By Jinjoo Lee
Convenience store chain Caseys General Stores is beating Dominos Pizza at its own game.
The Midwest chainAmericas fifth-largest pizza seller by number of kitchenssaid same-store sales of prepared food and dispensed beverages rose 8.8% in its quarter ended April 30 compared with a year earlier. Dominos, by comparison, saw U.S. same-store sales rise 5.6% in its latest quarter, while Yum Brands Pizza Hut saw a decline of 6%.
Fuel is still a substantial part of Caseys business, but has lower margins than food and faces a long-term threat from the rise of electric vehicles. Chief Executive Darren Rebelez, a former IHOP executive, has pushed Caseys to become more restaurant-like, introducing more rigor to its kitchen processes and menu development.
The company reported that net income rose 55% from a year earlier, topping the 18% increase analysts expected. Its shares surged 17% on Wednesday morning and are up 39% year to date. Caseys stock now trades more like a restaurant at about 27 times forward earnings, recently overtaking the forward multiple of McDonalds. By contrast, convenience store peer and Circle K-owner Alimentation Couche-Tard trades at 18 times.
On Casey's earnings call, Rebelez said customers are drawn to the companys cheaper offerings, compared with restaurant rivals that have pushed up prices. We try to keep that relative value gap, he said, noting that even higher-income consumers are trading down from other fast-food chains to Caseysespecially on its updated sandwich menu. Lower-income consumers, who comprise about a quarter of Caseys customer base, are still frequenting the store but looking for more value. For example, they are opting for fountain soft drinks, which are cheaper per ounce than canned drinks, he said.
The company expects earnings before interest, taxes, depreciation and amortization to grow at least 8% this fiscal year, in line with the target it set previously. Worsening consumer health and intensifying promotions from fast-food chains could get in the way of that, but the company is somewhat protected due to its more rural store base with less competition. What's more, Caseys might see more opportunities to snap up small mom-and-pop gas station operators that have been struggling from years of steep inflation and low cigarette sales.
Economic conditions may be merely lukewarm, but Caseys business is piping hot.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._
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(END) Dow Jones Newswires
June 12, 2024 12:15 ET (16:15 GMT)
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