Casey's Looks to Move on From Challenging Q4
ANKENY, Iowa — The first few months of this year were challenging for most retailers in the convenience channel, and Casey's General Stores Inc. was no exception.
"During our fiscal year, like many others in the convenience and grocery store sector as well as the broader foodservice industries, we experienced downward pressure on customer traffic, which adversely impacted same-store sales across all of our categories," Terry Handley, president and CEO, reported during Casey's fiscal 2017 fourth-quarter earnings call on June 7.
"We believe this pressure is related to the agricultural economy in our marketing area, the growing spread in pricing between food away and food at home, as well as the increased promotional activities of other competitors," he noted.
Same-store sales across all categories during the fourth quarter were also affected by the leap year comparison — an approximate 1-percent to 1.5-percent impact, according to Handley.
Taking into account the leap year comparison, the same-store customer count in the quarter would have been up slightly, "although we are encouraged to see that our basket inside the store, excluding fuel, was in line with the previous quarter," he explained.
"Despite the more challenging environment, we continue to be an industry leader in same-store sales growth in both fuel gallons and inside our stores," Handley said.
CATEGORY RUNDOWN
In the fuels category, Casey's continued to benefit from low retail fuel prices and its Fuel Saver program during the fourth quarter, according to Bill Walljasper, chief financial officer.
Same-store gallons in the quarter were down 0.5 percent, adversely impacted by the leap year comparison. Total gallons sold for the quarter rose 3 percent to 496.5 million.
The average retail price of fuel for the period was $2.22 a gallon, compared to $1.81 a year ago. The average fuel margin in the quarter was 17.2 cents a gallon, down year over year primarily due to lower volatility in wholesale costs.
For the full fiscal year, fuel margin was on goal at 18.4 cents a gallon. Same-store gallons sold for fiscal year 2017 were up 2.1 percent, while total gallons sold for the year were up 5.6 percent to 2.1 billion.
Moving inside the store, total sales in the grocery and other merchandise category were up 4.7 percent to slightly more than $500 million in the fourth quarter. For the year, total sales were up 5.7 percent to $2.1 billion, and gross profit dollars increased 4.4 percent to $657.2 million.
Same-store sales in the grocery and other merchandise category were up 1.5 percent with an average margin of 31.1 percent during the quarter, which fell short of Casey's annual goal primarily due to the deceleration in customer traffic, Walljasper said. Same-store sales in this category were also adversely impacted by the leap year comparison.
Still, Walljasper commented, "We are encouraged by our opportunities in this category as we benefit from the continued rollout of major remodels, replacement stores and new store openings."
In the prepared food and fountain category, total sales were up nearly 6.8 percent to more than $233 million for the quarter. Gross profit dollars rose 6.4 percent to $143.8 million.
"Despite the tough economic environment in our marketing area, same-store sales were up 3.2 percent. Similar to the other categories, the leap year comparison had an approximately 1- to 1.5-percent adverse impact during the quarter," Walljasper noted.
"Also during quarter, we took several deeper value promotions within the category, primarily in our doughnut and pizza lines, looking to draw an increase in traffic to these areas," he added.
According to Walljasper, the retailer's various growth programs continue to perform well above its unchanged store base. "Sales in our unchangeed store base continue to be challenged, which we attribute generally to the pressures being experienced in the broader convenience and foodservice industries," he said.
For the full year, same-store sales in the prepared food and fountain category were up 4.8 percent with the average margin in line with the company's annual goal at 62.3 percent.
"We are optimistic about the growth in this category as we benefit from the continued implementation of pizza delivery stores, our major remodel program, as well as new store openings," the CFO stated.
OPERATING EXPENSES
During the fourth quarter, operating expenses increased 11.4 percent to $292.6 million. For the year, operating expenses were up 11.2 percent. More than 50 percent of the increase in the fourth quarter was due to a rise in wages and payroll taxes.
In addition, the combination of credit card fees and fuel expenses were up $4.2 million in the period, Walljasper noted.
Store-level operating expenses for open stores not impacted by any of the growth programs were up approximately 5.9 percent in the quarter — again primarily due to wage rate increases, including Casey's decision in December to keep its commitment to salary increases for store managers stemming from the proposed change by the Department of Labor to increase the minimum salaries for exempt employees, he detailed.
"We recognize that fiscal 2017 was a challenging year, but we are excited about our long-term growth opportunities," Handley concluded. "We've taken steps to position ourselves for a higher store-growth trajectory and are beginning the early stages of several programs that we feel will sustain our positive same-store results history."