Server: Netscape-Enterprise/2.01 Date: Mon, 29 Dec 1997 17:56:59 GMT Content-type: text/html Letter to our Shareholders



To Our Shareholders:

Our company turned in a solid performance in the year just ended, highlighted by sales of $1.1 billion, a 16.2 percent increase, and record earnings of $27.0 million, or $1.03 a share. Volatility in wholesale gasoline prices, particularly in the third quarter, kept earnings from going higher. The fourth quarter returned us to more normal gasoline profit margins, edging us into record earnings for the year.

The standout performance was the opening of 70 new stores, the highest number ever for a 12month period. At year-end, there were 1,042 stores flying the Casey's banner, a reflection of our continued success in meeting the needs of an expanding customer base. The customer count per month is now approaching the 20-million mark.

Most new stores are approximately 20 percent larger than earlier plans, and are designed to further improve customer convenience, both inside and outside. Larger kitchen areas and more space for customers to access self serve beverage and food areas helped us improve inside-store sales, particularly in the preparedfood category where sales were up 9.4 percent in 1997. At the gasoline islands, customers are purchasing nearly twice as much gasoline now as they did five years ago. One reason is because newer stores feature more dispensers and larger, more accessible drive areas. In other words, we've improved the "convenience" of our store operations, which is exactly what the customer demands.

When you compare us to the convenience-store industry, Casey's sales have been climbing at a doubledigit rate over the past several years, while the industry's growth has been about half as fast.

The difference, in my opinion, is because of our commitment to staying the course. For example, while many in the business are choosing to cobrand, or partner with national fastfood providers, Casey's is staying with in-house brands of pizza, donuts and other prepared-food products. The intent is to build and maintain customer loyalty with products where we control the quality and the pricing.

In addition, we sell only those items that make sense in our markets, choosing, for example, to forego home video rental services that would clutter stores and create backups at the checkout counters. It seems to us, if we try to be all things to all people, we'll end up being less convenient, which is contrary to the purpose of being in the conveniencestore business.

Having said this, keep in mind that re-evaluating, finetuning and adding new products is an ongoing process. An example is automated teller machines (ATMs). Customers appreciate the convenience of having these machines in stores, and we're responding. Since most ATM transactions involve cash withdrawals, this puts money in our customers' hands while they are shopping. At year-end, approximately 100 stores were equipped with ATMs, and dozens more will be added this year.

Capital spending, with funds generated primarily from internal sources, rose 10.5 percent in 1997, to a record level of $66.7 million. The lion's share went for new-store construction. Plans call for capital spending of approximately $75 million in the current fiscal year, as we invest in 75 more new stores. If we meet our goal, we'll have 1,117 stores at the end of this year, and 1,197 at fiscal year-end 1999.

As shareholders, you share in this growth through improvement in shareholders' equity. This grew by 12.5 percent in 1997, to $231.9 million. Over the past five years, shareholders' equity has more than doubled, solid evidence that Casey's is indeed a growth company.

As we move forward, we remain committed to a two-part strategy; first, to improve profitability at existing stores and second, to aggressively expand into more markets with more stores. We saw solid improvements in sales in 1997. Given steadier world oil prices, I'm optimistic we will have more favorable profit margin comparisons in the quarters ahead. In fiscal 1997, average operating income per company store declined by 6.4 percent, primarily because of lower gasoline profit margins. Going forward, we'll be carefully monitoring and reacting to wholesale price changes in the days and months ahead.

A strong brand identity is proving to be a major asset as we expand with new stores throughout our nine-state market territory. New stores are reaching profitability faster, which we attribute to customers eagerly anticipating the arrival of a Casey's store and their willingness to begin shopping as soon as the doors open.

Several stores are being built in suburban areas near mid-size cities. While our major focus continues to be on smaller communities in rural areas, when an opportunity is available in a larger population area, we are stepping forward. In determining a store location, the two elements we look for are, one, a large enough nearby residential area capable of supporting a store or, two, a nearby business operation, school or other organization with a considerable number of employees. Obviously, the best location combines both elements.

As we celebrate the opening of the 1,000th Casey's store and more than $1 billion in annual sales, it is appropriate to express deep appreciation to the thousands of employees who are committed to making this company the best in the industry. We've had a tremendous run since the first store opened 28 years ago. However, I am convinced that even better years lie ahead for employees, shareholders and, most importantly, customers. The corporate goal is to conscientiously balance the interest of all three groups, knowing that if we do this successfully, all will benefit.

Donald F. Lamberti

Chairman and Chief Executive Officer
July 15, 1997


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