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    Casey's General Eyes Acquisitions

    Growing chain expects credit crisis to push smaller operators to exit the business.

    ANKENY, Iowa -- Casey’s General Stores Inc. plans to keep expanding, and is optimistic today’s economic conditions will make for a favorable acquisitions market, Chief Financial Officer Bill Walljasper said in an earnings conference call yesterday.

    “What makes us more optimistic is our market area is very fragmented -- two-thirds of our market is operators of 10 stores are less,” he said, noting the current credit crisis will likely push some smaller operators to seek an exit from the business.

    With $137 million in cash and cash equivalents, and a healthy line of credit, Walljasper said the company is in a good position to acquire smaller chains, and the retailer is not counting out a larger acquisition deal. “We’re always looking for opportunities of a larger scale, but we’re also not going to discard those smaller opportunities,” he said.

    Casey’s also expects more opportunities to present itself now that the disparity between buyer and seller expectations is lessening. “The disconnect we were seeing over the last 12 months is narrowing,” Walljasper said. “It wasn’t uncommon to see double-digit requests, but now the multiples are coming into line more like they have in the past.”

    The company’s growth plans for fiscal 2009 still call for a 4 percent increase in its total number of stores. As of Oct. 31, Casey’s acquired 11 stores and completed four new store constructions. By the end of this fiscal year, the retailer expects 20 new builds, adding to its current count of 1,462 corporate stores and three franchise locations.

    Also on the conference call, Walljasper reviewed Casey’s second-quarter earnings. Total sales year to date were up 12.2 percent to $173.4 million with an average margin of 60.5 percent. Same-store sales increased 10.8 percent, Casey’s reported. Despite the challenging economic environment, Casey’s reported same-store sales in all its categories were positive for the quarter, and customer traffic remained solid.

    Casey's annual goal is to increase same-store gasoline gallons sold by 2 percent with an average margin of 10.8 cents per gallon. Same-store gallons sold were up 0.2 percent for the second quarter and up 0.3 percent in the first six months of fiscal 2009.

    “We experienced a significant decrease in the average retail price per gallon during the quarter and are encouraged by the improved same-store gallons sold in October," Casey’s President and CEO Robert J. Myers stated in the earnings report released Wednesday.

    Favorable market conditions continued in the second quarter resulting in an average margin of 13.7 cents per gallon and 14.7 cents year to date. Mid-year total gallons sold rose 1.3 percent to 634.8 million, while gross profit increased to $93.1 million compared with $92 million a year ago.

    In grocery and other merchandise, Casey’s annual goal is to increase same-store sales 7 percent with an average margin of 33.2 percent. Same-store sales were up 4.9 percent for the second quarter and up 4.8 percent year to date. Total sales for the quarter were up 6 percent with an average margin of 33.9 percent, and gross profit rose 8.5 percent to $89.8 million. "We benefited from enhanced profitability in the beer and beverage categories and increased pack vs. carton sales in cigarettes," said Myers. Year-to-date total sales were $539.1 million with an average margin of 34 percent.

    For its prepared food and fountain the retailer’s goal is to increase same-store sales 6.8 percent with an average margin of 61.2 percent. Same-store sales in the second quarter were up 9.3 percent with an average margin of 60.6 percent. Total sales for the quarter rose 11 percent to $87.8 million. "Strategic price increases and continued popularity of menu offerings allowed us to improve gross profit in a difficult market," stated Myers. "We are beginning to see commodity cost pressures soften and we are hopeful this trend will continue."

    Operating expenses during the second quarter increased 10.3 percent to $127.3 million. "Expenses were affected by several large health insurance claims, higher diesel fuel costs and a 22 percent rise in credit card fees," said Myers. "We anticipate more favorable credit card fees in the latter half of the fiscal year given the current lower gasoline price environment." For the year, expenses were up 9.6 percent.

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