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Casey’s Squeezed in Fourth Quarter

Tighter fuel margins and soft same-store sales punctuate the chain’s fiscal 2018

ANKENY, Iowa -- Casey’s General Stores saw its lowest quarterly fuel margin since 2014 as its final quarter of fiscal 2018 drew to a close.

For the fourth fiscal quarter ending April 30, 2018, Casey’s fuel margin, excluding credit-card fees, shrank to 16.3 cents per gallon (CPG), compared to 17.2 CPG in fourth-quarter 2017. Fuel margin for the fiscal year ended at 18.5 CPG, slightly higher than fiscal 2017 thanks to a frontloading of stronger margins in the first two fiscal quarters of 2018.

Same-store gallons rose 2.3% for fiscal 2018 and were up 2% in the fourth quarter.

"Same-store gallons sold remained strong in the fourth quarter, outpacing miles-driven trends in our region signaling an increase in our market share," said Terry Handley, president and CEO of Casey’s General Stores, in a statement. "However, a rising wholesale cost environment in the fourth quarter resulted in the lowest quarterly fuel margin since fiscal 2014." Total gallons for fiscal 2018 rose 6.6% to 2.2 billion.

Credit-card fees and fuel expenses rose $4.4 million mainly because of a 12.1% increase in retail fuel prices.

Store Results

Same-store sales rose 1.9% in fiscal 2018, but were off 0.4% in the final quarter. "The combination of weather and a management decision to reduce 24-hour locations unfavorably impacted the quarterly same-store sales in the fourth quarter," Handley said. However, the retailer pointed to industry data that shows Casey’s still is gaining market share. Fiscal 2018 total sales grew 4.6% to $2.2 billion with gross-profit dollars up 5.5% to $693.6 million.

In the foodservice category, same-store sales of prepared food and fountain increased 1.7% for fiscal 2018. For the fourth quarter of 2018, sales were off 1.3%. Handley pointed to Casey’s decision to cut the number of nights for pizza delivery in the fourth quarter for some of the softness. Full fiscal-year foodservice sales grew 5.5% to $1 billion, with gross-profit dollars up 3.3% to $613.7 million.

Operating expenses for fiscal 2018 rose 9.4% to $1.3 billion, with a 7.9% bump in the final quarter compared to the same period a year ago. Casey’s cited an increase in health-insurance expenses of $4.5 million for the upward trend, driven by a greater number of and more severe claims.

For the fiscal year ending April 30, 2018, Casey’s saw diluted earnings per share of $8.34, including a one-time impact of $4.53 per share from the Tax Cuts and Jobs Act. This compares to $4.48 for the same period last year. For fourth-quarter fiscal 2018, diluted earnings per share were 51 cents vs. 76 cents for fourth-quarter fiscal 2017.

Casey’s opened 53 new stores in the fourth quarter, and 85 total for the entire year. It acquired 26 stores, replaced 30 and remodeled 74 sites during the year. As of April 30, 31 new stores, four replacement sites and remodels were in progress.

Value-Creation Update

As the final quarter ended, Casey’s also enacted several of the steps it outlined as part of its “value-creation plan,” formed in response to demands from activist shareholders earlier this year. These include:

  • Hiring Chris Jones, formerly with Kum & Go, as chief marketing officer. 
  • Using new product optimization technology to help improve fuel margins.
  • Identifying price-optimization platforms for fuel and inside the store.
  • Finalizing a contract for a partner to assist with its new fleet-card program.
  • Launching the design phase of its digital transformation.
  • Streamlining its mobile app and online ordering.

Finally, Casey’s opened its first store in Michigan this past April, and the company has an eye on acquisitions. Handley said the chain was “encouraged” by the conversations executives were having on potential purchases. The company has 11 sites under agreement to buy and is "actively pursuing additional acquisition opportunities in a disciplined manner."

Ankeny, Iowa-based Casey’s General Stores has more than 2,000 c-stores in 15 mostly Midwestern states, located primarily in towns with populations of 5,000 or fewer people. The chain ranked No. 4 in a year-end update of CSP’s2017 Top 202 list of the largest c-store chains in the United States.

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