Casey's General Stores undercuts Domino's with $13.99 pizza

Shares trade at 34 times forward earnings after 36% year-to-date gain

Casey’s General Stores has built its position against the major pizza chains on price. The convenience-store operator sells a large pizza for $13.99, roughly 22% below comparable pizza offerings, according to a William Blair report cited by The Wall Street Journal. Domino’s, Papa John’s and Pizza Hut price comparable pies closer to $20, the WSJ noted. The chain’s cheaper offering has resonated with inflation-weary consumers, the newspaper said.

The pricing gap has translated into sustained share gains. Casey’s same-store sales growth in prepared food and dispensed beverages exceeded Domino’s U.S. results in 18 of the last 20 quarters, according to Wells Fargo data cited by the WSJ. William Blair equity analyst Phillip Blee attributes the chain’s capacity to keep prices low to its structure: every store is owned and operated by Casey’s, eliminating royalty and franchise fees, and the multi-product mix — groceries, fuel and tobacco alongside pizza — lets the company distribute labor and fixed costs across more revenue than pizza-only chains.

Smaller competitors have struggled under the same pressures. Surging labor and input costs have left mom-and-pop convenience stores with no choice but to raise fuel prices, which in turn has improved fuel margins for larger chains such as Casey’s, giving them further room to keep pizza prices competitive, Blee said.

The financial results have followed. Casey’s earnings before interest, taxes, depreciation and amortization expanded at a compound annual growth rate of 16% over the last three fiscal years, the WSJ reported, citing company filings. Costco’s EBITDA grew at a 9.3% rate over the equivalent period. Casey’s has also returned roughly 10% or higher on invested capital in each of the last seven fiscal years.

Casey’s shares have gained 36% year to date and trade at about 34 times forward earnings — placing the stock alongside Costco’s 42 times among the most richly valued retailers in the S&P 500, the WSJ reported.

The convenience-store industry remains highly fragmented, leaving acquisition-driven expansion available. About 63% of U.S. convenience stores are owned by entities with 10 or fewer stores, according to NACS, a trade association cited by the WSJ, giving Casey’s considerable runway to consolidate.

Menu expansion is another potential driver. Casey’s is beginning to roll out a wings business it expects to reach all of its stores over the next two years, the company told investors at its investor day earlier this year. About half of Casey’s stores have no national pizza or wing chain competitor within five miles, the company said at the same meeting.

The WSJ’s Markets A.M. newsletter framed Casey’s as a defensive consumer play investors may be seeking in the current environment. Oil prices were rising on Tuesday morning after President Donald Trump on Monday threatened more strikes on Iran, the newsletter reported. Bond yields around the world continued marching higher: the 10-year Japanese government bond yield crossed 3% to hit a 30-year high, the 10-year German Bund yield reached 3.339% — its highest since 2011 — and the 10-year U.K. gilt yield rose to 5.234%, the highest since 2008, the newsletter added.