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Casey's Lands in Ohio, Eyes Wisconsin

Opens its first Buckeye State c-store, focuses on new markets, acquisitions

ANKENY, Iowa – With its first convenience store in Ohio now open in Cridersville and expansion into new and existing markets in the works, Casey’s General Stores Inc. clearly is in growth mode, and it's beefing up its real-estate and new-store development departments to prove it.

“We’re certainly gearing ourselves up for future accelerated growth pace,” Terry Handley, Casey’s president and CEO, said during the company’s third-quarter fiscal 2017 earnings call on March 7.

The company’s goal for fiscal 2017 is to build or acquire 77 to 116 c-stores, replace 35 existing locations and complete 100 major remodels. Through nine months, the company has built and opened 24 new stores, acquired 14 stores, completed 19 replacements and remodeled 56 stores. Also, the company has 33 new stores, 21 replacement stores and 46 major remodel stores under construction. It has 91 sites under agreement for future new-store construction and eight acquisition stores under contract to purchase.

“As we head into [fiscal 2018], we’ll be very focused on increasing these efforts,” Handley said.

The chain plans to increase the number of new stores it opens on a yearly basis. That expansion will include not only new markets, but also existing markets.

“A state that we want to focus on as well, going forward, is Wisconsin. It's in our backyard, and we see a great number of towns that are Casey's towns,” said Handley. More than half of all Casey’s stores are located in markets with populations of fewer than 5,000 people. Casey's has more than 20 c-stores in Wisconsin, a state dominated by La Crosse, Wis.-based Kwik Trip.

“We're looking toward Oklahoma and Arkansas, as well as Tennessee and Kentucky, so we certainly believe that there is great opportunity throughout ... our 15-state market area, to continue to grow,” he said. The company is also continuing to look at Nebraska, South Dakota and Minnesota to add new stores.

Casey’s Terre Haute, Ind., distribution center, which became operational in February 2016, “opens up new geography for us to efficiently expand our footprint,” Handley said. It has a 500-mile reach, according to the company.

“We are accelerating our store-development efforts and have a robust and growing new-store pipeline, which will benefit from leveraging our second distribution center,” he said.

The company has also “scaled up” its real-estate and store-development staffs. “We have brought on new associates, not necessary based here out of Ankeny [Iowa], but based in some of these growth markets,” Handley said. “They’re young and they’re hungry and they are getting after it. So we look forward to their continued aggressive activity in bringing more sites to us for the rest of fiscal [2018].”

Casey’s also is “planning additional resources to the store-development area this coming year to sustain our future new-store construction pace at a higher level, augmented with acquisition opportunities,” he said.

The financials

Citing increased operating expenses, depreciation and declining fuel and merchandise sales margins, Casey’s reported net income of $22.84 million for third-quarter fiscal 2017, which ended Jan. 31, 2017, compared to $38.1 million for the same quarter a year ago, a 40.1% drop.

The increase in operating expenses and depreciation were offset by an increase in gallons sold and inside sales, Handley said.

“Like many others in the grocery and convenience-store sector, as well as the broader foodservice industries, we experienced downward pressure on customer traffic, which adversely affected same-store sales across all of our categories,” he said. “We believe this pressure is related to the agricultural economy in our marketing area, the growing spread in pricing between food away and food at home, as well as big-box retailers continuing to increase promotional activities.”

He also cited “inclement weather” during the period.

Operating expenses for the quarter increased 12.6%, from $259.6 million in 2016 to $292.3 million in 2017. Year to date, operating expenses increased 11.2%, from $ 791.2 million to $879.7 million.

“Both the quarter-to-date and year-to-date increases were in line with our expectations, and primarily driven by an increase in wages due to operating more stores this year compared to the same period one year ago, the continued rollout of the various growth programs, and wage rate increases,” said Handley. "In addition, credit-card fees and fuel expense combined were up $3.5 million for the quarter due to a 12.6% increase in retail fuel prices from the same time period a year ago."

Ankeny, Iowa-based Casey’s operates more than 1,950 stores in 14 Midwestern states, primarily Iowa, Missouri and Illinois.

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