Casey's Weather Vane Points to Big City

Difficult weather presents quarterly challenge, but chain heading to suburban, urban areas

Casey's Convenience Stores

ANKENY, Iowa -- Casey's General Stores Inc. has been successful serving a small-town niche, with nearly 60% of its convenience stores in communities of fewer than 5,000 people. But recently the red-and-yellow sign with the rooster weather vane has been popping up on more suburban and even urban corners, said a report by The Omaha World-Herald.

Casey's now has 13 locations in the Omaha, Neb., metropolitan area, with more to come, while its recent acquisition of 24 Stop-N-Go stores brings Casey's into the heart of the Fargo, N.D., metro area.

Expansion into cities has helped drive Casey's revenue to $7.25 billion in fiscal year 2013 from $4.69 billion four years earlier. More than 16% of its stores today are in communities of more than 20,000 people, compared with 11% a decade ago, said the report.

"We're trying to get more of a presence in the Omaha metro area," CFO Bill Walljasper told the newspaper. "We've found that metro area to be a very good partnership."

He said the chain is looking at new locations in the metro area but would not say how many or where.

In the last four years, acquisitions of the Kabredlos, Holiday and U-Stop chains put Casey's in Bellevue and Omaha, Neb., and doubled its presence in Council Bluffs, Iowa, to six stores. Casey's has replaced or remodeled most of those urban and suburban stores with bigger models as it competes with chains like Omaha-based Bucky's and West Des Moines, Iowa-based Kum & Go, which also are building more and larger stores in the Omaha area.

The bigger and more modern Casey's store design emphasizes highly profitable, fast-growing sales of prepared food and fountain drinks, a strategy Casey's and its competitors are using as industrywide sales of cigarettes fall and growth of lower-margin fuel sales slows.

Click here to read the full World-Herald report.

Meanwhile, Casey's chairman and CEO Robert J. Myers said that for the fiscal third-quarter 2014 period ended Jan. 31, 2014, Casey's "sales were strong throughout all of our categories despite challenging weather during the quarter.

Net income for the quarter was $14.67 million over $15.46 million for the comparable period in 2013, a drop of $794,000 (5.1%).

The company attributed the decrease in net income primarily to challenging weather for the quarter, including costs for increased snow removal and a loss from a store destroyed by fire.

Total revenue for the third quarter of fiscal 2014 was $1.79 billion, an increase of $127.7 million (7.7%) over $1.66 billion for the comparable period in fiscal 2013.

Retail gasoline sales were $1.256 billion, an increase of $70.1 million (5.9%) over $1.186 billion for the 2013 period, as the number of gallons sold increased by 34.6 million (9.2%) while the average retail price per gallon decreased 3%.

During this same period, retail sales of grocery and general merchandise sale were $365 million, an increase of $35.19 million (10.7%) over $330 million for the 2013 period, primarily due to 52 more stores in operation, expanded hours at select store locations and more replaced and remodeled stores. Prepared food and fountain sales of $158.2 million, an increase of $21.17 million (15.4%), over $137 million for the 2013 period, due to 52 more stores in operation, expanded hours at select store locations, additional stores with pizza delivery and more replacement stores and major store remodels.

"Our same-store fuel sales are exceeding industry-wide trends and gross profit from inside the store was up over 11% for both the quarter and year," Myers said.

  • Gasoline. The goal for fiscal 2014 is to increase same-store gallons sold 1.5% with an average margin of 15 cents per gallon. For the third quarter, same-store gallons sold were up 3.8% with an average margin of 14.4 cents per gallon. The company sold 12.2 million renewable fuel credits for $3.4 million in the quarter.

"The fuel saver program is in its second year and continues to significantly impact our fuel sales," said Myers. "Fuel margins dipped below goal in the third quarter due to a less volatile wholesale cost environment as well as the seasonal decline we usually experience this time of year."

Total gallons sold for the year were up 9.1% with an average margin of 17.8 cents per gallon. Year to date, same-store gallons were up 3.7%.

  • Grocery & Other Merchandise: The company's annual goal is to increase same-store sales 5% with an average margin of 32.3%. For the quarter, same-store sales were up 6.5% with an average margin of 31.1%.

"Sales were strong throughout the entire grocery and other merchandise category during the third quarter," said Myers. "Beer and beverages are performing especially well due predominately to our increased cooler capacity in our newer store designs."

For the nine months ended Jan. 31, 2014, same-store sales were up 7.5% with an average margin of 32.1%. Total sales for the year were up 11.7% and gross profit increased 9% to $386.5 million.

  • Prepared Food & Fountain: Casey's annual goal is to increase same-store sales 9% with an average margin of 62%. For the third quarter, same-store sales were up 10.7% with an average margin of 60.8%.

"In addition to the operating initiatives such as 24-hour expansion, pizza delivery, and major remodels contributing to sales, we also experienced strong prepared food sales in our unchanged group of stores," said Myers. "Our margin benefited from a favorable product mix shift, as pizza sales increased as a percentage of the total category. This offset higher input costs of meat, cheese and supplies when compared to prior year's third quarter."

Total sales for the category were up 16.4% year to date, and gross profit increased 15.1% to $305.1 million.

  • Operating Expenses: Year to date, operating expenses increased 13.7% to $647.2 million. For the third quarter, operating expenses were up 13.1%.

"The majority of the operating expense increase for both the quarter and year was due to new, acquired, and replaced stores, along with the various operating initiatives that have been rolled out to existing stores," said Myers. "Included in the results was approximately $1.6 million combined for additional snow removal and a loss from a store that was destroyed by a fire."

  • Expansion: The annual goal is to build or acquire 70 to 105 (4% to 6%) stores and replace 20 existing locations. Through the first nine months, the company has built 26 new stores and acquired an additional 24. The company also completed 19 replacement stores as well as 25 major remodels.

"Casey's recently announced it signed a purchase agreement to acquire 24 Stop-n-Go stores located in North Dakota and Minnesota," said Myers. "Although this transaction is expected to close in the next fiscal year, we believe it is indicative of an active acquisition environment right now, and we are excited about the opportunities to build and buy new stores."

The company currently has 25 new stores and 15 replacement stores under construction, as well as 32 stores under contract.

Casey's operates c-stores in 14 Midwestern states, primarily Iowa, Missouri and Illinois. It also operates one standalone pizza delivery and carryout store. On Jan. 31, 2014, Casey's operated 1,783 stores.

Part of CSP's 2014 Convenience Top 101 retailers