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    Casey's Increases Prices to Counteract Challenges

    Sales in the chain's legacy store base are below expectations.

    By Melissa Kress, Convenience Store News

    ANKENY, Iowa — Casey's General Stores Inc. is ticking up the prices of some items, especially select foodservice items, as its earnings for the second quarter of fiscal year 2017 declined year over year. 

    Speaking during the company's earnings call Thursday, Chief Financial Officer Bill Walljasper reported that Casey's diluted earnings per share were $1.44 compared to $2 a year ago. The primary reason for this decrease was a lower fuel margin — more than six-tenths a gallon lower than the year-ago period, he explained. This difference impacted earnings per share by approximately 52 cents. 

    Year to date, diluted earnings per share are $3.14 compared to $3.57 in the same period last year. 

    Due to the lower fuel margin in the quarter, gross profit dollars in the fuel category were also down by more than $23 million, to $99 million.

    An increase in mileage driven this year and lower retail fuel prices vs. a year ago did benefit same-store fuel gallons sold during the second quarter. This resulted in an increase in same-store gallons sold of 3.7 percent, while total gallons sold rose by 7.1 percent to 531 million gallons, according to Walljasper. The average retail price of fuel during the quarter was $2.10, compared to $2.35 last year. 

    Year to date, same-store gallons sold are up 3.3 percent, with total gallons sold for the year up 7 percent to 1.1 billion gallons.

    INSIDE THE STORE

    Moving inside the store, there were some challenges as well.

    Total sales in the grocery and other merchandise category were up 5.5 percent to $545 million in the second quarter. Same-store sales were up 3.1 percent during the same period, but this was short of the retailer's annual goal due to a deceleration of customer traffic and a tightening of consumer spending, Walljasper acknowledged. 

    Still, total sales across all major areas of the category showed mid- to high-single digit increases, he added. The average margin in the quarter was 32 percent. As a result, gross profit for the quarter in the grocery and other merchandise category was up by more than 7 percent to $174.6 million. 

    For the year to date, same-store sales are up 3.8 percent, with total sales up 6.5 percent to $1.1 billion. The average margin, year to date, is 31.8 percent.

    "We're pleased with the gains in the category in light of the environment we are currently experiencing, and we are optimistic about growth in the remainder of the fiscal year as we benefit from the continued rollout of major remodels, replacement stores and new store openings," Walljasper said. 

    In the prepared food and fountain category, total sales were up 8.3 percent to $248.3 million for the second quarter of fiscal 2017. In spite of the economic environment in its market area, same-store prepared food and fountain category sales were up 5.1 percent for the period, which was consistent with Casey's first-quarter 2017 results. 

    The retailer's various growth programs continue to perform as expected, according to the CFO. However, sales in the chain's "unchanged" store base are tracking below expectations, which Walljasper attributed "generally to the challenges in the broader convenience and foodservice industries." 

    To help offset some of these pressures, effective Nov. 1, Casey's implemented several strategic price increases on select items. "These increases are expected to represent an approximately 1-percent to 1.5-percent benefit to the total prepared food category going forward," he said.

    The average prepared food and fountain category margin for the second quarter was 62.9 percent, down 50 basis points from a year ago, primarily due to higher supply costs and increased promotional activity in the fountain and bakery area, offset by lower commodities costs.

    Year to date, same-store sales are up 5.1 percent, with an average margin of 62.9 percent.

    "We are optimistic about our growth in this category for the remainder of the fiscal year as we benefit from the continued implementation of pizza delivery stores and our major remodel program, as well as new store openings," said Walljasper.

    ON THE OPERATIONS SIDE 

    At the six-month mark, operating expenses are up by 10.5 percent. For the quarter, they increased by 10.2 percent to $295.3 million. According to Walljasper, approximately two-thirds of this increase was due to a rise in wages and payroll taxes, primarily related to increased wage pressures and operating more stores compared to a year ago.

    During the company's previous earnings call, Casey's executives had discussed the Dec. 1 change in the minimum salary requirement for employees. The retailer had previously estimated the impact from the federal overtime rule change to be in the neighborhood of $10 million over the 12 months after the effective date.

    Eight days before implementation, a federal judge blocked the rule change. However, by that point, Casey's had already taken the necessarily steps to put the changes in motion and communicated the changes to its employees.

    "We remain committed to offering competitive wages and benefits in an effort to be the employer of choice. With this in mind, we feel it is the right decision to uphold the commitment we made to our employees and we will go forward with the applicable salary changes," Walljasper said. 

    "We believe the price changes in the foodservice area will offset the majority of this impact," he added.

    Ankeny-based Casey's General Stores currently operates 1,941 convenience stores. 

    By Melissa Kress, Convenience Store News
    • About Melissa Kress Melissa Kress joined EnsembleIQ's Convenience Store News in November 2010. Her primary beats include alcoholic beverages and tobacco. Kress has been a professional journalist since 1995. A graduate of West Virginia University, she began her career in community journalism before moving to business-to-business publishing in 2000, covering commercial real estate.

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