A quick look at the Grocery and Merchandise category
Grocery and Merchandise, the second-largest revenue-generating category of Casey’s General Stores (CASY), is the company’s biggest profit generator. While it accounted for about 29% of Casey’s top line in fiscal 3Q16, it generated more than 38% of the company’s gross profit.
Performance of Grocery and Merchandise in fiscal 3Q16
Total sales in the Grocery and Merchandise category rose by 9.9% YoY (year-over-year) in fiscal 3Q16 to reach $453 million, driven by a 7.1% rise in same-store sales. The company experienced double-digit sales growth in almost every area of this category, including cigarettes.
The gross margin of this segment stood at 31.2%, below the annual target of 32.1%. “Cigarette sales continue to benefit from lower retail fuel prices, and sales in the entire category performed well in the third quarter,” said company chairman and CEO Robert J. Myers.
Myers added, “The margin in the third quarter was down from our annual goal due to a larger sales contribution of lower-margin products. However, it was in line with third-quarter margin last year.”
What is the company doing to stay competitive?
Casey’s stores located in smaller towns face competition primarily from other local grocery and convenience stores. Stores located in more heavily populated communities compete with larger grocery chains such as Kroger (KR), drugstore chains such as Walgreens (WBA), and traditional convenience stores such as QuikTrip, Kwik Trip, CST Brands (CST), and Murphy USA (MUSA).
The company is taking several operational initiatives such as converting stores into a 24-hour format, undergoing major store remodeling, and opening new stores in order to stay competitive and attain sales and margin targets. For fiscal 2016, Casey’s has an annual goal of building or acquiring 75–113 stores, replacing ten existing locations, and performing 100 major remodels.
Investors looking for exposure to Casey’s can invest in the iShares Russell 2000 Growth ETF (IWO), which has around 0.53% of its holdings invested in the company.