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High-Octane Results at Casey's

Convenience store operator Casey's General Stores (Nasdaq: CASY  ) didn't meet most of its margin goals for fiscal 2007, but still was able to blow by analyst expectations with its results released Wednesday night, sending its stock to a new high Thursday.

Full-year sales jumped more than 15% as Casey's acquired 52 stores and built another eight. Plus, numbers in its three key sales categories improved markedly. Growth in same-store gasoline sales fell below management's 2% goal, but still was a respectable 1.4% because the company was able to pass along higher wholesale costs to gas-guzzling consumers. Grocery and other merchandise comps improved 4.6%, benefiting from a one-time cigarette sale benefit. Finally, comparable sales improved the most in the prepared food and fountain category, rising an impressive 11% and "well above goal."

Casey's received a boost where it matters most -- fountain drinks and prepared foods carry the highest margins. The stronger sales trends were nearly offset by a 13.4% increase in expenses, as total earnings advanced only a couple of percent for the year. However, bottom-line results beat analyst projections by almost 8%, coming in at $1.23 per share.

Management also announced a dividend increase and offered fiscal 2008 goals that are similar to last year's expectations. It fell short of announcing specific sales and earnings guidance, but is again calling for the strongest comps in fountain foods and beverages, and plans on acquiring another 50 stores by year-end, including 10 the company will build itself.

Overall, Casey's is putting together a nice string of growth: Sales and earnings have increased more than 10% annually over the past five years. It only operates in about nine Midwestern states, so it has plenty of room to grow, and the industry is highly fragmented, with many mom-and-pop shops. The Pantry (Nasdaq: PTRY  ) is one of the only pure competitors, while grocery store chain Kroger (NYSE: KR  ) also runs some convenience stores. All have plenty of real estate to expand into.

Casey's focus on small, rural locations also keeps it out of the clutches of larger retailers with convenient locations to purchase food, beverages, and related merchandise. In other words, you're less likely to find a CVS (NYSE: CVS  ) , Walgreen (NYSE: WAG  ) , or even a Wal-Mart (NYSE: WMT  ) store in the vicinity of a Casey's, which leaves more room for it to hawk its high-margin sodas and sandwiches to those passing by.

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Fool contributor Ryan Fuhrmann is long shares of Walgreen but has no financial interest in any other company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.

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