Cigarette sales affect Casey's 3rd-quarter earnings

Stores experiencing competitive pressure on pricing, official says

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A "challenging" cigarette sales environment was cited by Casey's General Stores Tuesday for lower third-quarter earnings that missed analysts' forecasts.

The Ankeny-based convenience store chain posted net income of $15.5 million, or 40 cents per share, for the quarter that ended on Jan. 31, down from $16.7 million, or 44 cents per share, in the same quarter last year.

Analysts were expecting earnings of 47 cents per share.

Revenue rose to $1.7 billion in the most recent quarter from $1.6 billion in the same quarter a year ago. Analysts were forecasting revenue of $1.72 billion.

William Walljasper, Casey's senior vice president and chief financial officer, told analysts in a conference call Tuesday that  the company has experienced competitive pressure in terms of cigarette pricing for about eight months.

"We did have Illinois state tax that went into effect in late June," Walljasper said. "Subsequent to that, we had seen a little bit more competitive pricing on packs in a number of areas in our business, primarily Illinois and Missouri.

"Knowing that cigarettes is probably the No. 2 destination item of most convenient stores, we felt that we needed to maintain a competitive edge. So we did lower (prices) in those areas and other areas that we saw that type of behavior."

Walljasper said the chain has recently experienced a gradual improvement in the number of cigarette cartons sold, logging a 3.5 percent increase in February. He said the rollout of cigarette sales in dollar stores will present competition in future quarters.

Casey's same store sales, excluding cigarettes, rose 5.3 percent. Walljasper said the prepared food and fountain category continued its strong performance with sales up 15.4 percent to $137 million for the quarter.

Walljasper said Casey's plans to increase the number of stores offering delivery of pizza and 2-liter bottles of soft drinks. He said about 225 stores will start delivering in the next fiscal year and the company is studying other items that might be offered for delivery.

Casey's recently announced that it will begin pizza delivery from its Hiawatha store next month, the first Casey's location to offer the service in the Corridor.

Walljasper said the company is on pace to complete construction of 30 new stores by the end of its fiscal year on April 29 and replace 25 stores.

"We have 21 new stores and 12 replacement stores under construction," he said. "In addition to these, we have an 50 new sites and 25 replacement sites under contract."

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