Pizza Delivery Success Spices Up Same-Store Sales at Casey's

Retailer will add delivery option at 50 more locations; could sustain double current number

ANKENY, Iowa -- Expansion of its successful pizza delivery program is in the works at Casey's General Stores and may extend to other items, executives said during the company's third-quarter fiscal 2013 earnings conference call on Tuesday.

The company reported net income for the period ended Jan. 31, 2013, of $15.49 million, down from the same period in 2012 of $16.7 million. For the nine-month period in 2013, the company reported net earnings of $87.4 million, down from the same period in 2012 of $93.72 million.

"The quarter was adversely impacted by a challenging cigarette environment," said chairman and CEO Robert J. Myers. "However, we did experience improved cigarette sales throughout the third quarter and continue to drive prepared food sales with several operational initiatives being implemented within our store base."

Prepared Food & Fountain: The goal for fiscal 2013 is to increase same-store sales 11% with an average margin of 61.1%. For the quarter, same-store sales were up 11.6% with an average margin of 60.6%.

For the year, same-store sales were up 10.2% with an average margin of 62.2%. Year-to-date, total sales were up 14.8% and gross profit rose 17.7% to $265.1 million.

"An increase in cheese prices coupled with some other input cost increases pulled the margin back this quarter," said Myers. "Fortunately same-store sales continue to perform well due in part to expanded 24-hour operations, pizza delivery and major remodels."

During the company's third-quarter fiscal 2013 earnings conference call on Tuesday, CFO William Walljasper said, "For the most part, we have delivered pizza, maybe some two-liter sodas, but as we get more comfortable in that particular initiative, it certainly now [within] the realm of possibility to expand the delivery options."

He said, "During the quarter, we added 50 more locations to the pizza delivery program and completed 27 major remodels. The combination of all the operational initiatives accounts for approximately half of all same-store sales increases. During the remainder of this fiscal year, we plan to add 50 more stores to the pizza delivery program."

A total of about 225 stores will be delivering pizza.

The company has not announced specific plans for the next fiscal year. "But certainly, what we see is that the stores that have a little bit larger population seem to be ones that really are doing well for us in that area," he said. "We think at least double the number that we currently have is a reasonable number for pizza delivery program. ... We're pretty early in that particular initiative, so time will tell as far how we can push that out."

Grocery & Other Merchandise: Casey's annual goal is to increase same-store sales 6.2% with an average margin of 32.7%. For the quarter, same-store sales were up 3.2% with an average margin of 31.7%.

"Cigarette sales stabilized in the third quarter due to retail price adjustments made throughout the fiscal year," said Myers. "Although these adjustments adversely impacted our overall margin, the margin decline was partially offset by a more favorable product mix within the grocery and other merchandise category."

For the nine months ended Jan. 31, 2013, same-store sales were up 1.3% with an average margin of 32.9%. Total sales for the year are up 4.3% and gross profit increased 6.2% to $354.7 million.

Gasoline: The company's annual goal is to increase same-store gallons sold 1% with an average margin of 14.0 cents per gallon. For the third quarter, same-store gallons sold were up 0.6% with an average margin of 13.8 cents per gallon.

"The retail price of fuel was in-line with the prior year's third quarter, which helped improve same-store gallons sold," said Myers.

For the first nine months of the fiscal year, total gallons sold were up 3.6% with an average margin of 14.6 cents per gallon. Year-to-date same-store gallons sold were flat compared to prior year.

Operating Expenses: Year to date, operating expenses increased 11.1% to $569.3 million. For the third quarter, operating expenses were up 12.2%. Included in the third-quarter results was a $1.1 million impairment charge stemming from the planned closure of several stores in a recent acquisition.

"The majority of the operating expense increase for both the quarter and year were from newly built, acquired and replaced stores over the past two fiscal years, along with the continued roll-out of 24-hour stores, pizza delivery and major remodels," said Myers.

Store-level operating expenses for locations not impacted by the initiatives were up approximately 3.8% for the quarter and 4% for the first nine months.

Expansion: The annual goal is to increase the total number of stores 4% to 6%. Through the first nine months of the fiscal year, the company opened 18 newly constructed stores and 21 acquired stores. It also replaced 22 stores.

"We will continue to update and improve our existing store base while maintaining our steady growth of new and acquired stores," said Myers.

Casey's currently has 21 new stores and 12 replacement stores under construction, as well as 10 stores under written agreement to acquire. The company also has 50 new sites and 25 replacement sites under contract to purchase.

Casey's General Stores Inc., Ankeny, Iowa, owns and operates approximately 1,750 convenience stores in 14 Greater Midwestern states--Iowa, Illinois, Missouri, Kansas, Nebraska, Minnesota, Indiana, South Dakota, Wisconsin, Arkansas, Kentucky, Oklahoma, North Dakota and Tennessee.

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