Casey’s General Stores

"Pizza, Donuts & a Tank of Gas, Please!"

After our little excursion last week into the wild world of speculation, this week I'd like to introduce you to a relatively boring, but rock-solid and quite fast-growing company again. It's Casey's General Stores, a gas station chain that has spread mainly across small towns in the Midwest of the USA. In fact, Casey's General Stores is a lot more than just a gas station - with just under 2,200 locations, it operates not only the 4th largest convenience store chain, but also the 5th largest pizza chain (behind Pizza Hut, Domino's, Little Caesars Pizza & Papa John's) in the country.

So today, let's take a look behind the scenes of the Fortune 500 company and take a closer look at its history, its business model, and of course its future prospects.

The Origins and Business Model of Casey’s General Stores Inc.

Today's Casey's General Stores Inc. has its origins on June 25, 1903, when Domenic Lamberti was born in the small Italian town of Piandelagotti. Already in his early youth, Domenic realized that he wanted to seek his fortune in America. So he eventually emigrated and settled in Iowa. Since things weren't exactly easy for him as an Italian immigrant, at first he could only find a job in a mine. Dominic wasn't satisfied with that, though, which is why in 1935 he decided to open his own store in Des Moines. At first he only wanted to sell coal and ice there, but little by little his business developed into a small general store. Since more and more customers came by car, Domenic also decided to install a gas pump. In 1937, his son Donald F. Lamberti was born, who helped out in his father's store from early childhood on. At just 22 years old, he had to drop out of his accounting studies at Drake University and take over the family business, because his father's health had deteriorated drastically.

Over the next 9 years, Donald significantly expanded his gas station and the product range of his convenience store and became quite successful with it. He became friends with his gasoline salesman Kurvin C. Fish, who encouraged him to take over the Square Deal Oil Company, including its four gas stations and the three-story repair shop in Boone. Donald thought about it briefly and finally agreed, but only on the condition that his friend Kurvin would join the business and help him run it. When they were thinking about the company name, Lamberti's General Stores was on the table, but they also knew that some people didn't like Italians and wouldn't shop there for that reason alone. They wanted something generic, something nobody could object to - so they decided on Kurvin's initials K.C. [ˈkeɪ-ˈsiː], which eventually became Casey's General Stores.

In Waukee, a small community with only 1,500 residents, they opened a store built from the ground up, which immediately proved very popular. Already in the first year, they reached the income target they had actually set for the third fiscal year. Don and Kurvin noticed that they had less competition in smaller towns and had to pay significantly lower land prices. The larger convenience store chains like 7-Eleven and Circle K tended to focus on the profitable big cities, and gas stations and fast-food restaurants were also rather rare in smaller towns. From then on, Casey's General Stores focused mainly on communities with fewer than 5,000 residents. They had a solid and proven business model and wanted to keep expanding, but of course that cost a lot of money. So they quickly decided on a franchise model, which also proved successful fast. In addition, the company went public in October 1983 and was able to secure fresh capital there as well to keep growing. Just one year later, Casey's began selling freshly made pizza, and sandwiches and delicious donuts soon followed. To this day, Casey's General Stores has grown to more than 2,181 stores in 16 states in the Midwest of the USA.

How Could Casey's General Stores Develop in the Future?

First, I'd like to go over the figures from the most recently published quarterly report (Q2 2021 - ended October 31, 2020). During this period, earnings per share could be increased from 2.21 US dollars in Q2 2020 to 3.00 US dollars now. That's a whopping 36 percent growth! Granted, Casey's General Stores sold about 8.6 percent less fuel, but it was able to raise its margin in this business segment and thus increase profit here as well, by 45 percent. With its general merchandise and groceries, it also achieved 3.5 percent more revenue than in the prior-year quarter. Particularly noteworthy is the fact that Casey's General Stores achieved 127 percent more sales through its online platforms in the past quarter. It's probably no surprise that customers order delicious pizza and sandwich meals online, especially during the Corona lockdown. The company is also proud of its own rewards program Casey's Rewards, which recently passed the mark of 3 million members.

Of course, the executives of Casey's General Stores Inc. are also trying to keep growing in the future and therefore decided in November 2020 on the acquisition of Buchanan Energy, a convenience store operator with a total of 94 stores, mainly in Illinois and Nebraska. At around 580 million US dollars, this acquisition was the most expensive in the company's history, but I'm confident that this investment will pay off. Going forward, I can also very well imagine that Casey's will continue its expansion into other states and thereby also increase its revenues, profits, and dividend payments.

Speaking of Which, What About the Dividend?

Casey’s General Stores Inc. has been sharing its profits with its shareholders in the form of dividends since 1990. Since then, the company has managed never to cut the dividend again, although it wasn't raised every year. Looking at a 10-year period, the dividend was raised by an average of 10.3 percent. The current dividend yield is only 0.7 percent, but the payout ratio, at 14.7 percent, is extremely low as well. So there's still plenty of room for growth in the future.

Conclusion:
You'll probably hear or read about Casey's General Stores relatively rarely. It's just a rather unexciting business model, but it has been making long-term investors very happy for decades. I'm also very optimistic about the company's future, which is why I'll add a few shares to my portfolio when I get the chance.