Why Casey’s missed its fiscal 3Q16 sales estimates
Casey’s General Stores (CASY) reported a 6.3% YoY (year-over-year) fall in total sales to $1.6 billion in fiscal 3Q16, missing consensus estimates by $29 million. The main reason for this fall was a 20% fall in the price of retail fuel, which was partly offset by a 5.7% rise in gallons sold and by an increase in CASY’s store base.
As per Wall Street analysts’ consensus estimate, CASY is expected to a witness a continued fall of more than 5% in its top line in fiscal 4Q16.
Casey’s gross margin improved in fiscal 3Q16
Casey’s, however, reported an improvement in its gross margin during the quarter. Its gross margin rose by 271 basis points to 23.7% of sales in fiscal 3Q16 due to higher margins in the prepared food category.
The company’s gross margin has shown significant improvement over the past several quarters. It rose from 14% in fiscal 4Q12 to 23.7% in fiscal 3Q16. Wall Street expects the company’s gross margin to touch 24.7% of sales in fiscal 4Q16.
Higher operating expenses resulted in a fall in operating profit
CASY’s operating expenses rose by 8.7% YoY to $259 million in fiscal 3Q16. This rise was driven by the company’s ongoing operational initiatives, such as the rollout of its 24-hour conversions, the addition of a pizza delivery service, major remodels, and a rise in its store base.
As a result, Casey’s operating profit fell by 6.3% YoY to $68 million. However, its operating margin remained flat at 4.3% during the quarter. Its net profit stood at $38 million, falling 3.8% compared to fiscal 3Q15.
CASY’s top line and bottom line have been vulnerable to fuel price volatility, as fuel constitutes more than 65% of the company’s total sales.
Comparing CASY’s profitability to its peers’
Casey’s has better margins and profitability than its peer group. The company’s trailing-12-month net profit is 3.0% of sales, higher than CST Brands’ (CST), Murphy USA’s (MUSA), and Sunoco’s (SUN) trailing-12-month net margins of 1.4%, 1.9%, and 0.92%, respectively.
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.