Casey’s in Growth Mode

ANKENY, Iowa -- Months after being an acquisition target itself, Casey’s General Stores Inc. yesterday reported aggressive growth plans for the rest of this fiscal year and onward.

During a second-quarter earnings conference call, Casey’s CFO Bill Walljasper said the Iowa-based convenience store chain expects to acquire at least 74 stores in the third quarter, and he said it’s likely there will be even more acquisition activity than that.

"We’ve been taking steps to accelerate the business for some time," Walljasper said in response to an analyst’s question on whether the retailer has changed its growth rate in light of the recent attention from outside parties. Over the last 12 months, he said the company has quadrupled the number of outside realtors it works with to find properties for new stores and acquisitions. "We’re starting to see some of the benefits of that," Walljasper noted.

Of the 74 stores, Casey’s has already closed on 19 of them, and is in the process of closing on another 44. These acquisitions will start contributing to earnings in the third quarter.

In addition to acquisitions, the company is on pace to build a total of 20 new stores and replace 15 stores by the end of this fiscal year. Now at the halfway point, the chain has completed eight new store constructions, along with 12 major remodels during these first six months.

Noting that Casey’s is positioned very well to keep growing, Walljasper said the retailer is looking to accelerate both its new remodel program and new store construction. In terms of new ground-up stores, Walljasper said he expects 35 to 40 locations to be built next fiscal year.

The new remodel program, which just began in August, is showing "some strong revenue movement … We’re seeing some glimpses of what that can do for us," he said.

Earlier this year, Walljasper told CSNews Online that Casey’s was developing a new remodel program that would be put in place in fiscal 2011 -- one that is less expensive to execute, but still incorporates the chain’s new store design features including expanded cooler space, a made-to-order sandwich program and expanded coffee program. "We are just looking for the most cost-effective design to bring these items to our customers," he said at the time.

During yesterday’s conference call, Walljasper also released metrics on how Casey’s stores sporting its new design are performing compared to the existing store base. Newly designed stores are seeing gas gallons up 29 percent; grocery and other merchandise up around 11 percent; prepared food up roughly 62 percent; and customer count up about 20 percent.

Second Quarter Results

For the second quarter of fiscal 2011, which ended Oct. 31, Casey's reported 51 cents in basic earnings per share. According to the company’s earnings release, the results include approximately $19.4 million in expenses pertaining to the recapitalization plan completed in the second quarter, as well as the unsolicited hostile offer and related actions by Alimentation Couche-Tard Inc.

Without those expenses, basic earnings per share would have been 81 cents compared to 66 cents for the same quarter a year ago -- up 22.7 percent. Year to date, basic earnings per share were $1.27 vs. $1.53 for the same period last year. Excluding expenses related to the hostile offer and recapitalization plan, mid-year basic earnings per share would have been $1.62.

"We are pleased with the second quarter results driven by strong sales increases across all categories," President and CEO Robert J. Myers said in a statement. "We expect additional revenue growth as we close on more acquisitions during the third quarter."

Gasoline: The company's annual goal is to increase same-store gasoline gallons sold 1 percent with an average margin of 13.5 cents per gallon. For the second quarter, same-store gallons sold were up 3.6 percent with an average margin of 14.9 cents per gallon. "We anticipate the favorable gasoline environment to continue throughout the third quarter," Myers said. Same-store gallons sold for the year increased 2.5 percent with an average margin of 15.7 cents, while gross profit rose nearly 13 percent. For the year, total gallons sold were up 8 percent to 712.1 million.

Grocery & Other Merchandise: Casey's annual goal is to increase same-store sales 6 percent with an average margin of 33.9 percent. For the second quarter, same-store sales rose 6.9 percent with an average margin of 32.9 percent. For the six months ended Oct. 31, same-store sales were up 4.2 percent with an average margin of 32.9 percent. "More favorable weather and increased promotional initiatives helped drive sales during the second quarter," Myers stated. "Competitive cigarette pricing continued in the second quarter, putting pressure on the margin. However, we were pleased with the overall gain in gross profit dollars." Total sales for the year are up 9.2 percent to $626.1 million.

Prepared Food & Fountain: The fiscal 2011 goal is to increase same-store sales 8.9 percent with an average margin of 63.1 percent. Same-store sales were up 7.2 percent for the quarter and 4.8 percent year to date. The average margin for the quarter was 62.7 percent; down from a record high margin in the same period a year ago, primarily due to a rise in commodity prices. "We benefited from value-oriented promotions throughout the quarter, driving total sales by 13 percent and increasing gross profit 9.6 percent," Myers said. "Despite the challenging economy, we are encouraged by the continued strong performance of this category." Year to date, total sales are up 10.3 percent to $209.6 million, compared to $190 million with an average margin of 63.2 percent.

Operating Expenses: For the quarter, operating expenses increased 17 percent to $153.3 million. Excluding expenses associated with the unsolicited hostile offer by Couche-Tard, expenses increased 10.8 percent. "The increase was driven by a $2.5 million increase in credit card fees, and expenses associated with operating more stores this quarter compared to the same period a year ago," according to Myers.

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