Casey’s General Stores (CASY) mid-quarter review
Let me preface by emphasizing that what I am giving on my own inexact impressions, which may definitely include misunderstandings. Okay,
Who is Casey’s?
This company was founded in 1959, which makes it our oldest so far, and is headquartered in Iowa. Casey’s operates convenience stores under the Casey’s General Store name in 14 Midwestern states, primarily Iowa, Missouri, and Illinois. The company’s stores offer a selection of food, including freshly prepared foods, such as pizza, donuts, and sandwiches; as well as beverages, tobacco, health and beauty aids, automotive products, and other nonfood items. Its stores also sell gasoline self-service. As of April 30, 2015, it operated approximately 1,878 stores.
Casey’s fiscal quarters end at the end of Jan, Apr, July and October, so they haven’t yet reported this quarter.
What is your history with them?
I found out about them from some excellent posts by TMF FlyGal. I’ve been a stockholder for roughly 3 months now. They are my sixth largest position, at about 7%. The vast majority of my purchases were at $104 to $108. These purchases had an average price of $106. The current price is $116.
You’ve got to tell me more about this company, what they do, and why in the world you’d invest in a chain of convenience stores?
Okay, well Casey’s secret sauce is that they set up their stores in LITTLE towns of less than 5,000 population usually, although they have expanded into some of the small cities around. It’s not economical for the big chains to invest in little towns, or they just don’t want to bother, and that reduces Casey’s competition Their stores are a fixture in the region, and people, when traveling to another town, feel like they’ve come “home” when they see a Casey’s.
But what do they do to make money???
Selling fuel makes up two thirds of their revenue, but fuel sells at only about a 7% gross margin. But once people come to the store to buy gas they buy other things, with MUCH higher margins… and that’s where Casey makes its money. What that means is that you have to evaluate them on earnings growth, not revenue growth. What we are interested in is Merchandise and Grocery, at about a 32% margin, but especially their Prepared Food and Fountain Segment with an incredible 60% margin! And that includes their pizza, which is their specialty. In a way they are a pizza chain and café/restaurant chain, that also sells gas as a convenience for their customers.
What are they doing to increase profit?
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They are opening new stores and expanding into new states. They just built a second distribution center that will help with their expansion. They are also expanding and enlarging stores.
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They have initiated extending hours to 24-hours, and are gradually initiating it in more and more stores, according to its success in increasing profits.
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They are initiating pizza delivery, and are also and are gradually initiating it in more and more stores, according to its success in increasing profits.
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Finally, they are growing same store sales.
So how successful have they been?
Remember that they haven’t reported this quarter yet (the October quarter). Well, for the last three quarters, their revenues have been $5.37 billion, down 10.5% from $6.00 billion. Sounds terrible, doesn’t it? But remember that most of their REVENUE is from gas, and gas prices have been down. However, cheaper gas allows them actually higher margins, and cheaper gas gives their customers more disposable income to spend on higher margin products. So…
Earnings in the same nine months have been $3.63, up 69% (!) from $2.15 the year before. Their current PE is 23.65. Their rate of growth of 12 month trailing earnings is 55%.
Here’s what they said about the last quarter:
Fuel - Our goal for fiscal 2016 is to increase same-store gallons sold 2% with an average margin of 16.7 cents per gallon. Same-store sales continue to benefit from low retail fuel prices. For the first quarter, same-store gallons sold were up 3.4% with an average margin of 17.5 cents! Total gallons sold for the quarter were up 8% to 501.2 million gallons.
Grocery and Other Merchandise - Our annual goal is to increase same-store sales 6.2% with an average margin of 32.1%. For the first quarter, same-store sales were up 7.0% with an average margin of 32.6%. Total grocery sales were up 10.0% to $526.6 million.
Prepared Food and Fountain - Our goal for fiscal 2016 is to increase same-store sales 10.4% with an average margin of 60.8%. For the first quarter, same-store sales were up 10.3% with an average margin of 62.5%.
Many of our strategic initiatives are focused on driving sales to this category. Major remodels, 24-hour conversions, and pizza delivery continue to deliver impressive sales gains, and lower ingredient costs enabled us to expand our margin. Total prepared food and fountain sales were up 14.8% to $223.4 million, and gross profit dollars grew 19.9% to $139.7 million.
Expansion - Our annual goal is to build or acquire 75 to 113 stores, replace 10 existing locations and perform major remodels on 100 existing locations. "We are pleased with the pace of our new store construction progress. Major remodels have shown to be an excellent initiative that will drive better performance out of our existing store base.
Dividend - Casey’s pays a quarterly dividend of 22 cents.
How has their stock been doing?
I bought three months ago at an average price of $106. The current price is $116.
To summarize
Casey’s has less than 2000 stores. They are in only 14 states and most of those have only been touched. There are over 30,000 towns with under 10,000 population in the US. They have plenty of room for growth.
Hope you found this interesting, entertaining, and useful.
Saul
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