the Midwest and the south, similar to Dillard's, a department store we covered. And I'm wondering, Ann, have you ever been to a Casey's?

Ann Barry (5:58)

I have been to a Casey's. So my partner, he's from, from Iowa, actually, and we went one year to the Iowa State Fair, which was absolutely. By the way, it's abs. Have you ever been to the Iowa stage? You know about the Iowa State Fair,

John Grotteau (6:10)

the butter sculptures, but I've never been.

Ann Barry (6:11)

It's iconic and it's just the most amazing, amazing thing to go to. So we went to the Iowa State Fair and we went past the Casey's on the way. So I have very happy memories, not only of Iowa, but also actually popping into Casey's as part of that trip. And it's, it's. I mean, they're big locations and you gave a sense of the scale there, John. Again, market cap, $25 billion. I love kinds of businesses because we spend all of our time talking about tech or talking about Starbucks or Walmart, these kinds of companies. $25 billion of market cap for convenience stores.

John Grotteau (6:41)

And surveying the office today. Yeah, you may be the only person from our group, coastal elites here, who haven't been to one yet.

Ann Barry (6:49)

Oh, well, they're terrific. Everyone, everyone should go. Well, the results for Q3 of the most recent fiscal year. So 26, total revenue, $3.9 billion. Slightly missed expectations, but earnings per share. So the actual translation into profitability hit 3.49, beating expectations by actually a very big margin, a 55 cent beat. And then EBITDA, which is a measure of profit, totaled just under $310 million, up a whopping nearly 28% year over year. I mean, that's big because the margins on these kinds of businesses, excluding fuel, we'll come back to that in a Moment, you know, don't tend to be sort of that robust. But this is really meaningful profit growth. And just to look a little bit at comparable store sales. So that's the magic metric, or same store sales. And this is specifically excluding gas, because that does tend to be volatile. You know, the price of oil, the price of gas, excuse me, is not sort of the fault of the retailer. So people tend to look at these kinds of businesses, excluding fuel, in particular, those comparable store sales up 4% year over year, meaning they're doing something right in terms of what they can control within their four walls. Shares as a result, rising 4% today, which is actually pretty good when you look at what's been going on with this market recently.

John Grotteau (8:03)

Agreed. And I've always heard that in the gas station convenience store business, fuel brings customers in.

Ann Barry (8:09)

That's right.

John Grotteau (8:09)

But the store is what makes the money. So I was interested to see if that is the case. I dug into some of the earnings across categories.

Ann Barry (8:16)

Wait, did you nerd out?

John Grotteau (8:17)

I was thinking this morning, I'm nerding out.

Ann Barry (8:20)

Welcome to the club. This is so great. The nerding out spreading. I love it.

John Grotteau (8:23)

Let's get to the numbers.

Ann Barry (8:24)

Yes, let's get to the numbers.

John Grotteau (8:25)

So across three categories, the first one, prepared food and dispensed beverages. That's pizza, wings, soda, fountain drinks. That accounted for 10% of the revenue for the quarter. Around $423 million. About half a billion, but 53% of the profit. But it had a 53% profit margin. Yeah, grocery and general merchandise, that's beer, snacks, T shirts and the rest accounted for 25% of the revenue. About a billion dollars, but a 35% profit margin. So a lower profit margin. And then the fuel was 60% of the revenue. $2.3 billion. They burned in on fuel, so. But at a 15% margin. So you can see the inverse correlation here inside. Gross profit, 623 million fuel. Gross profit, about half of that. 348 million.

Ann Barry (9:11)

Yeah. Very symbiotic relationship between the two and actually pretty extraordinary. I'm very curious how much of it comes from things like T shirts. So you see here, Casey's leaning into the more profitable sectors and we need to talk about its branding because this is, and this is actually one of the things that I remember. It was what made going to Casey so memorable. Now in 2023, the company filed a trade mark declaring itself, quote, the official pizza and beer headquarters. And in a press release that came out at the time, Casey said, quote, we are the only leading pizza chain in the country where you can also purchase a wide variety of beer, wine and liquor options. I mean, it's so unbelievably cheeky to be a convenience store and call yourself a leading pizza chain where you can actually get a whole bunch of booze as well.

John Grotteau (9:56)

Right. And these numbers are pretty staggering.

