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Will Casey's (CASY) Initiatives be Able to Revive the Stock?

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A glimpse of Casey's General Stores, Inc.’s (CASY - Free Report) share price movement reveals that it has plunged roughly 11.6% in the past six months compared with the industry’s decline of 12.9%. We also note that the Zacks Consensus Estimate of $4.59 and $4.94 for fiscal 2019 and 2020 has declined by 10 cents and 35 cents, respectively, in the past 30 days. So, what is behind the disappointing show on the bourses? Why analysts polled by Zacks are skeptical about the company’s performance? Are the initiatives undertaken by management enough to revive this Zacks Rank #3 (Hold) stock?

What Hurt the Stock?

Casey's dismal run may be attributed to the company’s negative earnings surprise streak. The company missed the Zacks Consensus Estimate for the third straight quarter, when it reported fourth-quarter fiscal 2018 results. The top line also lagged the consensus mark, after surpassing the same in the trailing two quarters.

Management highlighted that lower fuel margin and unfavorable weather conditions adversely impacted the results. Fuel margin of 16.3 cents per gallon, declined 5.2% year over year. Management hinted fuel margin was at its lowest since fiscal 2014 due to rising wholesale fuel costs. Moreover, prepared food and fountain margin contracted 200 basis points to of 59.7% on account of increased input costs and promotional activity.

We note that sales improved but earnings per share declined year over year. Quite apparent, rise in cost of goods sold, along with higher operating and interest expenses hurt the company’s bottom-line.

Certainly, higher operating expenses may be a threat to margin and the bottom line. Operating expenses increased 7.9% during the fourth quarter of fiscal 2018. Casey's now expects operating expenses (including expenses from value creation plan) to increase in the range of 8.5-10.5% during fiscal 2019.

Management Looking into Every Nook and Cranny

Casey's remains on track with its value creation plan to improve sales and profitability. This includes new fleet card program, price and product optimization, loyalty program, digital engagements comprising mobile app and online ordering capabilities, cost containment efforts as well as capital reallocation plan. Further, the company has lowered the number of 24-hour stores and pizza delivery locations. Casey’s cost-reduction initiatives are likely to result in savings of approximately $200 million in store-level operating expenditures by fiscal 2021.

Management highlighted that Casey’s fleet card program, which involves managing and monitoring of initial sales, back-end system processing, billing and other consumer-oriented services, is likely to lift fuel sales by 2% in the first full year. Moreover, the program is anticipated to be accretive to fuel and in-store sales by the third quarter of fiscal 2019.

The company’s digitalization efforts will help create a seamless shopping experience online as well as in-store and facilitate same-store sales growth. Further, the company’s price and product optimization strategy will help augment sales and fuel margin. Management envisions same-store sales across fuel gallons, grocery & other merchandise and prepared food and fountain categories to increase more than 4%, 6% and 10%, respectively, by fiscal 2021.

3 Picks You Can’t Miss

Urban Outfitters (URBN - Free Report) delivered an average positive earnings surprise of 19.8% in the trailing four quarters. It has a long-term earnings growth rate of 12% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fossil Group (FOSL - Free Report) delivered an average positive earnings surprise of 54.1% in the trailing four quarters. It carries a Zacks Rank #2 (Buy).

Burlington Stores (BURL - Free Report) delivered an average positive earnings surprise of 17.8% in the trailing four quarters. It has a long-term earnings growth rate of 18.1% and a Zacks Rank #2.

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