Casey's is becoming a pizza joint hidden inside of a convenience store. Image source: Casey's.

Over the past several years, Casey's General Stores (NASDAQ:CASY) has been transitioning from "just" a convenience store to one of the biggest pizza companies in the nation. Since 2011, the company's Prepared Foods division, which includes its pizza business, has grown by leaps and bounds. In 2015, though Prepared Foods accounted for just 10% of all revenue, it generated one-third of gross profit -- showing just how lucrative the margins can be in the pizza business.

Take a look at how same-store sales (comps) have fared in prepared foods since 2010, and you'll see why the stock was recently trading for as much as 24 times trailing earnings.

But this only tells half the story. The 2015 fiscal year actually came to an end over nine months ago. Click on the second tab at the top of the chart, and you'll see that Prepared Foods sales have faltered quite a bit ever since November of last year.

Here's what's really alarming about the recent slide: It seems to have caught management by surprise. Starting the year, the company set down ambitious comps and margin goals for all three of its divisions: Prepared Foods, Fuel, and Grocery & Other Merchandise. Three quarters through the company's 2016 fiscal year, here's how all three of those divisions are performing. The company reported fiscal Q3 and year-to-date results on March 7. 


Comps Goal

Margin Goal

Actual Comps YTD

Actual Margins YTD

Prepared Food





Fuel (gallons sold)










YTD is for the fiscal year, which began on May 1. Data source: SEC filings.

The company is solidly hitting its goals in terms of gallons of fuel sold. And while grocery margins may be slightly off what management is hoping for, comps are well above what was expected. On this front, Casey CEO Robert Myers said that Grocery benefited because "cigarette sales continue to benefit from lower retail fuel prices."

But when it comes to prepared foods, things aren't looking good. Yes, it helps over the short term that margins have performed better than expected. But as Myers explained, that was "primarily due to lower commodity costs" -- something that's largely out of the company's control.

What's far more alarming is the trend in Prepared Food comps: 10.3% and 9.4% growth in the first two fiscal quarters -- both very good, but also below management's expectations -- followed by a much worse 6% bump in the third quarter.

And it didn't seem like there was much of an explanation from the company. Though Casey's conference call is scheduled for Tuesday at 10:30 a.m. ET, Myers -- through the company's press release -- said, "Challenging weather and strong prior year sales comparisons resulted in same-store sales falling below goal in this quarter." 

"Challenging weather" almost always goes in the "lame excuse" category on Wall Street. And saying that comparisons were difficult just doesn't cut it: Management knew very well what the comparisons would be when it set its 10.4% comps goal.

Looking ahead, Myers said, "We remain optimistic about future growth in this category, as we plan to implement pizza delivery in an additional 45 stores and complete 40 major remodels in the fourth quarter."

But that doesn't really help assuage fears on Wall Street -- primarily that Casey's doesn't have much of a moat. As other companies see the success that Casey's is having, competition could be taking a serious toll on Casey's comps. Or maybe the company saturated its markets faster than thought.

One thing is clear: The company's rollout in December of a pizza app didn't have anywhere near the impact that investors were hoping for. That's why, even though Casey's topped analyst expectations for earnings, the stock was trading down after-hours.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.