Ann Barry (9:58)

Yes.

John Grotteau (9:59)

Casey's is the fourth. I spent today trying to figure out what metric are we talking about. They say we're the fifth largest pizza chamber, but I'll say Casey's is the fourth largest holder of liquor licenses in the US Behind Walmart, CVS and Walmart.

Ann Barry (10:12)

Makes total sense. But just the irony that you've got to basically pharma, well known for being pharmacies, being two of the biggest liquor license holders in the United States. It's just, I don't know, it's incredibly ironic.

John Grotteau (10:22)

I wouldn't have expected it. And this tickled me from the similar 2023 press release. They said, according to a recent Casey's survey quote, half of adults ages 21 and older and 2/3 of millennials say there's no better pairing than pizza and an ice cold beer. So they've done their research.

Ann Barry (10:38)

I have such an inappropriate comment I want to make and I can't make about the best pairing. And one, it would involve something in cigarettes. You know what I mean? Is it? Yes, yes, exactly.

John Grotteau (10:47)

And, but. And we'll get to cigarettes in a moment.

Ann Barry (10:49)

Yes.

John Grotteau (10:49)

The company says it's the fifth largest pizza chain as I mentioned. And a quote from Casey's were known for breakfast pizza. Yes, it exists. And several specialty pizzas. Can you say taco? So they're leaning into this.

Ann Barry (11:01)

Well, why can't you? I think that's great that they got breakfast pizza. I mean, I gotta tell you, as someone who comes from the across the Atlantic, the idea of a breakfast taco is new to me. Or a breakfast burrito. So having a breakfast pizza.

John Grotteau (11:10)

Actually they also mentioned on the call, similar to McDonald's, that breakfast all day is doing well for you.

Ann Barry (11:15)

Yeah. Delicious. You know, one of my favorite pizzas, I remember Pizza Express opening in London. It's a London thing and it's like it was known for having one pizza where you could have a fried egg on top of it.

John Grotteau (11:24)

Oh yeah.

Ann Barry (11:25)

And it's absolutely, absolutely delicious. I'm all about the breakfast pizza. Well, there are a couple of nuggets in the earnings call that happened this morning. And let's talk about non alcoholic beverages. That's a category we've talked about. In the past, Monster Energy was a company that one of our listeners wrote in and said, will you talk about it? And that really shone a light on just how much non alcoholic beverages are doing very well. And in particular, energy drinks. For Casey's, the energy drink sector were up about 14% by sales in the quarter. And then flavor enhance water quarters also doing pretty well. Now let's talk about those cigarettes because the company does mention tobacco in its description. And in terms of nicotine, for the recent quarter, customers did buy fewer cigarettes. That's been a secular trend, so that's not super surprising. But nicotine alternatives have been up 31 and we've seen that in some of the Zen.

John Grotteau (12:21)

Thank you.

Ann Barry (12:21)

Exactly. The vaping. So the vapor category up 12% as well. So nicotine's not going away, it's just appearing in different shapes.

John Grotteau (12:29)

Informed here and about that gas price volatility.

Ann Barry (12:32)

Yeah.

John Grotteau (12:32)

On the call the CEO was asked about geopolitical events and fuel price volatility. And it was really interesting. He put some numbers around it. He said that volatility is typical for the business and that over a full cycle it ends up being a net positive for fuel margins. But he said there isn't a decrease in fuel demand until gas nears around $5 a gallon. And as of this morning, Casey's footprint of stores is seeing gas around $3 a gallon.

Ann Barry (12:55)

Oh, that is interesting. That's why I do actually love earnings season because you actually end up getting exposed to all these macro and then they really come to life in these earnings calls and these earnings stories by translating these macro moves into actually how it's going to hit your pocket as a consumer. So this is why I do love covering these retail names. They really do let us know how the big picture is impacting our budgets. Well, looking forward, in the current year, EBITDA expected to increase 18 to 20% year over year. And the company now expecting inside, so again, excluding fuel, same store sales to increase a pretty healthy three and a half to four and a half percent. And the reason I say healthy you, we always compare that number against the rate of inflation. And as long as there's a decent amount of headroom, you know, it's looking pretty good. The other thing interesting here is Casey's is looking to expand its footprint, opening at least 80 stores throughout fiscal 2026. So really strong story on this one.

