The Ankeny-based Casey’s convenience store chain reported net income was up 66% in the third quarter compared to last year as gasoline and in-store sales were both up.
Gas prices in Iowa have increased by 46 cents a gallon in the last week — but Casey’s CEO Darren Rebelez says sales haven’t dropped off. “This will seem counterintuitive, but when you see prices rapidly increasing like we have over the last week — the consume behavior tends to be more of aggressive buying as opposed to not aggressive buying — because people are afraid it is going to be 20 cents more a gallon tomorrow as it was today,” Rebelez explains.
Rebelez spoke about the gas situation during a conference call for investors on the third-quarter results. “Our gallons have increased far beyond where our current trend line had been going prior to all this happening. Now, at some point when it hits a peak –people are going to have full gas tanks and we’ll see a week or so lag of full volume, and it will start to normalize again,” he says.
Rebelez says things need to be kept in perspective as the gas price approaches $4 a gallon. “The last time was in July of 2008. Certainly, that was during the financial crisis and it peaked out at four dollars and six cents a gallon. By today’s dollars — that would be five dollars and 30 cents a gallon,” Rebelez says.
He says the economic situation is much different now than it was when gas hit the $4 mark.
“All four dollars aren’t created equal,” Rebelez says, “we would need to get to well over five dollars a gallon before we start to see the same dynamic that we saw in 2008. In 2008, you did start to see some demand destruction — but there was also a pretty significant recession taking place at the time. Unemployment at that time was six percent and rising — ultimately getting to ten percent.”
He says unemployment now is below four percent — and there is a labor shortage with employers trying to lure in workers. Rebelez doesn’t think we are at the point where people will cut back on buying gas. “There is a price at which people will start to change behavior — but we think that price is closer to five dollars a gallon than it is to four dollars a gallon right now,” he says.
Rebelez says the midwest market Casey’s serves is different from the national gas market. “The national numbers for retail prices of fuel are heavily influenced by the northeast and the west coast — which are well over four dollars a gallon,” Rebelez says. “As we sit here today in our market, we are sitting just under four dollars a gallon across our 16-state geography. And the midwest tends to be pretty low relative to others. And part of that is because we blend a lot of ethanol, and ethanol is trading about 70 to 80 cents below gasoline.”
Casey’s saw its fuel gallons sold increase nearly six percent in the third quarter — with a margin of 38.3 cents per gallon compared to nearly 33 cents a gallon one year ago. Total fuel gross profit increased nearly 40 percent to $237.9 million dollars compared to the prior year.