Casey's Takes the Pulse of Its Value Creation Plan

ANKENY, Iowa — Coming up on a year since shareholders began making noise about the company's performance, Casey's General Stores Inc. is pleased with the progress of its value creation plan.

In the early days of 2018, JCP Investment Management LLC, BLR Partners LP and Joshua E. Schechter issued an open letter to Casey's shareholders pushing for a strategic review of the company, as Convenience Store News previously reported. In response, the retailer unveiled a roadmap to drive store growth and increase company value through its 2021 fiscal year.

The multi-year, long-term value creation plan is comprised of several key programs and value drivers:

• A new fleet card program,
• Retail price optimization,
• Digital engagement transformation, and
• A focus on controlling operating expenses and capital allocation.

Speaking during the company's second-quarter fiscal 2019 earnings call on Dec. 11, Casey's President and CEO Terry Handley said the execution of the value creation plan is on schedule.

"We are confident these key areas of focus will drive accelerated growth and profitability, and deliver increased returns for shareholders," he said. "We have completed several key milestones over the course of the last quarter."

Casey's launched a new fleet card program in late October with FleetCor as its vendor partner. Although it is still early in the process, preliminary results show the retailer is on target with 30 new accounts and 3,000 cardholders to date.

"We expect to see the benefits of this program in Q3 of fiscal 2019," Handley noted.

In addition, Casey's has made progress on its fuel product optimization plan. Year to date, it has converted 592 stores to biodiesel and 144 stores to premium or diesel fuel. By the end of the third quarter, the company plans to add premium or diesel fuel to 172 additional stores.

"Diesel, biodiesel and premium fuel all carry a higher margin than other fuel products," Handley explained. "We believe these will have a positive impact to our overall fuel margin going forward."

Price optimization is another key program in the value creation plan. This initiative, now being piloted, will allow the retailer to leverage the sales data generated by its network of convenience stores combined with market data to make centralized, rules-based decisions at the pump and in the store, which Casey's expects will improve sales and margins across all categories throughout its network.

"We currently have an ongoing price optimization pilot in the fuel category utilizing PriceAdvantage. Upon completion, we will begin a phased rollout of this program to all stores with a completion scheduled by the end of this fiscal year," reported Handley. 

Inside the store, Casey's has selected Dunnhumby to be its vendor partner for price optimization.

"We have recently hired a retail pricing analytics manager and will continue to build out that team. In Q3, we will begin a test-and-learn phase to help identify and finalize the categories that will be used for the pilot," he said. 

That pilot is currently scheduled to begin in the fourth quarter. The broader rollout of price optimization inside the store will most likely occur in the first quarter of fiscal 2020; however, the timing will depend on the outcome of the pilot, according to Handley.

"This program represents a fundamental shift in our marketing process for both fuel and in-store purchases supported by an increased visibility into our pricing and promotion strategy," he said. "We are confident in these programs and the benefit they will bring to the company."

Growing its Footprint

Casey's value creation plan calls for a disciplined approach to capital allocation and increasing shareholder value through dividends and share repurchases, too.

The capital allocation strategy, according to Handley, will continue to prioritize investments with attractive return profiles, including the retailer's value creation plan programs and disciplined store growth through new store construction and strategic acquisition opportunities.

Heading into this fiscal year, Casey's set a target to build 60 new convenience stores and acquire 20 locations. At the six-month mark, the company had opened 25 new stores, acquired three stores and had 23 additional stores under agreement to purchase. Currently, it has 36 stores under construction and 95 more sites in its land bank.

"We are on track to achieve our unit growth target and believe we are positioned well for future growth," Handley stated.

Distribution Review

In anticipation of the increased sales volume generated by its value creation plan and new store growth, Casey's recently undertook a process to evaluate its distribution system and identify long-term optimization opportunities with a focus on cost and efficiency. 

The retailer completed this process — which included looking at alternative systems — this past quarter.

"We believe our business model of serving small, rural communities and suburbs is a strategic advantage. This evaluation enabled us to conform our self-distribution model to better serve those locations," the chief executive said.

"Our role as wholesaler and distributor has a financial advantage that cannot be replicated with a move to a third-party distributor," he continued. "We remain confident that self-distribution as our core supply chain strategy is the optimal level of efficiency to increase shareholder value." 

Ankeny-based Casey's General Stores operates more than 2,000 convenience stores in 16 states in the Midwest and South regions of the United States.