Casey's General Stores (CASY) Earnings Preview: Uncertain Prospects, Moderating Travel, and Consumer Concerns
AInvestWednesday, Sep 4, 2024 3:00 pm ET
3min read
CASY --

Casey's General Stores (CASY) is set to release its first-quarter (July) earnings results today after the market close, with an earnings call scheduled for tomorrow at 8:30 a.m. ET.

The company's earnings per share (EPS) is expected to remain flat year-over-year at $4.50, while revenue is anticipated to increase by 7% to $4.15 billion. These figures suggest a cautious outlook for the retailer, which relies heavily on fuel sales and in-store purchases to drive growth.

CASY has built a reputation for delivering consistent bottom-line results, having only missed EPS expectations three times over the past five years. However, revenue has been less predictable, often reflecting the volatility in fuel prices and the impact of consumer behavior on in-store purchases.

The upcoming report will be closely watched for signs of how these factors are playing out in the current economic environment.

Key Metrics to Watch: Inside Sales and Fuel Margins

Investors typically pay close attention to Casey's inside same-store sales growth, which is a crucial metric indicating the health of its in-store business. In the fourth quarter (April), Casey's posted a robust +5.6% growth in inside sales, translating to a +12.4% comp on a two-year basis.

This performance was supported by strong margins, which ended the year at 41.2%, and the company expects similar margins to be sustained through FY25. For FY25, Casey's is projecting inside same-store sales growth of +3.0-5.0%, with the midpoint aligning closely with the +4.4% growth observed in FY24.

Casey's product assortment, particularly its emphasis on prepared foods like pizza, sets it apart from other convenience store chains. Recent marketing efforts have focused on expanding its pizza offerings, including the introduction of thin-crust pizza and a refreshed sandwich menu.

These initiatives have been well-received and contributed to a solid performance in Q4. The company's ability to innovate and adapt its product line is a positive indicator for future growth, particularly as it aims to maintain its appeal to value-seeking consumers.

Fuel sales remain the cornerstone of Casey's business model. However, the company's performance in this segment has been less robust compared to its in-store offerings. In Q4, same-store fuel gallons sold increased by a modest +0.9%, while fuel margins averaged just under $0.40 for FY24. Given the inherent volatility in gasoline prices, Casey's does not provide fuel margin guidance.

Nonetheless, it has forecasted same-store fuel gallons sold for FY25 to range between negative 1% and positive 1%, indicating uncertainty in the face of fluctuating fuel costs and consumer behavior.

Challenges Ahead: Moderating Travel Demand and Discretionary Spending Pressures

Casey's predominantly operates in the Midwest, where many customers rely on driving to work and school, making them dependent on fuel purchases. The company's success is partly tied to this commuter traffic, which benefits both its fuel sales and inside store sales.

However, recent trends suggest that travel demand is moderating, which could weigh on Casey's growth prospects. Additionally, a weaker discretionary spending environment may result in fewer purchases of in-store items as customers become more cautious with their spending.

The economic backdrop could pose significant challenges for Casey's as it navigates a period of uncertainty. With travel demand showing signs of slowing and discretionary spending under pressure, the company may face headwinds that impact both its fuel and inside sales growth in the coming quarters.

The current environment calls for a cautious approach from investors as the company releases its Q1 results and potentially provides further guidance for FY25.

Market Sentiment and Stock Performance

Casey's stock has experienced a gradual decline since reaching an all-time high following its Q4 earnings report in late July, falling by approximately 11%. Shares are currently testing a critical support level around $350, and there is a notable gap to fill from the move higher in late July.

Should the moderating travel conditions and reduced discretionary spending begin to significantly affect Casey's Q1 performance or its outlook for FY25, the stock could see a sharp pullback.

However, given the recent correction, there is a potential for a relief rally if Casey's Q1 results demonstrate resilience and reflect a continuation of business as usual.

Investors will be keenly watching the report for indications of whether the company can maintain its steady growth trajectory despite the headwinds it faces.

Conclusion

Casey's General Stores is at a pivotal moment, balancing solid past performance with emerging challenges in the current economic landscape. While the company has shown strength in its inside sales growth and product innovation, uncertainties related to fuel sales, travel demand, and discretionary spending pose risks.

The upcoming Q1 earnings report and guidance for FY25 will be critical in shaping investor sentiment and determining whether Casey's can sustain its momentum or face further downside pressures.

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