ANKENY, Iowa -- Low gasoline prices and higher foodservice sales helped forge a record third quarter for Casey's General Stores Inc. In an earnings call on March 10, executives highlighted the many opportunities--and some challenges--that the chain saw in the quarter ending Jan. 31, 2015. They also hinted that store growth and acquisitions could be on the horizon.
- The low gas price boost. With gasoline prices for the quarter averaging $2.36 (versus $3.05 for fiscal third-quarter 2014) and gallons for the fiscal year up 8.7%, Casey's has seen a favorable impact on other parts of the business, said CFO Bill Walljasper.
For example, cigarette sales have shifted toward more premium brands.
"We believe this is a function of more discretionary income in our consumers' pockets, in a sense maybe trading up to a premium brand," he said.
There has been a "nice uptick" in same-store customer count, which he credited to low fuel prices and a high Powerball jackpot in January and February.
Whether more customers who buy gas are going into the store and making a purchase is not easy to measure, because gas customers often pay by credit card and make a purchase inside with cash; however, Walljasper said the average basket ring inside the store has increased over the prior quarters--which he again credited to low fuel prices.
Credit-card use was up more than 14% for the quarter, although fees were "flattish" compared to third-quarter 2014 because of lower fuel prices. Customers do not necessarily switch from paying with credit to cash when retail fuel prices fall, Walljasper said, likely because they are already accustomed to paying with plastic.
- New distribution center and potential for acquisitions. In Terre Haute, Ind., Casey's is constructing its second distribution center, set to open in early 2016. When asked whether the facility had mainly cost-cutting benefits or was being used as a launch pad for future acquisitions, Walljasper confirmed the answer was both.
"We think there is opportunity, once the facility is operational, to see efficiencies," he said. "We do believe that it opens a different area, geography for us to look at not only new-store construction but also acquisitions."
He added that Casey's has recently added staff to its store development team, and plans to add even more in the months ahead.
The chain continues to look at potential acquisitions, although timing is important, he said. "We're not going to necessarily go out and purchase something on an unsustainable gas margin," he said. "Right now the multiples are still in that 5X to 7X. Once the second distribution center gets up and operating, it will open up a different and expanded geography."
- New market growth. In its newest markets of Kentucky, Tennessee and Arkansas, Casey's has seen "marked improvement in brand recognition," said Walljasper. In Arkansas, the biggest new market by number of stores, same-store sales are up in the high teens, he said.
- Pizza delivery, online ordering plans. Approximately 340 Casey's stores are currently delivering pizza. While the chain originally planned to add delivery capability to 80 sites this fiscal year, it ultimately only added it at a dozen after deciding to defer the rest to the next fiscal year. Casey's first wants to get its online pizza ordering operational--it's available currently in the Des Moines metropolitan area--before it adds more stores with delivery.
- Staying on top of "stales." Average prepared food margin was down 210 basis points in third-quarter 2015 from the year prior, partly because of increased stales. Product is made fresh with a shelf-life of only one hour, Walljasper said, and so to meet consumer demand, some product will inevitably be tossed.
Casey's production planners are working on matching the food offer to consumer demand by location. That being said, the retailer sees increased stales as a positive. "We're getting that product out into the warmers and selling that product," Walljasper said, adding that the chain is focused on gross-profit dollars above all. In fact, Casey's has created a new position--foodservice manager--to focus on optimizing prepared food gross-profit dollars.
There are also price increases at play--coffee was up 46% in third-quarter 2015 versus third-quarter 2014, although it has since come down, Walljasper said. Meat prices also rose. And Casey's switched to a new, more expensive coffee cup.
Costs for cheese, which are considerable for a chain whose main foodservice offer is pizza, are under control. Casey's average cheese cost in 2014 was $2.58 per pound, while it has locked in a cost of $1.89 per pound for the remainder of 2015. Every 10-cent swing in cheese costs equates to 35 to 40 basis points to overall margin, Walljasper said.
- Expanded coolers, 24-hour operation. Casey's has add expanded coolers to all major remodels, replacement and new stores. To date, between 500 and 600 sites have the larger fixtures. Even more stores--825--now are open 24 hours a day. Casey's has moved more than 100 stores to 24-hour operation in fiscal 2015. While the chain considers hours on a site-by-site basis, two-thirds of sites opened in the last few years are 24-hour locations.
Based in Ankeny, Iowa, Casey's owns and operates more than 1,850 convenience stores in 14 states throughout the Midwest.
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