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Casey's Sees Soft Fuel Same-Store Sales: Can Growth Plans Aid?

Zacks Equity Research

Casey’s General Stores, Inc. CASY has been grappling with soft fuel gallons same-store sales. We note that fuel sales fell 6.6% during the second quarter of fiscal 2020. Also, fuel gallons same-store sales decreased 1.8% during the same period. This follows declines of 2%, 2.8% and 3.4% witnessed in the preceding three quarters.

Management now envisions fiscal 2020 fuel gallons same-store sales to be down 1% to up 0.5%. Casey's had earlier anticipated fuel gallons same-store to be down 0.5% to up 1%.

Further, elevated operating costs remain a headwind. Operating expenses rose 8.5% in the fiscal second quarter, owing to 84 additional stores from the prior-year period. This follows an increase of 5.7% and 9.6% during thepreceding two quarters. The company continues to anticipate rise in operating expenses of 7-9% for fiscal 2020.

Same-store operating expenses grew 2.6% in the second quarter. Increase in operating expenses comprised the impacts of senior leadership transition costs. For the fiscal year, management expects these costs to have an adverse impact of $6 million or 12 cents per share on earnings.

Shares of the Zacks Rank #3 (Hold) company have dipped 4% in the past three months, underperforming the industry’s decline of 3.3%. Notably, the Retail-Wholesale sector grew 8.8% in the said period.

 

 

Growth Plans on Track

Despite such downsides, Casey's remains on track with its value creation plan to improve sales and profitability. This includes a new fleet card program, price and product optimization, loyalty program, digital engagements comprising mobile app and online ordering capabilities, cost-containment efforts, and capital-reallocation plan. With such well-chalked out plans on board, management estimates to realize savings of $200 million in store-level operating expenditure by fiscal 2021.

Moreover, its fleet card program — which involves managing and monitoring of initial sales, back-end system processing, billing, and other consumer-oriented services — is likely to lift fuel sales. The program is also anticipated to be accretive to in-store sales.

Apart from these, the company launched the Caseys.com e-commerce website, rolled out a new mobile app and initiated a fuel price optimization platform across all outlets. Further, it launched its first-ever loyalty program, wherein customers can gain points from everyday purchases and redeem the same for fuel discounts, Casey’s Cash or donate to a local school.

Moving on, the company’s price and product optimization strategy will likely help augment sales and fuel margin. During the second quarter of fiscal 2020, fuel margin of 22.9 cents per gallon increased 14.5% year over year. For fiscal 2020, management now envisions fuel margin of 21-23 cents per gallon, whereas it reported 20.3 cents in fiscal 2019. Casey's had earlier forecast fuel margin of 20.5-22.5 cents per gallon for fiscal 2020.

Stocks to Consider

Costco Wholesale Corporation COST presently has a long-term earnings growth rate of 8.1% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ross Stores ROST currently has a long-term earnings growth rate of 10.5% and a Zacks Rank #2.

Best Buy Co., Inc. BBY has a long-term earnings growth rate of 8.7% and a Zacks Rank #2 at present.

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