Its Toastwich sandwich is proving very popular with the chain's customers.
Brian Berk, Convenience Store News
ANKENY, Iowa — The new breakfast menu at Casey’s General Stores Inc., launched in September, is exceeding expectations and helping revitalize the morning daypart.
During the company’s recent fiscal 2022 third-quarter earnings call, Casey's President and CEO Darren Rebelez shared that breakfast daypart same-store sales were up 17 percent compared to the prior year. Morning guest traffic also increased.
Rebelez cited one main factor driving the momentum: the convenience store retailer’s new Toastwich breakfast sandwich. Available in bacon, egg and cheese and sausage, egg and cheese varieties, the Toastwich features made-from-scratch dough.
"Toastwich is highly craveable, portable and something you cannot get elsewhere," he said during the March 9 call. “It is a great example of innovation you can expect moving forward."
Casey’s is so pleased with the Toastwich that Rebelez hinted that additional new prepared food items are currently in the works, though he declined to provide further details.
Banner sales of prepared food combined with strong fuel margins led Casey's to report record earnings during its 2022 fiscal third quarter, ended Jan. 31. Net income for the three-month period was $64.024 million, vs. $38.627 million a year earlier.
Inside same-store sales increased 7.6 percent compared to the prior year, with a margin of 39.4 percent. Inside gross profit increased 14.9 percent vs. a year ago, totaling $403.8 million.
Strong performances by prepared food items such as pizza slices and hot breakfast sandwiches, grocery items such as salty snacks and candy, and non-alcoholic beverages contributed to the improvement in inside same-store sales.
The results are especially impressive when taking into account macro conditions including the Omicron wave, wage and merchandise inflation, and difficult weather, Rebelez noted.
Strength at the Pump
Turning to fuels, total gallons sold rose to 621.77 million in Casey's fiscal third quarter, compared to 518.41 million in the same period of 2021. Same-store gallons sold were another standout, rising 5.7 percent year over year. Same-store gallons sold were positively affected by higher guest traffic. Fuel margins, excluding credit card fees, increased by 5.4 cents year over year to 38.3 cents per gallon, vs. 32.9 cents per gallon a year ago.
"Fuel margins remain strong and offset higher operating expenses," said Rebelez.
The current gas price environment has yet to deter consumers from visiting Casey’s stores during its fiscal fourth quarter, taking place now. Instead, consumers are "aggressively" filling up their gas tanks as they believe prices will be even higher the next day, the CEO pointed out.
"I do not expect consumer behavior to change much until the price reaches near $5 per gallon," he said. "Right now, in the 16 Midwestern states we serve, the average price is just under $4 per gallon as we blend a lot of ethanol, which is priced 70 to 80 cents [per gallon] below gasoline."
Comparing today's environment to 2008, the last time gas prices were this high, puts things into context well, Rebelez explained. "Gas prices reached $4.06 per gallon in 2008. Today, accounting for inflation, that would be about $5.30 per gallon," he said. "Also, we were in a recession then. Today, the unemployment rate is 3.8 percent and there is a labor shortage."
Continuing on the inflation theme, he added that despite the cost of products rising, consumers continue to purchase items in-store, in large part due to wage increases. “The consumer is in pretty good shape. There are no dramatic changes in customer behavior with inflation," he stated.
Even if consumer behavior changes regarding in-store purchases, Casey's is ready. "Private label helps a lot in that area," Rebelez said. "Also, consumers can get a pizza pie for $16.50 to $17, which can feed four — a great value. Also, we have several breakfast items priced under $5."
As of Jan. 31, Casey's operated 2,431 convenience stores. The Ankeny-based retailer surpassed 2,400 units with its recently completed acquisition of 40 stores from Pilot Corp. This marked its third significant acquisition of fiscal year 2022. Thus far, Casey’s has opened 11 new stores and acquired 191 locations.
The company currently has $662 million in liquidity, comprising $187 million in cash and cash equivalents, and $475 million in undrawn borrowing capacity on existing lines of credit. Hence, Casey's has the means to make more acquisitions.
"Our M&A [mergers and acquisitions] team is having a lot of conversations. There is a frothy M&A market as smaller operators have a tough time competing," Rebelez relayed. "But we are going to be disciplined in our approach."