Casey's FY2018 Start Delivers Mixed Results

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The exterior of a Casey's General Stores location

Casey's FY2018 Start Delivers Mixed Results

By Melissa Kress - 09/07/2017
The exterior of a Casey's General Store location

ANKENY, Iowa — Call it a mixed basket. Casey's General Stores Inc. reported good news in some categories and less-than-good news in other categories, such as prepared food and fountain drinks, for its first quarter of fiscal year 2018.

Total in-store sales were up 7.5 percent to nearly $262 million for the quarter, which ended July 31, and same-store sales were up 3.7 percent — which fell short of Casey's annual guidance as it experienced lower traffic counts during the quarter, according to President and CEO Terry Handley.

"We believe this pressure is related to agricultural economy in our market area, and the continued spread between food at home and food away," Handley said during the Ankeny-based retailer's earnings call Sept. 6. "Another contributing factor was the excessive heat during the month of July."

The average margin for the quarter was 62.5 percent, down 30 basis points from the first quarter of fiscal year 2017. The decrease was primarily due to several cost increases, the chief executive explained. However, this was in line with the top end of Casey's guidance range.

During the first quarter, prepared food and fountain category gross profit dollars increased by nearly 7 percent to $163.6 million. Same-store sales in this category were up 3.7 percent with an average margin of 62.5 percent. However, the company's fiscal 2018 guidance is to increase same-store sales between 5 percent and 7 percent with an average margin of 61.5 percent to 62.5 percent.

"In the current environment, we recognize that our customer has become more value conscious. In light of this, we will build upon our existing value-added offerings in this category, along with new seasonal items that we anticipate to help with the overall prepared food sales," Handley said.

In the fourth quarter of fiscal year 2017, Casey's did a couple of deep discounts and value propositions that did not go as the retailer expected, explained Bill Walljasper, chief financial officer.

This past quarter, the company did not do deep discounts, but continues to look at value-added propositions like combo meals, "especially in the environment that we are in because the [agricultural] economy continues to be suppressed. We have a consumer that is certainly very conscious of a number of things, so we want to try to match our offerings with that type of mindset," Walljasper said.

Handley added that a bakery promotion Casey's ran in March was a "pretty aggressive program," and since that time, Casey's has seen an upward trend in its bakery comparables.

"We think we certainly got some attention in terms of that bakery promotion," Handley said. "I don't think you are going to see us do a deep discount on that in the near future, but we certainly believe that was a benefit to us since that time."

Innovation and new items also helped the bakery category, he added.

Other Category Results

In Casey's fuel category, retail fuel prices continued to be low, resulting in same-store gallons in the quarter increasing 1.7 percent. Total gallons sold for the quarter rose 5.4 percent to $565.1 million.

The average retail price of fuel during this period was $2.16 a gallon compared to $2.14 a year ago. The average fuel margin for the quarter was 19.3 cents per gallon.

Sales in Casey's grocery and other merchandise category were up 5.5 percent to $597.4 million in the first quarter. Same-store sales were up 3.1 percent. Average margin was up 31.9 percent compared to a year ago, "primarily due to a product mix shift to higher-margin items," according to Handley. As a result of this and the increased sales, gross profit dollars for the grocery and other merchandise category were up 6.3 percent to $190.4 million.

For the quarter, total operating expenses increased 10 percent to $321.2 million. The company recognized an incremental $7.3-million expense related to the accelerated recognition of changes in the provision of the current year grant awards under its long-term incentive plan. Without this, total expenses would have been up 7.5 percent for the quarter, Handley explained.

"In the previous earnings call, we discussed numerous opportunities that we are undertaking in an effort to better control wages in fiscal 2018," the CEO noted. "We are encouraged by the progress in this area and as a result of these measures, store-level operating expenses for stores not impacted by any of the growth programs were up approximately 3.9 percent in the first quarter."

This includes Casey's decision in December to keep its commitment to salary increases for store managers, stemming from the proposed change by the U.S. Department of Labor to increase the minimum salary for exempt employees. Without that change, store-level expenses would have been slightly more than 3 percent, Handley said.

"This will continue to be an area of focus for us as we move through the fiscal year," he noted.