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Why Casey’s Prepared Food Business Disappointed in Fiscal 2016

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Dec. 4 2020, Updated 10:53 a.m. ET

Casey’s misses its same-store target for the prepared food business

Casey’s General Stores’ (CASY) prepared food and fountain segment is its most important segment in terms of profitability. Despite accounting for only about 14% of total sales in fiscal 4Q16, the segment contributed ~35% of the company’s gross profit.

However, the company failed to meet its prepared foods same-store sales growth expectations in fiscal 2016.

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What was the reason for the same-store sales miss?

Though Casey’s recorded an 8.4% rise in its prepared food and fountain same-store sales in fiscal 2016, it fell short of its target of a 10.4% rise.

While discussing the company’s same-store performance miss, Terry Handley, president and CEO of Casey’s General Stores, said, “Several of our ongoing growth programs were implemented toward the end of fiscal 2016, which contributed to same-store sales falling below our annual goal in the back half of the year. We also cycled against strong results from the same period a year ago.”

For the three-month period ended April 30, 2016, same-store sales of the prepared food and fountain segment rose by 8.2%.

Average margin for the segment rose by 280 basis points in fiscal 2016

Casey’s outperformed on the segment’s target margin of 60.8%, reporting an average margin of 62.5% during in 2016 and 61.9% in fiscal 4Q16.

Casey’s fiscal 2016 average margin rose by 280 basis points compared to fiscal 2015 as it benefited from lower commodity costs, according to Handley in the company’s press release.

Handley added that the company remains optimistic about the prepared food and fountain segment going forward. It has implemented online ordering in all of its stores, locked in favorable cheese costs through the end of 2016, and continued to roll out major remodels, 24-hour conversions, and pizza delivery services.

For fiscal 2016, total sales of Casey’s prepared food and fountain business rose by 12.8% YoY (year-over-year) to $880.7 million. Casey’s gross profit also rose 18.1% YoY to $550.3 million.

Investors looking for exposure to Casey’s can invest in the iShares S&P Mid-Cap 400 Growth ETF (IJK), which has around 0.36% of its holdings invested in the company.

IJK has exposure to midsize US companies whose earnings are expected to grow at above-average rates compared to the Market. The ETF invests 5.8% of its holdings in consumer staple companies such as Sprouts Farmers Market (SFM), SuperValu (SVU), and Hain Celestial (HAIN).

Read the next two sections for a look at Casey’s stock market performance and current valuations.

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