Casey's Inside Profit Up, Revenue Down

Casey's General Stores (CASY -0.37%), a major convenience store operator, released its earnings for its fiscal 2025 second quarter on Dec. 9. It significantly outperformed expectations on earnings per share (EPS), with diluted EPS rising 13.1% to $4.85 compared to the analysts' consensus estimate of $4.29. However, revenue for the quarter, which was down 2.9% year over year to $3.947 billion, fell short of the expected $4.028 million. Overall, the quarter displayed robust growth in inside sales and profits, but the company faced challenges in the fuel segment.

Source: Analysts' estimates for the quarter provided by FactSet.

Business Overview and Recent Focus

Casey's General Stores operates a regional network of 2,685 convenience stores, primarily in smaller towns and communities. Its business strategy includes an emphasis on prepared foods and self-pumped fuel, and it caters to areas often underserved by national chains. Recently, Casey's has focused on expanding its store count through acquisitions, such as the purchase of 198 CEFCO Convenience Stores, a deal it closed after the end of the reported quarter. Key success factors for the company include efficient cost management and bolstered margins through high-margin food offerings, particularly in prepared foods like its signature pizzas.

The company has seen ongoing growth in prepared food and beverage sales, reflecting consumer preferences for quick, high-quality meals on the go. Casey's management has efficiently managed labor costs, showing a strategic focus on optimizing operations. Fuel sales, while historically central to revenue, have recently posed challenges as market volatility has affected margins.

Quarterly Highlights and Challenges

The second quarter of fiscal 2025 saw notable achievements and challenges for Casey's. Inside sales (i.e., groceries, general merchandise, prepared food, and beverages) and gross profit markedly improved, with inside same-store sales rising by 4.0%, driven by higher sales of prepared foods and beverages. This segment delivered a 12.0% increase in gross profit, achieving $619.7 million, and saw a margin increase of 110 basis points to 42.2%. In contrast, fuel sales performance was weaker, with a decrease in same-store gallons by 0.6% and a decline in fuel margin from 42.3 cents to 40.2 cents per gallon. The overall fuel gross profit saw a slight increase to $312.3 million.

From a strategic perspective, Casey's robust expansion strategy was a significant highlight. Its acquisition of 198 CEFCO stores underlined its commitment to increasing its presence in underserved markets. Acquiring these stores aligns with Casey’s long-term growth initiatives, although the costs related to these acquisitions have pressured short-term profit margins.

Casey's faces internal challenges tied to integrating these new acquisitions smoothly, along with managing costs. Economic factors also pose a risk; notably, the lingering impacts of inflation are affecting consumer purchasing power and could impact its margins. Total revenue fell short primarily due to a downturn in fuel sales.

Casey's announced a planned increase in operating expenses of 11% to 13%, which includes costs associated with the integration of its new acquisitions. These additional expenses, however, are expected to support long-term growth and profitability.

Looking Ahead

Casey's management anticipates a solid trajectory, projecting at least a 10% EBITDA increase for fiscal 2025. The integration of CEFCO stores is expected to contribute significantly to future earnings once fully assimilated. The company remains focused on maintaining profitability through strategic expansions and enhancing its product offerings, particularly in high-margin prepared foods.

Investors should keep an eye on how Casey's manages its operating expenses and integration costs, as well as economic pressures.