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Casey's Acquisition Activity Picks Up

ANKENY, Iowa -- Casey's General Stores Chief Financial Officer Bill Walljasper revealed during the company's second-quarter conference call yesterday that the convenience store chain recently signed another purchase agreement -- this time, for a four-store chain in Iowa.

Walljasper told CSNews Online he could not reveal the identity of the chain at this time, although he did say the sale is expected to close before the end of this fiscal year.

This marks the third purchase agreement Casey's has signed in the last few months. As previously reported by CSNews Online, a deal to buy three Green Lantern convenience stores in Kansas was set to close today, while the company's purchase of nine Bullseye-branded convenience stores in Missouri is scheduled to close sometime next week.

"The acquisition environment certainly has been more active recently," Walljasper said, noting multiples have come down, which has the company encouraged. "We've been fortunate to have a few small acquisitions come under our belt ... some nice assets in very good locations, and we're excited about bringing them into the mix."

The soon-to-be-acquired stores share the same demographics as Casey's existing store base, and are located in smaller communities, making them "a perfect fit" with the company's business model, Walljasper noted during the conference call.

Most of these stores do not have prepared food offerings as extensive as Casey's stores do, so Walljasper said they will be re-branded to Casey's. The locations run the gamut in terms of store size and average sales, although "if you blend them all together, the average revenue would be above our average stores," he noted.

Besides these three acquisitions, Casey's also is in negotiations with several more small chains, and doing financial due diligence on others as well, the CFO said. "We're cautiously optimistic. ... Due to the fragmented nature of the c-store space in our market area, we think they'll be more opportunities in the future," said Walljasper.

Second-Quarter Fiscal 2010 Results
In addition to providing an update on acquisitions, Walljasper also provided during yesterday's conference call a summary of Casey's financial results for the second quarter fiscal 2010. Earnings per share were up nearly 23 percent, coming in at $0.66 for the quarter ended Oct. 31, compared to $0.54 for the same quarter a year ago.

On the gasoline side, margins continued to be strong at 14.3 cents per gallon for the quarter, and 15 cents per gallon year to date. Same-store gallons sold were down 0.7 percent for the quarter, and up 1.2 percent year to date. Total gallons sold for the six- month period were up 3.8 percent to 659.5 million gallons, while gross profit increased 6.2 percent to $98.9 million. Casey's annual goal is to increase same-store gallons sold 2 percent for the year, with an average margin of 11 cents per gallon.

Inclement weather impacted same-store gallons sold during the quarter, as well as same-store sales inside the store, which also were affected by customers trading down to less-expensive items. Walljasper noted this October was one of the coldest and wettest on record in Casey's operating area, and as such, its customer counts were down the most they've been in the last three years. Basket ring was up, however.

"Even though customer count was down in the [second] quarter, we're seeing an increased basket ring, so our customers aren't choosing to purchase less when they come in, they're just coming in less frequently," Walljasper explained, adding same-store sales improved in November now that the weather has stabilized.

In grocery and other merchandise, same-store sales for the quarter were up 1.9 percent with an average margin of 34.1 percent -- up 20 basis points from the second quarter a year ago. Year to date, same-store sales are up 4.1 percent with an average margin above goal at 34.2 percent. Despite pressures, gross profit for the category is up 7 percent for the year, and total sales year to date are up 6.3 percent to $573.5 million. The annual goal is to increase same-store sales 8.9 percent, with an average margin of 33.9 percent.

In terms of prepared food and fountain, Casey's was able to increase gross profit more than 15 percent in the quarter primarily due to lower commodity costs, particularly on cheese, and increased contribution from its expanded coffee and fountain offerings.

To date, roughly 750 locations have the expanded, 10-head fountain, and the rollout is continuing with another 50 to 75 stores being added per quarter. Company leaders believe most Casey's stores will be able to host the expanded unit. The retailer also is accelerating the rollout of its expanded coffee offering, with 120 stores now completed.

Same-store sales in prepared food and fountain were up 3.4 percent for the quarter, and 5 percent year to date. The average margin for the quarter was 64.6 percent, up more than 400 basis points from the same period a year ago. Total sales year to date are up 9.5 percent to $190 million, with an average margin of 64.2 percent. The annual goal is to increase same-store sales 7.5 percent with an average margin of 62 percent.

On the corporate side, operating expenses in the quarter increased 2.8 percent to $131 million. Moderate increases in wages, utilities and insurance were partially offset by savings in transportation costs and credit card fees as a result of lower retail gas prices from a year ago. Casey's anticipates more challenging comparisons in the latter half of the year given a higher gasoline price environment, but said it believe gains made in gross profit will more than offset this pressure. At mid-year, expenses are up 1.3 percent.

"These are outstanding numbers in light of the difficult comparisons to last year, and given the poor weather [in our area]," Walljasper commented during yesterday's call.

Casey's expansion goal for fiscal 2010 is to increase its total store count 4 percent. At the mid-year point, the company has acquired four stores, completed seven new-store constructions, and replaced 12 locations. The retailer said it anticipates building a total of 20 new stores and replacing 20 stores by the end of this fiscal year.

Casey's ended the second quarter with a total of 1,488 corporate stores.

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