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    Downward Pressures Can't Keep Casey's Down

    Q3 2017 same-store sales grow despite customer traffic decline.

    By Danielle Romano, Convenience Store News

    ANKENY, Iowa — Casey's General Stores Inc. may have faced a number of challenges in the third quarter of its 2017 fiscal year, but the convenience store retailer continues to grow in fuel gallons sold and same-store sales. 

    Speaking during the company's earnings call Tuesday morning, President and CEO Terry Handley reported that Casey's diluted earnings per share were 58 cents compared to 97 cents for the same quarter one year ago. The primary reasons for this decrease were challenges such as a decline in customer traffic, a calendar shift in January, and inclement weather. Year to date, diluted earnings per share are $3.72 compared to $4.54 for the same period a year ago.

    "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," Handley explained. "We believe this pressure is related to the agricultural economy in our marketing area, a growing spread in spending in food away [from home] and food at home, as well as big-box retailers continuing to increase promotional activities."

    The fuels category, however, continues to benefit from low retail prices and fuel saver programs, reported Casey's Chief Financial Officer Bill Walljasper. This resulted in an increase in same-store gallons sold by 2.6 percent for the third quarter, while total gallons sold rose by 5.5 percent to 498.1 million gallons. The average retail price of fuel during the quarter was $2.12, compared to $1.88 a year ago.

    Year to date, same-store gallons sold are up 3 percent, with total gallons sold for the year up 6.5 percent to 1.6 billion gallons.

    GROCERY & OTHER MERCHANDISE 

    Despite the calendar change in January, as well as inclement weather, "Casey's continues to be an industry leader in same-store growth both with fuel gallons sold and inside our stores," Handley maintained.

    Total sales in the retailer's grocery and other merchandise category were up 5.1 percent to $476.3 million in the third quarter. Same-store sales were up 3 percent during this period, which was short of Casey's annual goal primarily due to the deceleration in customer traffic, calendar change in January, and inclement weather, acknowledged Walljasper.

    Still, total sales across all major areas of the grocery and other merchandise category saw mid to high single-digit increases, noted Walljasper.

    The average category margin in the quarter was 31.1 percent, consistent with the same period a year ago. As a result, gross profit for the quarter was up 4.7 percent to $148.1 million. 

    For the year to date, same-store sales are up 3.5 percent in grocery and other merchandise, with total sales up 6.1 percent to $1.6 billion. Year to date, the average category margin is 31.6 percent.

    "We are encouraged by our growth opportunities in this category as we benefit from the continued rollout of major remodels, replacement stores, and new store openings," Walljasper commented.

    PREPARED FOOD & FOUNTAIN

    Moving over to Casey's prepared food and fountain category, total sales were up 8.9 percent to $228.3 million for the third quarter of fiscal 2017. Despite the economic environment in its market area, same-store sales for this category were up 5.8 percent, which was an acceleration from its mid-year results.

    Casey's growth programs continue to perform as expected, according to Walljasper. Sales in the chain's unchanged store base are below expectations, which was attributed "generally to the challenges in the broader convenience and foodservice industries," the CFO explained. 

    The average margin for the prepared food and fountain category in the third quarter was 61.7 percent, down 30 basis points from a year ago, primarily due to a combination of increased supply costs and slightly higher cheese costs, as the company cycles out of a cheese contract that expired at the end of December 2016.

    Year to date, total prepared food and fountain sales are up 8.7 percent to $720.3 million, and total gross profit dollars are up 8.4 percent to $450.3 million.

    The Ankeny-based retailer reported that total mobile app downloads have surpassed 700,000, and more than 13 percent of whole pizzas sold now come from digital orders.

    "We are encouraged by this growth from our first step toward increasing digital engagement with our customers," said Walljasper, adding that Casey's is optimistic about its growth in the prepared food and fountain category for the remainder of the fiscal year, as it continues to benefit from implementation of pizza delivery stores, its major remodel program, and new store openings.

    OPERATIONS

    On the operations side of the business, expenses increased 12.6 percent to $292.3 million in the third quarter. Approximately two-thirds of this increase was due to a rise in wages and payroll taxes, Walljasper cited.

    During the company's first-quarter fiscal 2017 earnings call, Casey's executives discussed the Dec. 1 change in the minimum salary requirements for employees. Although a federal judge blocked the rule change eight days before implementation, Casey's continued to uphold its commitment to salary wage increases, estimating an impact of $10 million over 12 months from the once-estimated effective date.

    Adding to the company's increased operational costs, credit card fees and fuel expenses were up $3.5 million due to a 12.6-percent increase in retail fuel prices from the same period one year ago.

    The retailer also rolled out new uniforms across its stores, a $2-million commitment to customer service, Casey's executives reported during the Q&A portion of Tuesday's earnings call. Casey's also began implementation of HRIS, a new payroll system, at the tail end of the second quarter of fiscal 2017.

    Casey's General Stores operates 1,954 convenience stores in the Midwest region of the United States. 

    By Danielle Romano, Convenience Store News
    • About Danielle Romano Danielle Romano is associate managing editor for EnsembleIQ's Convenience Store News and CSNews.com. Prior to joining CSNews full-time in January 2015, Romano served as a freelancer for CSNews, with a concentration on social media, while working as product content copywriter/editor for Myron Corp., a promotional product company. Romano has a bachelor's degree in print journalism from William Paterson University.

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