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    Lower Gas Margins, Challenging Cigarette Market Impact Casey's Q2 Results

    Chain sees a drop in earnings, but company execs report strong performance in foodservice.

    By Angela Hanson, Convenience Store News

    ANKENY, Iowa -- Casey's General Stores Inc. saw a drop in earnings during its second quarter of fiscal 2013 compared to the same timeframe a year ago, primarily due to decreased gas margins and a "challenging" cigarette market, Casey's Chief Financial Officer Bill Walljasper reported during the company’s earnings call today.

    “Our prepared food program is doing exceptionally well, but the cigarette environment remains very challenging for retailers," added Casey’s Chairman and CEO Robert J. Myers. "We are diligently evaluating the competitive landscape and will maintain a disciplined approach when making cigarette price adjustments."

    During the earnings call, the company leaders also provided more details on various aspects of Casey's business:

    Gasoline — Same-store gallons sold during fiscal Q2 fell 0.4 percent and had an average margin of 14.9 cents per gallon. Total gallons sold for the year thus far are up 3.2 percent, also with an average margin of 14.9 cents per gallon. The company's annual goal is to increase same-store gallons sold by 1 percent with an average margin of 14 cents per gallon. Year to date, same-store gallons are down 0.3 percent.

    "We believe higher retail prices had an adverse impact to sales, however the gas margin environment has been favorable when compared to our annual goal," Myers said.

    Grocery and Other Merchandise — Casey's annual goal for this segment is to increase same-store sales by 6.2 percent with an average margin of 32.7 percent. Same-store sales dropped 0.7 percent, but had an average margin of 33.4 percent during the quarter. "Cigarettes have been adversely impacted by competitive pricing, as well as an Illinois state excise tax increase," Myers stated. "However, the grocery and other merchandise margin is above goal, primarily due to a more favorable product mix within the category."

    Walljasper added that the company is aggressively monitoring the cigarette market and will make adjustments as needed moving forward. He also noted that cigarettes account for a lower portion of total revenue in this category than has been the case in the past, down from 40 percent to approximately 36 percent.

    Prepared Food and Fountain — Casey's ongoing foodservice initiatives contributed to growth in this segment. The company's goal for fiscal 2013 is to increase same-store sales 11 percent with an average margin of 61.1 percent. For the quarter, same-store sales were up 10.1 percent with an average margin of margin of 62.5 percent. "This category continues to benefit from three primary operating initiatives: expanded hours, pizza delivery, and major store remodels," said Myers. "The margin continues to exceed our annual goal, primarily due to an increase in pizza sales."

    Operating Expenses — Operating expenses were up 10.6 percent for the quarter, with year-to-date operating expenses up 10.5 percent to $379.4 million. Walljasper attributed this increase primarily to the increased number of stores Casey's operates compared to a year ago.

    "So far this fiscal year, we have converted 150 stores to 24-hour operation, added pizza delivery to 103 stores and completed 51 major remodels," Myers explained. "We will continue to implement these initiatives where we believe we can drive cash flow."

    Expansion — So far in fiscal 2013, Casey's has opened eight new stores and completed the acquisition of three stores. It also replaced 13 stores. The company's goal is to increase its total number of stores by 4 percent to 6 percent.

    "In November, we completed the acquisition of 22 Kum & Go locations and opened our first stores in Tennessee and North Dakota," Myers noted. "We are on pace to build 30 new stores this fiscal year and continue to be optimistic with the acquisition environment."

    In response to investor questions, Walljasper noted that while Obamacare regulations have the potential to impact Casey's, the details are hard to quantify at this time. He said the company may have a better idea what to expect in the new calendar year as nuances of the Affordable Care Act become clear.

    Casey's also saw a boost from November's record Powerball drawing, with the increased number of customers coming in to purchase tickets providing more cross-selling opportunities. While Walljasper acknowledged that it is difficult to quantify, he believes the record jackpot was a benefit to the company.

    Finally, while Casey's does not yet have specific goals for its pizza delivery, store remodel and 24-hour operation initiatives for the next fiscal year, the company expects to see similar or increased growth in these areas, the executives maintained. Overall, the earnings call presented an optimistic outlook despite the quarter's challenges.

    "Our balance sheet continues to be strong," Walljasper stated.

    By Angela Hanson, Convenience Store News
    • About Angela Hanson Angela Hanson is associate editor for Stagnito Business Information's Convenience Store News and Convenience Store News for the Single Store Owner, where she is responsible for primary coverage of the candy, snacks and packaged beverages categories. Since joining CSNews as assistant editor in early 2011, she has played a key role in helping CSNews.com maintain its position as the No. 1 news source for the convenience store industry. Prior to joining CSNews, Hanson served as junior editor at Creative Homeowner book press and as managing editor of Anime Insider magazine. She has degrees in creative writing and visual communication technology from Bowling Green State University.

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