Wells Fargo weighs in on Casey’s pizza plans and financial report.
Casey’s General Stores has released its second quarter 2015 EPS (earnings per share) and also recently announced changes to its pizza delivery strategy.
Casey’s reported diluted earnings per share of $1.28 for the second quarter of fiscal 2015 ended Oct. 31, 2014, compared to $1.01 for the same quarter a year ago. This exceeded expectations, Wells Fargo Securities weighed in, noting that Casey’s strong top-line growth and fuel margins offset prepared food margin pressure.
Year to date, diluted earnings per share were $2.56 compared to $2.40 a year ago.
“Total inside sales were up 13.6% and total fuel gallons sold were up 8.7% for the quarter,” said Chairman and CEO Robert Myers. “The positive sales performance, along with strong fuel margins, helped offset food commodity pressures the Company has experienced throughout the year.”
Pizza Plans
While it remains committed to expanding its pizza delivery program, Casey’s is discontinuing pizza delivery in 21 locations (approximately 5% of the delivery stores), according to Wells Fargo Securities.
The chain is also reducing delivery to four days per week in 60 stores, and reducing delivery hours in all other delivery stores, as some locations are not generating enough revenue to justify the cost, Wells Fargo noted.
Casey’s does still plan to expand the program in an approximately 70 additional stores in fiscal year 2015 and will continue to roll out pizza delivery in the future, focusing on highly populated markets.
“Although we’re encouraged to see Casey’s proactively addressing underperforming delivery stores, we are concerned expansion of this program could be more limited than originally thought,” said Bonnie Herzog, managing director, beverage, tobacco and convenience store research for Wells Fargo.
Q2 Results
Fuel – The Company’s annual goal is to increase same-store gallons sold 1% with an average margin of 15.3 cents per gallon. For the second quarter, same-store gallons sold were up 2.3% with an average margin of 19.5 cents per gallon. The Company sold 13 million renewable fuel credits for $6.3 million during the second quarter. “We believe same-store fuel sales have benefited from the lower retail prices as well as our fuel saver program,” said Myers. “Fuel margins remained strong through the second quarter due in part to a steady decline in wholesale costs.”
Total gallons sold for the year were up 8.8% with an average margin of 19.2 cents per gallon. Year to date, same-store gallons were up 2.6%.
Grocery and Other Merchandise – Casey’s annual goal is to increase same-store sales 5.3% with an average margin of 32.1%. For the quarter, same-store sales were up 6.6% with an average margin of 32.3%. Myers stated, “The entire category continued to perform well through the second quarter. Packaged beverages are performing especially well, due in large part to our expanded cooler set in new, remodeled, and replaced stores.”
Year to date, total sales for the category were $945.5 million and total gross profit was up 12.3% to $306.7 million. Same-store sales for the six months ended were up 7.2%.
Prepared Food & Fountain – The goal for fiscal 2015 is to increase same-store sales 9.5% with an average margin of 60%. For the second quarter, same-store sales were up 11.1% with an average margin of 59.3%. “Our operational initiatives continue to drive sales in the category, and we were able to implement strategic price adjustments at the beginning of the fiscal year,” said Myers. “While the margin has been impacted by high commodity costs, we have experienced a reduction in cheese costs since the end of the quarter.”
Total sales for the category were up 17.1% to $395.8 million year-to-date while gross profit rose 12.9% to $235.8 million. Year to date, same store sales are up 11.1%.
Operating Expenses – Year to date, operating expenses increased 13.1% to $489.1 million. For the second quarter, operating expenses were up 13% to $244.8 million. “Operating expenses are up primarily due to newly built, acquired and replaced stores, along with the operational initiatives we have implemented to drive inside sales,” said Myers. “Store level operating expenses for locations that have not been impacted by the initiatives were up 4.2% for the quarter.”
Expansion – The Company’s annual goal is to build or acquire 72 to 108 stores and replace 25 existing stores. As of the end of the second quarter, the Company opened 21 new stores and acquired 29 stores. The Company also completed 13 replacements.
“The Company is in excellent position to meet our expansion goal,” stated Myers. “We are pleased with the initial performance of our recently acquired chain of stores in the Fargo, N.D. area, and our pipeline of new store construction sites is very full.”
Casey’s currently has 26 new and 14 replacement stores under construction, as well as nine store acquisitions, 44 new sites, and 31 replacement sites under contract to purchase.
“We believe Casey’s will continue to deliver strong results for FY2015/FY2016,” Herzog said.