John Grotteau (13:50)

And the stock is cooking. It was at $675 a share today over the last six months. Shares are up 27% over the last year. Shares are up 73% over the last five years. Shares are up 250%. And Ann, all time shares are up 54,000%.

Ann Barry (14:11)

Oh, 54,000%. That's a good round number that. I mean those, that's an extraordinary run. So you know, off the back of that, because I'm always curious John, when you've seen these share prices go up as as quickly as we've seen again 73 over the past year, I like to go and see what analysts are saying and to see whether are telling the story of after the share price haven't gone up so much. You know, take a beat.

John Grotteau (14:34)

Right.

Ann Barry (14:34)

It's already gone up too much.

John Grotteau (14:35)

Too expensive.

Ann Barry (14:36)

Too expensive or are they seeing there's more. Is there more room to run now? As you said, the share price hit 675 today. If I look at the range of analyst price targets, they actually average more than that. They're averaging at 692 bucks. The highest is 750. The low is 530. But then you take a look at what the analyst population is saying as of now and out of call it 18 analysts covering the name, 11 are saying a buy and you've got another one saying a strong buy. So everyone's feeling pretty positive on this one from the outside in.

John Grotteau (15:06)

Yeah, absolutely. We're gonna have to go on an actual road trip.

Ann Barry (15:08)

Yes, please. I would love to do let's go back to IRA actually that'd be, that would be good fun. Well, we'll take a break and when we come back we're going to take a spin through the headlines that have been moving the markets today. John, what if I told you you could turn any idea into an investable index?

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Ann Barry (16:20)

Well, there it is. 4pm on the east coast, the markets are wrapping up for the day with the closing bell. We don't have a ticker tape, but we'll throw it over to our human ticker, our producer John that's right.

John Grotteau (16:29)

The S&P 500 ended the day down 2.10 of a percent. The NASDAQ and the Dow finished nearly flat. Brent crude oil, the Global energy benchmark declined 9% today to around $85 with some fluctuation. And the traders are awaiting an outcome of a meeting of officials from the Group of Seven economies. The G7 convened to discuss potential drawdowns of strategic oil reserves and in global trading. Asian markets were buoyed by the drop in oil prices. The region a bigger importer of commodities from the Middle East. South Korea's Kospi index climbed over 5% and Japan's Nikkei index gained around 3%. Some of the market headlines shares and Kohl's ticker KSS bounced around today, starting down 9%. Later midday up 11%, eventually finishing the day down 1 1/2 percent. The department store chain reported mixed fourth quarter results, beating expectations on earnings.

Ann Barry (17:22)

Yet another retail brand attempting a turnaround. And this time you can ask was it a little bit slow to get to get to the sort of get the memo. 10 years of shrinking sales has been experienced experienced by Kohl's. Same store sales in the most recent quarter down 2.8%. So this wasn't reversing course. Now analysts have been saying that Kohl's is losing to the competition in E Commerce. But I think there's a bit more than this. Kohl's rather like some of these other big box general merchandise as we've looked at, really doesn't have an identity that the consumer can point to. And as we saw with Target, for example, before it decided to articulate a turnaround plan, something that has caused real struggle in the retail sector. Now with Kohl's, 25 of the companies float, which is just a way of saying publicly traded or available Stock to trade 25% is shorted, meaning people are taking bets that that stock price is going to continue to fall and that may account for some of the swings in share price. Day often associate volatility with that kind of short action. Well, in a different vein, shares in Applied Materials and Micron rose today and that's after the two companies announced a partnership to develop next generation memory chips for AI. Now both of these companies benefited from the Biden era Chips act, which just as a reminder was huge GR grants given to try to develop the semiconductor industry here in the United States. And the company said today that their collaboration aims to, quote, advance American memory innovation. Just before we move on from this point though, just to talk about something that John touched on earlier and that is the fluctuations in the Cosby, which is the South Korean stock index. We saw that that was hit especially because there were concerns that South Korea, which is a major manufacturer of memory by being being cut off, at least for now, but from its imports of oil which fuels the plants that manufactures the memory, that there was a real concern about the AI supply chain. Very interesting move here to see these two American names doubling down on memory innovation. Memory is something that has turned out to be really critical and we're seeing real stock price moves in that when it comes to where investors are betting on the picks and shovels around AI, the actual stuff that gets the doing done.

