Will Casey’s General Stores Be Stocked With Everything an Investor Needs?

Source: Thinkstock

Source: Thinkstock

Casey’s General Stores Inc. (NASDAQ:CASY) just presented an earnings beat that is driving shares to new highs. It operates convenience stores under the Casey’s General Store name in 14 Midwestern states — primarily Iowa, Missouri, and Illinois. Its stores offer a selection of food, including pizzas, donuts, and sandwiches; beverage and tobacco products; health and beauty aids; automotive products; and other nonfood items. The company also engages in the retail sale of gasoline or gasohol under the Casey’s name on a self-service basis. It operates approximately 1,800 stores. In the last year, the stock has appreciated 18 percent. But can this momentum continue and drive the stock to new highs? An analysis of the company’s recent performance provides insight.

In its most recent quarter, the company reported diluted earnings per share of $0.59 for the fourth-quarter of fiscal year ended April 30, 2014 compared to $0.60 for the same period a year ago. For the year, diluted earnings per share were $3.46 versus $2.86 for the same period last year. These earnings were driven be sector gains in fuel, grocery and merchandise, and prepared food and drinks.

The company’s annual goal for fiscal 2014 was to increase same-store gallons of fuel sold 1.5 percent with an average margin of 15 cents per gallon. Annual same-store gallons sold were up 3.1 percent with an average margin of 16.8 cents per gallon. For the quarter, same-store gallons rose 1.8 percent with an average margin of 13.8 cents per gallon. The company sold 12.1 million renewable fuel credits for $5.7 million in the fourth-quarter. For fiscal 2014, total gallons sold were up 8.5 percent to 1.7 billion, while gross profit dollars rose 20 percent to $280.1 million. Casey’s fiscal 2014 goal was to increase same-store grocery sales 5 percent with an average margin of 32.3 percent.

For the year, same-store sales were up 7.4 percent with an average margin of 32.1 percent. For the quarter, same-store sales were up 7.2 percent with an average margin of 32.1 percent. For fiscal 2014, total sales were up 11.6 percent to $1.6 billion, while gross profit dollars rose 9.8 percent to $507.9 million. Casey’s annual goal was to increase same-store food abd beverage sales 9 percent with an average margin of 62 percent. For the year, same-store sales were up 11.8 percent with an average margin of 61.1 percent. Same-store sales for the fourth quarter increased 12.1 percent with an average margin of 60.1 percent. For fiscal 2014, total sales were up 16.7 percent to $659.2 million, while gross profit dollars rose 15.5 percent to $403 million.

For the fiscal year, operating expenses increased 12.7 percent to $857.3 million. For the fourth-quarter, operating expenses were up 10.0 percent. The annual company goal was to build or acquire 70 to 105 (4-6 percent) stores and replace 20 existing locations. For the fiscal year, the company built 44 new stores, acquired 28 stores, and also completed 20 replacements as well as 25 major remodels. The company currently has 27 new stores and 23 replacement stores under construction, as well as 38 new sites, 28 replacement sites, and 5 acquisition stores under contract to purchase. The company recently announced plans to build a second distribution center in Terre Haute, Indiana to facilitate store growth as well as provide a more efficient distribution system to the existing chain.

Finally, at its June meeting, the Board of Directors increased the quarterly dividend to $0.20 per share. The dividend is payable August 15 to shareholders of record on August 1st, 2014. Chair and CEO Robert J. Myers stated:

Inside sales were up over 13 percent for the fiscal year, and total fuel gallons sold increased by over 8 percent. We were able to add new stores and acquisitions in a disciplined manner while at the same time enhance the performance of our existing store base. Fuel margins tightened in the fourth-quarter primarily due to less volatility of wholesale costs. The fuel saver program provided a boost to same-store gallons for both the fourth-quarter and the year. Sales throughout the entire category performed well during the fourth-quarter despite the unseasonably cold weather. Although cigarettes pressured margin in [the merchandise category] throughout the year, we believe the competitive environment has stabilized resulting in a slight improvement in cigarette profitability in the fourth quarter.

Even though rising cheese and meat costs adversely impacted the margin, we were still able to grow gross profit dollars by over 16 percent in the fourth-quarter compared to the same period last year. Our sales continue to benefit from expanding operations to 24-hours a day, adding pizza delivery, and completing major remodels. We also implemented strategic price increases at the start of fiscal 2015 to partially offset rising input costs. Both the annual and quarter expenses were up primarily due to new, acquired and replaced stores, along with the various operating initiatives that have been implemented in existing stores. We continue to execute our prudent growth strategy of blending new store growth with acquisitions, and reached a milestone in the fourth quarter as we now operate over 1,800 stores. Casey’s is off to a great start to fiscal 2015 as we completed the 24-store Stop-n-Go acquisition in May.

Looking ahead, the company’s performance goals for fiscal 2015 are lofty. The company is hoping to increase same-store fuel gallons sold 1 percent with an average margin of 15.3 cents per gallon. It also wants to increase same-store grocery and other merchandise sales 5.3 percent with an average margin of 32.1 percent. Finally, it wants to increase same-store prepared food and fountain sales 9.5 percent with an average margin of 60 percent and build or acquire 72 to 108 stores. Given the earnings beat, the growth trajectory of the company, the margin expansion, and the increased dividend, the stock is a good buy going forward.

Disclosure: Christopher F. Davis holds no position in Casey’s General Stores and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $82 price target.

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