Casey's Primed for Operational & Unit Growth

ANKENY, Iowa — With online ordering hitting all its convenience stores this year, Casey's General Stores Inc. will roll out a mobile app with the new year, to be followed by a "comprehensive" marketing campaign in January, Bill Walljasper, chief financial officer, said during the company's second-quarter fiscal 2016 earnings call Tuesday morning.

"We are nearly complete with rolling out online ordering to all of our stores. With the completion of this at the end of this month, we will begin a comprehensive marketing campaign starting in January, which will include the introduction of our mobile app for this service," he explained.  

According to the retailer, Casey's does not have a "tremendous amount" of preliminary results from online ordering at this point, but the initial results are very favorable and range from an increase in whole-pie orders to an increase in add-on sales, like extra toppings, breadsticks and buffalo wings. 

"Online ordering is a service that, quite frankly, many of our customers demand. That's how they interact with business. It will be similar to when we rolled out pay at the pump years and years ago. You really need that to stay competitive," Walljasper said.

"I think this is one of those things that not only do we need to have to touch more customers [who] may not be interacting with us, but to also drive other sales from our current customers," he added. "We're excited about it."

Expansion & Remodels

During the second quarter, Casey's opened 17 new-store builds and completed four replacement stores. Additionally, the retailer completed 24 major remodels. It now has 26 new stores under construction, as well as 39 major remodels underway. 

"We anticipate opening in total approximately 50 new store constructions and completing 100 major remodels by the end of the fiscal year," Walljasper said. Casey's store count at the end of the quarter was 1,904. 

Acquisition activity has been slower so far this fiscal year with transaction multiples rising as expectations increase. 

"We believe this is due in part to the higher fuel margin environment that exists generally throughout the industry," the CFO explained. "We will continue to remain patient."

The company's second distribution center, which will be operational in February, will figure into Casey's expansion plans. 

"The second distribution center comes online in February. It will allow us to extend the geography of our search for new sites as well — not only from an organic perspective, but also an acquisition perspective," Walljasper said. "The new facility will open the door to new states, like Michigan and Ohio as well as fuel growth east into Tennessee and Kentucky, and further south into Arkansas." 

Casey's has already started to look at new geographic regions, he revealed during Tuesday's call.

In addition to unit growth, Casey's has converted 100 more locations to a 24-hour format year to date, and added 20 more stores to its pizza delivery program.

At the beginning of the fiscal year, Casey's set its sights on converting 100 stores to the pizza delivery program. The remaining 80 will be back-loaded and spread pretty equally between the last two quarters of the year.

As for remodels, the company has 76 major remodels to go in relation to its goal of 100 remodeled locations this fiscal year. These will be "slightly weighted toward the fourth quarter relative to the third quarter, but probably relatively equal there as well," Walljasper said. "The same would hold true with new store construction. I think we will have more openings in the fourth quarter relative to the third, but nevertheless relatively equal."

Financial Details

Casey's experienced a strong fuel margin environment, along with strong sales performance across all categories, during the second quarter.

Some of the highlights include: 

• Fuel margin: Casey's average fuel margin in Q2 was 24.7 cents per gallon, compared to 19.5 cents per gallon a year ago. Year to date, its fuel margin is 21.1 cents per gallon, "well ahead of our annual goal," the CFO reported.
• Fuel gallons sold: Year to date, total gallons sold were up 7.8 percent to 997.4 million gallons. Same-store gallons were up 3.3 percent. 
• Grocery & other merchandise sales: Total sales in the grocery and other merchandise category were up 10.6 percent to $516.6 million in the quarter. Same-store sales were above goal, up 7.5 percent. 

"We experienced double-digit sales increases in nearly all areas of the category compared to a year ago, with an average margin of 31.5 percent. As a result, gross profit dollars were up nearly 8 percent to $162.9 million," Walljasper said.

Casey's prepared food and fountain category also continued its strong performance, with total sales up 14 percent to $229.4 million for the quarter. Same-store sales were up 9.4 percent with an average margin of 63.4 percent — up 410 basis points from a year ago, primarily driven by lower commodity costs and prior retail price increases, according to Walljasper. 

Year to date, same-store sales in prepared food and fountain were up 9.8 percent. Due to the sales increases and margin enhancement, Casey's grew its gross profit dollars in the quarter nearly 22 percent to $145.5 million.

"We were pleased with the gains in the category and anticipate continued growth throughout the fiscal year as we benefit from the continued rollout of operational initiatives, including online ordering, as well as new store openings," Walljasper explained. 

As for operational expenses, the numbers were up 8.7 percent at the six-month mark of the fiscal year. For the quarter, they were up 9.5 percent to $268 million. 

Approximately 80 percent of the increase was due to a rise in wages and payroll taxes, which were primarily related to an increase in operational initiatives, operating 48 more stores than a year ago in the same period, and an increase in bonuses as a result of the company's strong performance this quarter compared to the same period a year ago.