By Teresa Rivas
Shares of Casey's General Stores soared Wednesday, notching a record intraday high, following robust fiscal fourth-quarter results and a dividend raise. Barron's readers already knew to expect good news -- and the CEO of the convenience store operator sees more to come.
Casey's delivered earnings per share of $2.34 in the quarter ended April 30, a country mile ahead of the $1.72 average estimate from analysts polled by FactSet. Revenue climbed 8.2% from the year-ago period to $3.6 billion, also beating analysts' $3.47 consensus forecast.
Inside same-store sales, which includes prepared food -- an increasingly important offering for C-stores -- jumped 5.6% from the year-ago period, and more than 12% on a two-year basis. Translation: More people are buying Iowa's favorite pizza.
They're also fueling up more, as same-store gallons of gasoline sold were up 0.9% from the year-ago period.
For the full year, Casey's expects inside-store sales to climb between 3% and 5%, and to add at least 100 new stores to its more than 2,600 locations. The company also voted to increase its quarterly dividend by 16% to 50 cents per share.
Casey's closed up 17% at $381.13, after briefly trading at almost $390. The stock is up more than 34% since Barron's recommended shares in January, easily outpacing the broader market.
Chief Executive Darren Rebelez spoke with Barron's on Wednesday, noting the results are a result of the convenience store operator's three-year plan firing on all cylinders. Its prepared food is booming, the company is growing organically and through acquisitions, and efficiency is improving -- allowing Casey's to retain more satisfied and productive employees, who in turn improve the customer experience. "It's a virtuous cycle," he says.
Rebelez also notes that acquisitions -- a major growth driver in the highly fragmented industry -- have been continuing apace for Casey's. While higher interest rates have increased the cost of capital, that's actually been somewhat to the company's advantage. Higher rates lower the pool of potential suitors for assets, and don't do much to hurt Casey's balance sheet, given the company's been able to fund all its recent M&A out of cash. That's allowed it to maintain modest leverage, and 1.5 times earnings before interest, taxes, depreciation, and amortization.
Casey's, a Midwest institution with a cult following, strategically targets locations within 500 miles of its distribution centers. While the chain currently operates in 17 states, Rebelez notes there's still plenty of white space in that category. "We haven't figured out a terminal number of locations we could have in Texas, but it's certainly a lot more than 22," he said, referencing the current number in the Lone Star State.
As for the state of the consumer, Rebelez says "there certainly is a bit of pressure on the consumer, but what we're finding is that translates into them being more discerning about where and how they spend, but everyone, lower and high income consumers, are still spending." For example, he notes that while lower-income shoppers might be shying away from candy bars, since high cocoa costs have pushed up prices, they've switched instead to Casey's bakery items. "They're not given up their sweet treats, just finding an alternative," Rebelez said.
As Barron's has noted before, C-stores are in a golden age, with increased traffic and customer loyalty, and Casey's is a prime example.
Rebelez believes that Casey's is successfully leading the evolution of the industry because of all the changes its made, from constantly menu innovation to improving its distribution capabilities -- but that at the end of the day, the company is following a relatively simple formula of giving the customers what they want at a fair price.
"We believe we're winning guests over and they're choosing to spend their discretionary dollars with us because it's a good store experience -- our locations are clean and well lit -- and because of our value proposition, as we have the products they want at the right price."
That might be easier said than done, but so far, Casey's is making it happen.
Write to Teresa Rivas at teresa.rivas@barrons.com
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June 12, 2024 16:13 ET (20:13 GMT)
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