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Casey's General (CASY +5%) stalls out in Q1 (Jul), falling a hair shy of top-line estimates in the quarter as inside same-store sales growth comes up relatively light stacked against the company's FY25 (Jan) forecast. The gas station and convenience store chain, predominantly situated across the Midwest, was coming off a string of impressive quarterly reports, consistently topping earnings and sales estimates on healthy inside comp growth. Against this backdrop, Q1 numbers were underwhelming, initially resulting in modest selling pressure. However, when peeking under the hood, investors uncovered several positives, ultimately fueling today's push higher.

• While lighter than previous quarters, CASY still registered double-digit earnings upside in Q1. Inside margins of 41.7% hovered mildly above CASY's FY25 prediction of 41.2%. Meanwhile, fuel margins ticked 4.2 cents higher sequentially to 40.7 cents per gallon, slightly above the average in FY24 of 39.5 cents per gallon.
• Revenue grew by 5.9% to $4.1 bln. Same-store fuel gallons edged +0.7% higher, landing near the high end of the company's negative 1% to positive 1% outlook for the year. However, inside comps were on the weaker side at +2.3%, which tracked below CASY's FY25 forecast of +3.0-5.0%.
• During its Q4 (Apr) conference call in June, management mentioned that inside comps were trending in-line with its annual guidance. However, traffic started dropping off shortly thereafter. Discretionary spending remains volatile, primarily among lower-income consumers, shifting habits. Additionally, CASY pointed to lower lottery transactions due to fewer $1.0 bln jackpots as another underlying cause of lower foot traffic.
  • Furthermore, CASY was lapping a one-time benefit related to an adjustment surrounding its rewards program, resulting in a roughly 140 bp hit to comp growth. However, this was known ahead of Q1 numbers.
• Looking ahead, CASY is leaving its FY25 inside comps, fuel comps, and inside margin targets unchanged. The company will not update these projections until it closes its $1.145 bln purchase of Fikes Wholesale, announced in July. However, as is typical, management provided color on how the first month of the subsequent quarter is tracking, commenting that August inside and fuel comps were within the range of its annual outlook, underpinning a possibly brief interruption in inside sales demand that unfolded during Q1.

CASY may not have gotten out to as hot a start to its fiscal year as in previous years, throttled by lower-income consumers, which comprise a third of its overall traffic, reducing their average basket sizes, as well as less compelling lottery jackpots. Still, the company's Q1 report showcased steady growth in important categories, such as prepared foods and dispensed beverages. Meanwhile, fuel comps remained robust despite moderating travel demand, reflecting the strategic placement of CASY's locations, as households in the Midwest tend to drive longer distances for work and school. As such, we continue to like CASY for the long term.