This surprise action killed the S&P 500 for 20 years, and it’s not slowing down

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Known for its homemade pizzas, chain of convenience stores Casey General Stores (CASY 0.11%) has delivered remarkable returns to its investors over the past 20 years: an average of more than 17% per year, roughly double the S&P500 during the same period. And this surprising consumer goods stock is trading near its all-time high.

And, yes, there’s good reason to think there could be even more in store for investors in the years to come. Let’s see why.

Community centers built on pizza and gas

Casey’s operates more than 2,400 stores in 16 states – and with a vision that sets it apart from other convenience stores. The company shows its concern for small towns in the Midwest with its stated goal “to improve the lives of communities and guests every day.”

The company launched its made-from-scratch pizza in 1984 and became the fifth largest pizza chain in the United States. Casey’s is known for its innovative pies, including a breakfast pizza, taco pizza, and its new barbecue brisket pizza. To celebrate the 21st anniversary of its breakfast pizza, Casey’s recently launched a beer cheese breakfast pizza. Yes, you read that right.

But there is more than pizza. In their respective cities, Casey General Stores serve as both a convenience store, restaurant, gas station, electric vehicle (EV) charging station and community gathering place. Its recession-proof consumer staples and diversified business model have also allowed Casey’s to thrive in a variety of economic conditions.

A high price for cheese

Although well-diversified, Casey’s is struggling with increased operating costs due to inflation and supply chain disruptions. In the first quarter of its fiscal year 2023, the company’s domestic margin – that is, its profit margin derived from non-fuel sales – fell 70 basis points from the same period last year. last.

The hardest hit segment was its prepared food and beverage distribution margin, which fell 540 basis points year-over-year. Rising raw material and ingredient prices (particularly cheese) hurt profit margins the most. Casey’s suffered a more than 30% increase in cheese prices year over year.

To combat shrinking margins for its flagship pizza and other convenience foods, the company took steps during the quarter to improve its distribution network. On the one hand, Casey’s sourcing team improved product availability in stores compared to last year, maintaining optimal inventory levels and preventing shortages. The team also used “strategic sourcing initiatives” to purchase merchandise at the best possible prices, reducing the cost of groceries and general merchandise.

Record quarterly profits

Casey’s set a new record for gross profit in the first quarter of its fiscal 2023 at $836 million, a 16% year-over-year increase. Chief Financial Officer Steve Bramlage said the record performance was due to strong internal (non-fuel) and fuel profits, up 9% and 31% respectively.

Although prepared food margins declined due to soaring cheese prices, the company helped mitigate the damage by growing its grocery and general merchandise margin by nearly 34% year over year. ‘other. According to Bramlage, the margin improvement “is an impressive feat given the inflationary environment, and it’s a testament to the merchandising team’s ability to manage margin through sourcing, product range and retail adjustments”.

Casey’s generated $4.5 billion in revenue in the first quarter, a notable 40% year-over-year increase. And first quarter diluted earnings per share were $4.09, a 28% improvement over last year and a first quarter record.

Things look good for Casey General Stores. If it continues to execute on its business model, this hidden consumer staples stock could soon reach new all-time highs.

Micah Angel has no position in the stocks mentioned. The Motley Fool recommends Casey’s General Stores. The Motley Fool has a disclosure policy.

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