Casey’s General Store (CASY) Benefiting from Oil Slump
On May 16th, Casey’s General Stores reported the following solid April YoY metrics;
- Same-Store sales for prepared food & fountain increased 7.0%
- Same -Store grocery and other merchandise increased 5.5%
- Same-Store fuel gallons sold increased 4.5%
Casey’s General Stores (CASY) operates nearly 1,900 conveniences stores in 14 Midwestern states. It sells a sizeable selection of nearly 3,000 products including packaged and fresh foods, pizza, donuts, and sandwiches; beverage and tobacco products as well as gasoline and diesel.
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Small town niche – CASY focuses on smaller communities that have limited, or no access to supermarkets and grocery stores. 57% of its stores are in locations with less than 5,000 people, and management states that they can operate profitably in a community close to a busy highway with a population of as few as 400.
- 330 stores offer pizza delivery with online ordering app
- Lower price of gasoline has decreased that segment’s revenue, however customers have been purchasing other, higher-margin items in-store
- More locations being converted to 24hr operation combined with the addition of pizza delivery should increase same-store comps
- In-store sales margins benefiting from lower raw material costs such as cheese (for their pizzas) and coffee
- Lower tobacco product sales
- Unpredictability of commodities such as gasoline, meat and cheese
- Highly competitive market
Competition – Casey’s has outperformed both Murphy USA (MUSA) and CST Brands (CST) in same-store Gas Gallons growth over the past four quarters, and has under-performed only once over the same period in Fuel Margin category.
In same-store merchandise growth and profit margins, CASY has been the clear leader of the three.
2016 Plans – During 2016, CASY plans to build or acquire 75 to 113 stores, replace 10 existing locations and remodel 100. A new distribution center was opened in February 2016. Located on the Eastern fringes of their operating zone in Terre Haute Indiana, it will reduce delivery times and costs. It is also ideally located for a possible expansion further East and South.
Analyst Coverage is very limited.
- RBC Capital – Outperform $129
- Goldman Sachs – Neutral $129
- BMO Capital – Market Perform $122
- Jefferies – Hold $102
Bottom Line – Lower gasoline prices have benefited CASY as consumers are not only driving more, they are also left with more money in their wallets after filling up their gas tanks. Fuel margins are typically much lower than in-store items like snacks and drinks, and with gasoline prices forecast to remain near present levels into the summer, it should bring continued spending on higher margin merchandise.
CASY is set to report earnings after hours June 6th. The data is pointing towards a good quarter.