CASEYS GENERAL STORES INC CASY

Casey's successfully integrated the Fikes acquisition, operating 254 more stores year-over-year. The acquisition contributed over $100 million to inside sales and 100 million gallons to fuel in Q3. While Q3 EBITDA was dilutive due to $13 million in one-time^📎 integration costs, Fikes is expected to be modestly EBITDA positive in Q4. Management anticipates achieving $45 million in synergies over 3-4 years, with fuel pricing and overhead synergies realized in the first 12 months, and food-related synergies (40% of total) on the back end due to kitchen construction timelines. 85% of Fikes stores are targeted for conversion to Casey's prepared food margin profile.

The company is actively executing its 3-year strategic plan, focusing on accelerating the food business, increasing unit growth, and enhancing operational efficiency. This quarter marked the 11th consecutive quarter of reduced same-store labor hours, down 2%, achieved without compromising guest or team member satisfaction. These efforts, combined with new capabilities in procurement, data analytics, and culinary, position Casey's to navigate volatile environments more effectively than in previous years.

Casey's demonstrated strong fuel performance, with same-store gallons sold up 1.8%, significantly outperforming the Mid-Continent region which saw a 4% decline. This outperformance indicates market share gains, attributed to the ramp-up of prior acquisitions and a recovery in the diesel business, which had been under pressure. The company's high-quality in-store experience is believed to drive traffic to its sites, providing a significant competitive advantage.

Inside same-store sales grew 3.7%, with prepared food and dispensed beverage leading the way at 4.7% growth. Innovation was a key driver, with hot sandwiches up over 50% and bakery up nearly 10%. Energy drinks continued strong momentum, growing approximately 18%. The company is focused on targeted promotions and new product development, such as the limited release of new chicken wings and fries in Des Moines, which has shown encouraging results and high guest satisfaction.

Overall inside gross profit margin declined 40 basis points to 40.9%, primarily due to the consolidation of lower-margin CEFCO stores (150 bps impact on prepared food margin) and a coffee promotion (20 bps impact). However, grocery and general merchandise margin increased 40 basis points to 34.2% due to a favorable product mix shift. The decline in combustible cigarettes (down 4%) and growth in higher-margin nicotine alternatives (up 74%) and non-alcoholic beverages are contributing to this positive mix shift.

While some pressure is observed on lower-income consumers (under $50,000/year, representing 25% of the guest base), they continue to purchase, albeit at a slightly softer rate (100-300 bps) in discretionary categories like tobacco and alcohol. Casey's business model, offering daily needs at low dollar denominations and a value-driven food proposition (pizza typically $1+ below national brands), positions it well in a value-seeking environment. Promotional activity is targeted and efficient, leveraging customer data.

February 2025 results were negatively impacted by severe weather conditions, including significantly colder temperatures and snow in Texas and Florida, and the lapping of leap day from the prior year. Management expects to finish the fiscal year at the bottom of the inside same-store sales range, implying Q4 will be below the annual range. However, sales are observed to rebound as weather normalizes, suggesting no fundamental issue with consumer demand.