Casey's Burns Bright

The share price of convenience store operator Casey's General Stores (Nasdaq: CASY  ) is fast approaching its 52-week highs, as the company just posted high-octane first-quarter results. The future also looks bright as Casey's grows and consolidates the fragmented convenience store industry.

Total quarterly sales advanced an impressive 16.8% as management met most of the goals it laid out last quarter. Same-store gasoline sales growth of 0.3% fell below internal expectations, but margins jumped to 15.8 cents per gallon as a "combination of a more stable retail pricing environment and a declining trend in wholesale costs" offset the fact that consumers are trying to use less gas because of high prices.

Casey's pointed out that slower growth in new gas-guzzling clients "did not slow our inside sales," meaning shoppers continue to head from the gas pump into the store to purchase high-margin grocery items, fountain drinks, and prepared foods. The company breaks this into two categories -- grocery & other merchandise comps improved 9.1% as margins grew to 34%, and prepared food and fountain same-store sales grew 9.5%, with margins increasing to 61.7%.

Gasoline continues to account for more than 70% of sales, but Casey's is growing rapidly where it matters most -- inside the store. Additionally, it has a goal of acquiring 50 stores and opening 10 by the end of this year. Management admitted its store-acquisition strategy is off to a slow start as it only purchased two stores during the quarter, but it has already committed to five other buyouts and sees "ample buying opportunities in the coming months" as the industry is wide open with plenty of mom-and-pop shops.

The Pantry (Nasdaq: PTRY  ) pursues a similar strategy, but its Southeastern focus doesn't yet overlap with Casey's Midwestern heritage. Kroger (NYSE: KR  ) also operates some convenience stores, and 7-Eleven is one of the largest operators, but the space remains ripe for consolidation. Casey's small-town focus also keeps it clear of giant food and gas retailers such as Kroger, Wal-Mart (NYSE: WMT  ) , or Costco (Nasdaq: COST  ) , meaning it can be the only game in town in certain rural locales.

As long as Casey's can keep a tight lid on expenses, as it did during the quarter, its growth potential remains substantial. It also handily beat quarterly expectations by growing earnings almost 76%, suggesting there is plenty of fuel to keep Casey's burning strong.                                      

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