Casey's (CASY) Value Creation Plan Likely To Propel Sales

Casey's General Stores, Inc. (NASDAQ:CASY) is on track with its Value Creation Plan, which is likely to boost top-line growth. This includes new fleet card program, price and product optimization, digital engagements comprising mobile app and online ordering capabilities, cost-containment efforts, and capital reallocation plan. Management is also focusing on improving distribution efficiency.

The company’s cost-reduction initiatives are likely to result in savings of approximately $200 million in store-level operating expenditures by fiscal 2021. As part of the fuel product optimization plan, the company has converted 592 stores to biodiesel and 144 to premium or diesel. In this regard, Casey’s had previously converted 184 stores to premium during the third quarter of fiscal 2019.

Apart from these, the company’s digitization efforts will help create a seamless shopping experience online as well as in-store, and facilitate same-store sales growth. Further, the company’s price and product optimization strategy will help augment sales and fuel margin. In fact, the Zacks Consensus Estimate for sales in fiscal 2019 is pegged at $9.27 billion that depicts year-over-year growth of 10.4%.

Such well-chalked plans have been yielding positive results, apparent from the company’s impressive bottom-line performance in third-quarter fiscal 2019. In fact, the bottom line surpassed the Zacks Consensus Estimate for the third straight time in the fiscal third quarter. We note that this Zacks Rank #3 (Hold) stock has gained 21.3% in the past six months, outperforming the industry’s growth of 20.2%.

Hurdles to Overcome

Despite such upsides, we noticed that Casey’s witnessed soft same-store sales in the fuel segment for the past two quarters. Fuel gallons same-store sales decreased 3.4% during the third quarter of fiscal 2019, owing to the company’s earlier decision to reduce the number of 24-hour locations. Also, fuel gallons same-store sales declined 1.1% in the second quarter. Management now envisions fiscal 2019 fuel gallons same-store sales to decline 0.5-2% compared with the earlier forecast of down 1% to up 0.5%.

Further, rise in operating expenses of 5.7% during the third quarter of fiscal 2019, due to addition of 103 stores, is a concern. Additionally, higher credit card fees and fleet fuel costs may increase the burden of operating expenses. Casey’s now expects operating expenses to increase in 7.5-9.5% during fiscal 2019. This, in turn, may pose threat to margins and the bottom line in the near term. We note that the Zacks Consensus Estimate for earnings in the fourth quarter of fiscal 2019 stands at 47 cents, which reflects a decline of more than 7% year over year.

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