The convenience store business is investing in new technology, rolling out a new loyalty program and seeking to improve its efficiency.
The company is implementing a refreshed loyalty program in its 2020 fiscal year. It will allow the company’s customers to sign up to receive rewards points for their purchases that can be redeemed for fuel discounts or in-store purchases. Loyalty program members can also donate their rewards points to local schools in cash. This helps to differentiate the program from those of rivals and may lead to a higher take-up rate among the company’s customers.
Casey’s conducted a test of its new rewards scheme in the second quarter. It resonated with the retailer’s customers and could lead to the business having a wider economic moat, as well as improving its financial performance.
In addition, the company’s fleet loyalty program that is aimed at business users is proving popular with its customers. In the second quarter, the scheme added over 3,000 new cardholders. This growth in cardholders contributed to an 8% rise in the company’s fleet revenue in the second quarter.
Casey’s is implementing a new piece of technology that optimizes the price it charges for fuel. It contributed to a 15% rise in the company’s profit per gallon of fuel sold in the second quarter. The technology is gradually being rolled out across all of its stores in the third quarter.
It is also using new technology to optimize the prices of its in-store products. For example, it is currently in the final stages of using the technology to set prices in its beer and alcohol categories, while it expects to integrate the new technology into its prepared food products by the end of fiscal 2020. This could lead to the retailer achieving higher margins across its business.
In addition, the company plans to convert the exterior signage at all of its stores to a digital format by the end of the current year. This will allow it to react more quickly to a changing fuel price environment and to competitively price its fuel versus sector peers.
The business recorded an 8.5% rise in its total operating expenses in the second quarter. This was driven by a 2.6% increase in its same-store operating expenses, as well as the cost of changes to its senior management team. The company expects its additional costs to reduce its net profit by $6 million in the 2020 fiscal year. Further growth in its costs could hurt its financial prospects and cause investors to adopt an increasingly cautious standpoint regarding its outlook.
In response, the company is investing in a new distribution center. It will be completed in 2021, and the retailer expects it to serve around 500 of its stores. This should improve the company’s efficiency, reduce pressure on its existing distribution centers and allow it to expand into new markets.
Alongside this, Casey’s plans to build 60 new stores and acquire 25 new sites in the current fiscal year. This positions it for future growth in new areas that could contribute to a rise in its sales in the upcoming years.
Market analysts forecast that Casey’s will report a 9% rise in its earnings per share in fiscal 2021. Its price-earnings ratio of 26.7 highlights that the stock is not cheap, but its growth plans could mean that it offers good value for money.
Disclosure: the author has no position in any stocks mentioned.
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