An Insight Into Casey's
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It is quite likely that if you were reading this article, you would have aided the sales for the company I am analyzing, by purchasing some items for your daily needs. Since ages, Casey’s General Stores Inc. (NASDAQ: CASY) has been serving people with clean stores and dedicated staff for their everyday items such as groceries, fuel, cigarettes, etc. and I'm quite sure, they are doing it well. They recently reported fiscal first-quarter profit for the year 2013 that beat market expectations, although its revenue fell below forecasts. Let’s have a look at the numbers.
The company posted a better than expected quarterly profit of $39 million, or a diluted EPS of $1.01, compared to $39.4 million, or $1.03 cents per share, a year earlier. Although the expectation was 95 cents a share. Its total revenue was nearly flat at $1.87 billion as increased sales of beer, prepared foods and other items in its stores offset weaker gasoline revenue. Total sales for the category were up 15.2% to $142.7 million, and gross profit increased more than 19.4% to $90.6 million.
This had been a busy quarter for the company, completing 26 major remodels, adding pizza delivery to a number of stores and turning many of its sites into 24-hour stores. Operating expenses in the quarter were up 10.5% to $189.4 million. Nearly 75% of this increase was due to a rise in wages, primarily related to operating more stores this quarter compared to the same period a year ago. Also, the increase in expenses can be attributed to the increase in operational initiatives taken before and during the quarter.
The overall results for the company reflect good gains inside the stores. Let's now take a look at the different segments and their performance in the first quarter.
Segment Analysis:
Gasoline: For the first quarter, same-store gallons sold were down 0.2% but total gallons sold during the quarter increased 3.7% to 394.1 million. A significant drop was experienced in the same store customer traffic due to hot weather conditions in major areas of their marketing territory. The average retail price during this time was $3.38 per gallon compared to $3.63 in the same quarter last year. Owing to a lower gasoline margin, gross profit in the quarter was down 10% to $58.8 million.
Grocery and Other Merchandise: Sales in this category reflected a strong picture in the first quarter, despite being affected by the previously mentioned hot weather conditions and changes in the cigarette environment. Excluding cigarettes, same store sales were up 6.4% during the quarter. The gross profit for this segment rose 8.5% to $128.8 million. An enhancement in the revenue is expected in the fiscal 2013 owing to the roll out of additional operational initiatives.
Prepared Food & Fountain: This segment continues to perform pretty well. The total sales were up 15.2% to $142.7 million for the quarter. The primary reason behind the surge can be attributed to lower commodity costs and implementation of a price increase.
Competitor Analysis:
Casey’s distantly competes with companies in the likes of The Kroger Co. (NYSE: KR) and Target Corporation (NYSE: TGT). Kroger recently reported flat quarterly earnings as it faced higher expenses and increased tax rate. The company has tried to offset the cost impact by introducing more store-brand items, which reduces the need for stocking up on brand-name products.
Target Corporation, the second largest discount retailer in the United States, serves guests at around 1700+ stores with its excellent in-store services. Recently, the board of directors declared a quarterly dividend of 36 cents per common share.
The retail sales are looking positive for now as customers are prioritizing where their dollars go in the wake of a sluggish economy.
Plans Ahead?
To begin with, Kum & Go and Casey’s announced that they have signed an Asset Purchase Agreement for Casey’s to acquire 22 convenience stores from Kum & Go. The transaction is expected to close in November 2012.
The company's annual goal is to increase the number of stores 4 to 6%. It has 18 new stores and 16 replacement stores under construction and is anticipating opening 30 to 35 new store constructions by the end of the fiscal year.The store count at the end of the Q4 2012 was 1699.
One of the progress points to look forward is the conversion of 26 locations to a 24-hour format and addition of further 50 stores to the pizza delivery program during the first quarter.
Stock to Hold?
With all the data points elaborated above, the question that stays is whether Casey's should be a part of the equity portfolio.
With regards to the sales figures for the company, things are looking brighter with the weather conditions improving, leading to an increase in same-store customer traffic. In, August, the same store customer count was up 2.5% from a negative 1% in the hot month of July. Investors can look to some improvement as the store base grows and the company's capex needs shrink as a percentage of sales.
The balance sheet of the company continues to be pretty strong with cash and cash equivalents of $89.6 million. It has generated positive and substantial cash flows from operations to the tune of $106.5 million in the quarter. The P/E ratio stands at 19.4, which is quite indicative of the expected increase in the earnings. Moreover, at its September meeting, the board of directors declared a quarterly dividend of $0.165 per share.
But more than the numbers on the financial statements, there is the trust and the brand value that Casey’s has created with the customers. The chain of stores has worked right on its fundamentals by providing a good shopping experience.
Also, it’s quite evident that the company has well estimated its capacity and taken small but substantial steps towards sustainable progress.
I would not hesitate in recommending Casey’s to be a convenient inclusion in your equity portfolio.
MihirMehta has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