John Grotteau (19:32)

And finally, shares in oil and gas giant ExxonMobil Corporation ticker XOM were down about 1% today. Exxon is reportedly planning to move its legal home from New Jersey to Texas after more than a century in the Garden State. With its roots in the formation of John D. Rockefeller's Standard Oil, Exxon said most of its senior executives and almost a third of its global employees are already based in Texas. And the company said in a proxy filing the shift could reduce the risk of. Risk of quote, future frivolous litigation.

Ann Barry (20:01)

Well, this one's pretty interesting, John. I gotta. I'm actually gonna admit I'm embarrassed that I didn't know that ExxonMobil was technically sort of domiciled in New Jersey. I spent a lot of time in the oil field, services, space and spent a lot of time in Houston and other places in Texas like Midland and Odessa. And I'd always associated ExxonMobil, of course, one of the OG oil and gas companies with being there. But this is so fascinating because it's been part of a broader move where companies have been both physically and techn, changing their domicile to Texas. We saw that NASDAQ launched a new exchange there. There have been two other exchanges based in Dallas. We've seen Tesla decide to move its headquarters there. And just as a side note, we saw that when it came to that package, that compensation package for Elon Musk, we saw that one that had been sort of struck down. In Delaware prompted the move of the company from a domicile perspective to Texas which has seen to be a very business friendly state. And we've seen the Oracle has moved its headquarters there, Austin being city in Texas that has been a beneficiary of a lot of these moves. So plenty going on in Texas. And again JD Rockefeller, the beginning of Standard Oil. This is a moment in history when ExxonMobil moves state. And just as a final thought and stick with me because the moment I say bonds or debt, people's eyes tend to glaze over. But there was a big story today that we actually sort of debated putting it up as story one. We went with YouTube instead. But it is an important moment and that's because Amazon has launched the sale of some bond bonds and not just some, a huge amount, actually roughly $40 billion. Something that could actually expand to nearly 50. And this blockbuster fundraising, again, this is a huge amount of money. It's the fourth largest U S corporate bond sale on record and it's the biggest one that isn't tied to trying to raise debt to fund an acquisition. But we know what this is to fund and this is to fund capex spending on investments and building out AI infrastructure. Now the reason this caught my eye is not only the fact that it is breaking records in its on terms but because we also saw Alphabet raise some debt, significant amount of debt. We've seen Oracle outraising a significant amount of debt, a 25 billion dollar offering and all of this funding again tending to touch in some way shape or form the hyperscalers. Now there is a lot of commentary today on what does this mean and are we now seeing the shift away from a lot of this AI expenditure being funded through the free cash flow. So the cash that these companies are generating themselves and from big equity infusions the way that we've seen open AI seemingly gathering checks from the likes of Nvidia. So those were equity investments. These are now signs that corporate debt is actually increasingly being turned to in order to fund investments in this AI cycle. So don't let your eyes glaze over. This isn't going away. It's very important. And there's one other piece of this too which touches on the story we covered yesterday, which is the Robin Hood venture fund, one that went out and we asked the question what's going to happen with tech IPOs? Something I talked about on Charles Payne show on Fox Business New literally about two hours ago. And there is a question around the following. If you the investor have a choice. Do you want to take a dollar today and invest it in Amazon stock in the equity, or do you want to take a dollar today and invest it in Amazon's bond the debt, which is more secure but perhaps is a lower return? Which would you do, given how expensive the stock market looks like it might be for some of these tech names? I don't have a recommendation to give, but it is a question. And the reason why we flag these stories about the bonds, specifically with respect to technology, is we think that increasingly retail investors will have to think strategically about what kind of risk reward they want to be exposed to in exactly the same set of tech names. That's it for today's blue markets Daily

John Grotteau (23:48)

Brew Markets Daily is hosted by Anne Barry and produced by John Grotteau, Tarkit Velletev, Avani La Roya and Emily Milian. Technical direction by Uchenawa Ogu Brittany Dotako is our audio engineer and the President of Morning Brew Inc. Is Devin Emery.

Ann Barry (24:00)

Wake Up Tomorrow the Morning Brew newsletter and cheer in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.

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