ANKENY, Iowa --Casey's General Stores Inc. remains on track with "robust potential for future growth" as the convenience store chain expands while bucking industry trends by growing cigarette and gasoline sales volumes, according to an industry analyst who attended the company's Analyst Day at its Ankeny, Iowa, headquarters earlier this week.
Opening the event, CEO Robert J. Myers said that Casey's has 29 new stores and 24 replacement stores under construction. It is also in the process of integrating the 24-store Stop-N-Go acquisition in North Dakota.
The company expects to open between 72 and 108 new and acquired stores by the end of its fiscal year, and "we are well on our way to achieving that goal," he said. "We also have several initiatives underway to get more out of our existing stores, including 24-hour conversions, major store remodels, pizza delivery and a fuel saver program."
More than half of the chain's more than 1,750 convenience stores have been affected by one or more of these initiatives, said Myers, "and certainly the sales lift has been impressive."
"We believe Casey’s is well positioned to deliver strong earnings growth over the next few years by virtue of the company's acquisition-based unit growth strategy, small-market focus and multiple profit-enhancing in-store initiatives," Wells Fargo Securities LLC analyst Bonnie Herzog, who "came away incrementally more impressed" from the event, said in a research note.
"We think its long-term 4% to 6% store unit growth target could become more challenging over time as the company needs to expand in more densely populated markets," she cautioned. "Bottom line--we believe Casey's has a very solid core franchise with growth initiatives that should drive solid merchandise sales growth for the next one to two years; however, following impressive strength in comparable sales growth in foodservice over the past few years, the bar is set high."
Continued on page 2
Meanwhile, Casey's cigarette category "is performing very well," said Herzog. The chain "is comping in the mid-high single digits--quite impressive given the category decline. Now that Casey's has fully lapped the [cigarette] price decreases it took in late 2012, it believes it is taking back some of the share it lost when it was less price competitive in the cigarette category."
For fuel, "Casey's gallon growth has been impressive, aided by [its] partnership with Hy-Vee," she said.
The deal offers Hy-Vee customers discounts on gasoline for purchases made in Hy-Vee stores. "While the benefits that Casey's has seen from this program have driven both fuel … and in-store sales, the opportunities to expand the program further appear limited given the current Hy-Vee footprint," Herzog said. "Casey's is currently exploring other partnerships to create similar programs with other grocery chains, albeit at likely a much less magnitude to the current Hy-Vee partnership."
Myers continued to tout growth. "We are making considerable investment in our infrastructure to be able to handle the additional business the new stores and initiatives are bringing on," he said. "We are also in the late planning stages of our second distribution center to be located in Terre Haute, Ind. The second facility will be 275,000 square feet, and we look for it to take over approximately 40% of our routes once the construction project is complete in calendar 2015. Obviously, this facility will give us the ability to expand our reach into new territories, but perhaps the greatest benefit is reducing our miles driven by eliminating all of our three-day grocery routes."
Herzog said, "The new [distribution center] coming online should alleviate the slight pressure on the current DC, which is running over capacity, and overall, Casey's entire distribution operation should be more efficient over time, despite the partial offset of the incremental costs associated with operating a second DC."
She also said that the new distribution center could aid in eastward expansion.
"Newer stores are expected to be more focused on suburban areas and higher-traffic store formats where Casey's will likely face greater competition in a more challenging marketplace in addition to higher costs of development; therefore … we continue to question if Casey's can replicate its 'small-market' success as it expands to larger communities where it will encounter greater competition," Herzog said.
Before turning the presentation over to Casey's new president, 33-year company veteran Terry Handley, Myers also specifically addressed "one item that has been getting some attention lately," namely master limited partnerships (MLPs).
Citing the MLP strategies of Susser Holdings Corp. and its acquirer, Energy Transfer Partners (ETP), he said, "While Sam [Susser] and his team deserve a lot of credit for what they have been able to do, it is important to understand that their business model is different than ours. We have closely reviewed the strategy, and at this point, we feel the best approach is to stay the current course with our structure. We already have a low cost of capital, which is one of the reasons to create a MLP. Also, we don't have the wholesale fuel distribution operations, so it would be difficult to attain the steady gallon growth MLP investors are generally looking for."
Ankeny, Iowa-based Casey's operates nearly 1,800 convenience stores in 14 Midwestern states: Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Carolina, Oklahoma, South Dakota, Tennessee and Wisconsin. It also operates one standalone pizza delivery and carryout store.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.