1Q18 Earnings Preview: Can Casey's Beat Expectations This Time?

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Part 3
1Q18 Earnings Preview: Can Casey's Beat Expectations This Time? PART 3 OF 4

A Look at Casey’s Fiscal 2018 Goals

Grocery and Merchandise

The Grocery and Merchandise category is Casey’s General Stores’ (CASY) second-largest revenue segment. This category has recorded a recent slowdown in growth, mainly due to food deflation, an increase in promotional activities by big-box retailers such as Walmart (WMT), and a growing pricing spread between food away and food at home.

A Look at Casey&#8217;s Fiscal 2018 Goals

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Grocery and Merchandise sales grew 5.7% YoY (year-over-year) during fiscal 2017, compared with the average growth of 10% seen over the last three years. Casey’s missed sales comp and margin targets for this category during all four quarters of 2017.

Sales comps grew 2.9% during the year, compared with the annual goal of 6.2%. The average margin stood at 31.5%, falling short of the 32% goal.

Management has now set lower targets for fiscal 2018. It expects sales to grow 2%–4% during the year and the average margin to be 31%–32%.

Prepared Food and Fountain

Same-store sales grew 4.8% for the Prepared Food and Fountain category, falling short of the 10.2% annual goal. The average margin was 62.3%, slightly short of the annual goal of 62.5%. Despite falling short of targets during the year, the company has remained positive about the future of this segment.

“We are encouraged about the future of this category as we continue to enhance digital engagement with our customers, roll out operational growth programs to more stores, and have locked in favorable cheese costs through December of 2017,” stated Casey’s president and CEO Terry Handley during the first quarter’s earnings call.

However, management has toned down targets for this category as well. Sales comps are targeted to grow 5%–7% (versus 10% last year), while the average margin is expected to be 61.5%–62.5% during the year.

Investors looking for exposure to Casey’s could invest in the First Trust NASDAQ Retail ETF (FTXD), which invests~2.8% of its holdings in the company.


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