Sponsored By:
Did Casey's Comment Create Tobacco Stock Selloff?
"Challenging cigarette environment" resonates on Wall Street
ANKENY, Iowa -- The same day Casey's General Stores Inc. reported that a "challenging cigarette environment" was partly to blame for an earnings shortfall in the convenience store chain's second-quarter, tobacco stocks underperformed the stock market as a whole. The timing led at least one tobacco analyst to "attribute today's selloff to Casey's General Stores commentary."
Ankeny, Iowa-based Casey's, an operator of 1,700 c-stores in 12 Midwestern states, "reported grocery and other merchandise down -0.7% for the October quarter, due to cigarette sales 'adversely impacted by competitive pricing as well as an Illinois state excise tax increase'," wrote Nik Modi of UBS Securities in a research note. "Given the debate around the cigarette pricing environment, we believe some may have taken remarks from Casey's management as a net negative for tobacco stocks."
"Cigarettes in the quarter accounted for approximately 36% of the total revenue in the category, down from 40% a year ago," CFO Bill Walljasper said on the earnings call Tuesday. "Over the course of the past several months, we have made additional price adjustments in response to the more competitive cigarette landscape."
That same day, tobacco stocks underperformed the market by -146 basis points and underperformed "staples peers" (HBC, beverages and packaged food) by -140 bps, according to Modi.
However, Modi concluded that "tobacco investors should not be concerned."
"We note two things here: 1) It should not be a surprise that certain retailers are stepping up promotional spending post the excise-tax increase in Illinois, and 2) we believe price reductions discussed by Casey's management are being funded by Casey's and not the tobacco manufacturers," Modi wrote. "Most importantly, we believe any commentary about the 2012 cigarette pricing environment (by retailers and even the manufacturers for the December quarter) is backward looking since we expect a reduction in promotional spending starting in 2013."
(See Related Content below for previous CSP Daily News coverage.)
About the Author
Trending
By:
CSPTV
St. Louis convenience store retailer U-Gas goes upscale, fast casual with its foodservice offer.
By:
Recommendations
CSP Business Media, LLC.
1100 Jorie Blvd, Suite 260 | Oak Brook, IL 60523
Phone: 630-574-5075 | Fax: 630-574-5175
cspinquire@cspnet.com
Comments
A retailer/CSP Daily News reader responds:
Regarding the article today about Casey's remarks concerning reduced tobacco revenues and the subsequent affect on tobacco stocks, my hat is off to Casey's. Our industry needs more large chains to speak up about where we are on cigarette profits and the reasons we are all down significantly in revenues and GP$.
We are where we are because, as an industry, we have allowed major cigarette manufacturers to not only dictate what we pay for their product, but also what we can sell it for and they now have us exactly where they want us - selling their product as a non profit category.
From a legal standpoint they will say that the programs they give us are "optional and not mandatory", but ask yourself how many cigarette packs you are going to sell when virtually every competitor around you has bought into their "non profit" program. You are forced into the program or you go out of business.
Why in the world do we allow some manufacturers to do this to us as an industry. Our industry has more than 146,000 stores and we allow a category as vital to us as cigarettes shrink down to the point where it cost us more in labor to make the sale than we make on the product. Does that make any financial sense at all? As a long term veteran of our industry, it really bothers me to see our industry "leaders" sit back and allow things like this to happen.
Maybe Casey's comments will get others to finally stand up for our
industry.