Which Retailer is Beginning a Turnaround? Which is a Triple Threat?

Analyst weighs in on some of the industry's most familiar names

Steve Holtz, Editor in Chief, CSP Daily News

NEW YORK -- Noting the convenience store industry "is embarking on a new era of sophistication and growth," stock analyst Bonnie Herzog of Wells Fargo Securities announced this week that the company is initiating coverage of the retail channel's public companies, including Susser Holdings, The Pantry and Casey's General Stores.

"The convenience store industry is in the midst of transitioning from a relative retail backwater industry to one of the most dynamic consumer staples and foodservice retail channels in the U.S.," Herzog wrote in her first research note on the industry. "We believe the industry is embarking on a new era of sophistication and growth, and savvy, innovative operators will capture more than their fair share of industry profit."

In its coverage, Herzog said she and her team will analyze three key "growth drivers": unit growth opportunities, same-store-sales opportunities and margin-expansion opportunities.

In her first research note on Corpus Christi, Texas-based Susser Holdings, dba Stripes, Herzog called the retailer a triple threat: Texas, tacos and transformative retail.

"With a top-tier foodservice franchise in Laredo Taco Co. and a concentrated, but underpenetrated, presence in the dynamic Texas market, we think Susser is one of the most compelling growth stories in the convenience store industry," she wrote. "Susser's Stripes c-stores have a stronghold in south Texas, and we expect management will pursue broader in-state expansion over the next three to five years, driven by larger format stores, which generate about 2.5 times the cash flow of legacy stores and ROI in excess of 20%."

About Cary, N.C.-based The Pantry, dba Kangaroo Express, Herzog noted "early signs of a turnaround."

"With a large store base, well-established store locations primarily under the Kangaroo Express banner, and a strong core market in the Southeast, Pantry has the key attributes of a strong convenience store business," she wrote. "We believe Pantry is in the early stages of a turnaround as it attempts to rationalize its aged store base and improve its foodservice offerings and fuel volume."

And Herzog describes Casey's General Stores, Ankeny, Iowa, as "a small-town story with big growth plans."

"Casey's is one of the largest independent convenience store operators in the U.S., with a differentiated business model and a top-tier foodservice operation centered on its proprietary, expanding pizza delivery offering. We believe Casey's is well-positioned to deliver strong earnings growth over the next few years by virtue of its acquisition-based unit growth strategy, small market focus and multiple profit enhancing in-store initiatives."

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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