Background

Casey’s General Stores operates more than 2,000 stores offering self-service gasoline, groceries and freshly prepared food in the Mid-West region of the USA.

The company has grown consistently since opening its first store in 1968 in Boone Iowa, and foresees a long runway of continuous growth ahead.

Financials

The company has consistently grown revenue and profits, but not at a consistent rate. Because the business relies on the sale of gasoline, margins fluctuate. The volume of fuel sold does not correlate with revenue because the price of oil fluctuates. Because of this, the headline financial numbers do not always reflect the company’s underlying performance.

Unlike many retail operations, the company owns most of its properties, which adds considerable strength to its balance sheet.

A characteristic of a strong retail business, is that it generates consistent cash flows – and Casey’s is no exception. It typically utilises all of the cash it generates to purchase new property to increase its store count.

Management

The CEO, Darren Rebelez is relatively new, having had experience at 7-11 and IHOP before joining Casey’s to replace long-time Casey’s man Terry Handley. Rebelez is committed to a continuing growth strategy and is implementing a long term value plan to put the company’s technology and processes on a modern footing (to include e-commerce, a fleet programme, and a mobile app).

Outlook

Casey’s has been successful to date because it has found a very comfortable niche. Small towns do not have the population to support large supermarkets, but need access to fuel, groceries and convenience food. Casey’s has built a solid reputation for providing a reliable service in all three, particularly in the area of food, where it’s pizza is a big favourite.

Businesses with strong cashflow and large expansion potential can be very big winners over the long term. Casey’s is the sort of business that can be patchy from quarter to quarter, but as long as the business continues to produce cash and expand its store count, long term value creation is assured.

Problems and Pitfalls

Casey’s relies on its fuel stations to bring in customers who are encouraged to buy groceries and food. As the industry switches to electrification the demand for fuel will reduce. Casey’s is addressing this by adding EV charging stations to some of its stores, but most EV owners charge at home, so the demand for charging will be considerably less than the demand for fuel.

As Casey’s expands its stores into larger towns, they will come up against more competition. Some major grocery players are also looking to expand  down market, bringing competition to Casey’s on its home turf.

CEO Darren Rebelez is new to the job, and it is not guaranteed that his strategy of upgrading Casey’s technology and processes will prove effective.

Summary

Casey’s stores have managed to expand consistently for over 50 years. This is a business that is prone to swings in performance, and as such, likely to try the patience of shareholders from time to time. But as long as they can meet the challenges of modernisation and electrification, there is little reason to doubt that they can continue to expand and add shareholder value well into the future.