Casey's General Stores (Nasdaq:CASY) operates a modest but growing amount of convenience stores, primarily throughout the Midwest. Recent sales trends have been difficult, but Casey's continues to demonstrate it can, primarily due to its food sales, grow profits in what is a challenging business even in the best of economic times.

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Falling Sales
Sales fell 27% as challenging economy took its toll on the top line, but trends in key categories held up. Gasoline, which makes up the bulk of sales yet sells for razor-thin margins, posted same-store gallons-sold growth of 1.2% on average margins of 12 cents. Moving up the profitability chain, grocery and related merchandise sales reported a same-store sales increase of 8% and average margin of 32.9%, while prepared food and fountain products saw positive comps of 7.2% and impressive margins of 62.7%. (Learn what determines the price you pay at the pump in our article, What Determines Gas Prices?)

Rising Costs
Operating expenses
increased 7.1% during the quarter, which was primarily attributed to a one-time litigation charge. The end result was a slight improvement in earnings to 31 cents per diluted share that came in ahead of analyst projections. Full-year trends were similar, with decent sales results and modest expense growth allowing Casey's to eke out a one cent earnings growth to $1.69 per diluted share.

Still Growing and Relatively Strong
Management stopped short of offering specific earnings guidance, but analysts currently project $1.73 in coming full-year earnings, which would again represent modest growth from the just completed fiscal year. Guidance from the company pertained to its three sales categories, including 2% gasoline comps and high single-digit comps in the higher-margin grocery and prepared food products.

Archrival the Pantry (Nasdaq:PTRY) reported similar sales and earnings results during its most recent quarter, but its stock has struggled so far this year compared to the market and Casey's. Casey's is also way less leveraged than the Pantry, which will work in its favor as long as economic growth trends remain difficult.

Bottom Line
Despite the near-term top line turbulence, Casey's has proven adept at operating in a tough business. A number of major integrated oil firms have been throwing in the towel on operating convenience stores. Last June, Exxon Mobil (NYSE:XOM) announced it was selling more than 800 company-owned stores, with similar moves from BP plc (NYSE:BP) and Royal Dutch Shell plc (NYSE:RDS.B). That's good news for Casey's and leaves it room to build on its current store base of nearly 1,500 stores. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

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