FLASHBACK | Best Idea Short → $CASY

CASY reported a 1.5% topline miss and earnings of $2.21 vs. consensus $2.15. The headline beat is underwhelming when factoring in the $0.16 of earnings growth attributable to lower than anticipated D&A. D&A growth expectations were also subsequently guided 500bps lower for the year. Management lowered comp guidance in the Fuel and Prepared Food & Fountain segments by 50bps and 150bps respectively. Margin guidance was held relatively in check besides a slight $0.05 uptick in fuel gross margins per gallon which was largely expected when considering the margin strength witnessed YTD.

We remain short CASY and believe shares have downside of 10-20% after today’s move.

It was apparent on the call today that the Prepared Food & Fountain segment remains under significant pressure from a topline and margin perspective. Management was clear on the call that cheese prices up 20-30% YoY will continue to be a drag on margins as the company will continue to prioritize a value pizza offering amidst a promotional environment leaving very little room to offset cost headwinds with price.

"We suspect that this vaping crisis will be near-term noise, however the sudden spike of negative news could present a near term traffic headwind to the CASY Grocery & General Merchandise segment. Given that JUUL and vape products only represent a LSD percentage of sales the news in isolation is not likely to derail the CASY story.

That said, we believe the read is negative on the margin and is likely to put incremental pressure on in-store traffic, at least in the near term. Management commentary on JUUL and other tobacco products has been quite positive on recent calls and has been helping to drive in-store comps and traffic in the face of eroding cigarette sales."