ANKENY, Iowa – Following a soft quarter and year that failed to meet Wall Street expectations, Casey’s General Stores Inc. has set some ambitious goals for fiscal 2018.
Casey’s reported net income of $30.1 million for its fourth-quarter 2017 was down compared to the company's net income of $47.1 million for the same period a year earlier. For the 12 months that ended April 30, 2017, it reported a net income of $177.5 million, vs. $226 million for 2016.
Total revenues for fourth-quarter 2017 were $1.85 billion, up 16.7% from $1.63 billion in the same period of 2016. For the 12 months that ended April 30, 2017, the retailer reported total revenues of $7.51 billion, up 5.4% from $7.12 million for 2016.
“During our fiscal year, like many others in the convenience- and grocery-store sector, as well as the broader foodservice industry, we experienced downward pressure on customer traffic, which adversely impacted same-store sales across all of our categories,” said Terry Handley, president and CEO of Casey’s, on the company’s earnings call June 6. “We believe this pressure is related to the agricultural economy in our marketing area, the growing spread in pricing between food away and food at home, as well as the increased promotional activities of competitors.”
With that the backdrop, click through to see some of Casey’s additional goals …
Casey’s annual goal for fiscal 2017 was to increase same-store gallons sold by 2% with an average margin of 18.4 cents per gallon (CPG). For the year, same-store gallons sold were up 2.1% with an average margin of 18.4 CPG.
(Click here to read 3 Fuel Updates from Casey's.)
“Fiscal 2017 same-store gallons sold and fuel margin were in line with our annual goals,” Handley said.
For the quarter, same-store gallons decreased 0.5% with an average margin of 17.2 CPG. For fiscal 2017, total gallons sold were up 5.6% to 2.1 billion. Gross-profit dollars in the fuels category for the year were down slightly to $378.3 million, primarily due to a 1.2-CPG lower fuel margin partially offset by an increase in gallons sold.
- 2018 goal: Increase same-store fuel gallons sold 1% to 2% with average margin of 18 to 20 cpg.
Prepared food and fountain
Casey’s annual goal was to increase same-store sales of prepared food and fountain 10.2% with an average margin of 62.5%. For the year, same-store sales of prepared food and fountain were up 4.8% with an average margin of 62.3%.
“Fiscal 2017 proved to be a challenging environment for the broader foodservice industry; however, we are encouraged about the future of this category as we continue to enhance digital engagement with our customers, roll out operational growth programs to more stores, and have locked in favorable cheese costs through December of 2017,” Handley said.
For the fourth quarter, prepared food and fountain same-store sales were up 3.2% with an average margin of 61.7%. For fiscal 2017, total sales increased 8.3% to $953.4 million, and gross-profit dollars rose 7.9% to $594 million.
- 2018 goal: Increase same-store prepared food and fountain sales 5% to 7% with an average margin of 61.5% to 62.5%.
Grocery and other merchandise
Casey’s annual goal was to increase same-store sales for grocery and other merchandise 6.2% with an average margin of 32%. For the year, same-store sales for grocery and other merchandise were up 2.9% with an average margin of 31.5%.
For the fourth quarter, grocery same-store sales were up 1.5% with an average margin of 31.1%. For the year, total sales were up 5.7% to $2.1 billion and gross-profit dollars increased 4.4% to $657.2 million.
“Despite a challenging operating environment, fiscal 2017 marked the 16th consecutive year of positive same-store sales growth in both the grocery and other merchandise and prepared food and fountain categories,” Handley said.
- 2018 goal: Increase same-store grocery and other merchandise sales 2% to 4% with average margin of 31% to 32%.
Casey’s has also made gains in its online ordering program. Since its January 2016 rollout, total downloads of the mobile app have exceeded 850,000. The amount of pizza orders completed online has reached about 14%, and the basket ring on an online order continues to be about 20% higher compared to a telephone order.
- 2018 goal: “We will be taking steps in fiscal 2018 towards enhancing digital engagement with our customers including a loyalty program,” Handley said. “We believe we have an opportunity to widen our customer base and increase revenue as a result.”
For the fourth quarter, Casey’s operating expenses were up 11.4% to $292.6 million. For the fiscal year, operating expenses increased 11.2% to $1.2 billion.
“Both the year-to-date and fourth-quarter increases were primarily attributable to increases in employee-related costs from operating more stores compared to the same periods a year ago, along with the various growth programs impacting our existing stores,” Handley said.
In 2018, the company expects operating expenses to increase 9% to 11%.
The company will also roll out a new payroll system starting in October and a salary increase to managers starting in November at the cost of approximately $4 million.
“We have created a task force dedicated to reviewing improvement opportunities. We have already taken several steps as part of this effort, including the suspension of the 25-cent automatic raise after 90 days, implemented revised compensation guidelines, establishing a tighter wage and merit budget and more strategic focus on advertising efforts, resulting in a reduction in advertising dollars spent,” Handley said. “We're also reviewing overtime and store-level budget hours, looking for ways to be more efficient.”
- 2018 goal: “We believe the combination of these factors will have the potential of an eight-digit savings to operating expense next year,” Handley said.
Casey’s owns and operates more than 1,950 convenience stores in 15 states. It is No. 4 in CSP’s 2017 Top 202 ranking of the largest U.S. c-store chains.
The company’s annual goal for fiscal 2017 was to build or acquire 77 to 116 stores, replace 35 existing locations and complete 100 major remodels. For the fiscal year, Casey’s built and opened 48 new stores, acquired 22 stores, completed 21 replacements and remodeled 103 stores. As of April 30, 2017, it had 27 new stores, 21 replacement stores and 11 major remodel stores under construction. At the fiscal year end, the company had 116 sites under agreement for new-store construction and five stores under agreement to purchase.
Casey’s also converted 89 locations to a 24-hour format for the year; it now has almost 1,000 stores open 24 hours.
“Our new-store construction activity continues to gain momentum,” Handley said. “The growing pipeline of sites under agreement has the company well positioned for significant increase in organic growth.”
Some Casey’s stores in newer markets are performing better than those in core markets.
“The newer markets would be states like Tennessee, Kentucky, Arkansas, Oklahoma, North Dakota, the eastern side of Indiana and, even more recently, Ohio,” said Bill Walljasper, CFO. “Those stores, albeit they're small contributors from a dollar perspective, but their same-store sales lift is double or triple what we see in the core states right now. I think that is reflective of the efforts that we put in the last fiscal year and doing some marketing and some promotional campaigns in those areas.”
- 2018 goal: Build or acquire 80 to 120 stores, replace 30 existing locations and complete 75 major remodels.
Walljasper (pictured) also addressed the current mergers-and-acquisitions climate in the context of Casey’s past activity.
“As far as the M&A multiples go, as you know, we typically have paid between 5x and 7x,” said Walljasper. “That's not necessarily a barometer of where we'll go. We'll pay outside of that if the asset warrants it using some of the more public trends be it more double-digit multiples. But our multiples are still in the high single digits right now.”
- 2018 goal: “The company will continue to review acquisitions that are a strategic fit,” Handley said.
Walljasper also said that Casey’s Terra Haute, Ind., new distribution center, which opened in February 2016, is running at “roughly about 55%, 60% capacity,” supporting approximately 630 stores.
“We look at it on a per-store basis. We look at opportunities to have miles-driven savings. And so when we see an opportunity that we can save more miles, we might look at a third distribution center and probably you'll see that in the not-too-distant future,” he said.
- 2018 goal: “That's still to be determined at this point. We're still kind of shoring up where the ideal location might be for that,” he said.