CST Brands Continues to Reshape Its Portfolio
SAN ANTONIO — These are certainly busy times for CST Brands Inc.
Concurrently, the parent of Corner Store convenience stores in the United States is incorporating stores purchased in separate deals from Nice N Easy Grocery Shoppes, Landmark Industries Inc. and Erickson Oil Products Inc.; selling off underperforming legacy stores; opening new stores; and seeking new acquisitions. The company also opened a new San Antonio distribution center on Feb. 22, which serves approximately 600 Corner Store locations.
CST Brands’ President and CEO Kim Lubel shared details on all of these projects during Friday’s 2014 fourth-quarter joint conference call with CrossAmerica Partners LP. CST purchased 100 percent of the membership interests of the general partner and 100 percent of the outstanding incentive distribution rights of CrossAmerica effective Oct 1.
Regarding selling off assets, Lubel said last year the company announced it would shed 100 stores and 71 stores have been sold for $32 million thus far, with Empire Petroleum Partners LLC buying a majority of the assets. CST Brands plans to sell 10 more stores in the first quarter of 2015.
As for new stores, San Antonio-based CST Brands opened 14 new-to-industry (NTI) locations in its fiscal fourth quarter ended Dec. 31, and a total of 38 for all of 2014.
Lubel confirmed that 35 to 40 NTIs are expected to open in the U.S. in 2015, plus an additional 12 in Canada where CST operates the Dépanneur Du Coin banner.
“NTI stores have done very well for us,” she remarked. “They typically achieve twice the merchandise and fuel sales compared to legacy stores.”
On the acquisition front, CST is making most of its deals in cooperation with CrossAmerica, a master limited partnership. Joe Topper, president and CEO of CrossAmerica, stated during Friday's call that mergers and acquisitions were extremely active in 2014, but there are plenty more deals for CrossAmerica and CST Brands to jointly pursue.
The two companies are “opportunistic” and will buy what fits into their model, he added.
“There are an ample supply of companies selling,” Topper said. “There is more than one and less than 20 transactions we are currently looking at. We are also getting a leg up because sellers we have done business with [in the past] are recommending us to others and saying we are good partners.”
Lubel stressed that Nice N Easy, Erickson Oil’s Freedom Valu and Landmark’s Timewise stores are all performing since their acquisitions. Nice N Easy is already rubbing off on the entire company as its foodservice items, including pizza, made-to-order sandwiches and breakfast sandwiches, are being incorporated in Corner Stores throughout the Southwest.
“CST is bringing in many of the best food practices from Nice N Easy,” said Lubel. “It’s a really nice collaboration.”
CST Brands is focused on growing the afternoon daypart with a new lunchtime kolache offering, as well as the introduction of Coca-Cola Freestyle fountain machines in 160 Texas stores.
STRONG EARNINGS
During its fourth quarter, CST Brands earned net income of $94 million, a 176-percent increase compared to the $34 million it earned in 2013’s fourth quarter. Fuel margins were cited as a main reason for the strong earnings increase.
In its U.S. retail division, motor fuel gross profit (net of credit card fees) was 32 cents per gallon, more than double the 15.3 cents achieved in 2013’s fourth quarter. CST Brands earned $158 million in motor fuel gross profits in its fourth quarter vs. $71 million in the prior year.
Merchandise sales also improved at U.S. stores, rising $8 million year over year to $105 million.
As of Dec. 31, CST Brands operated 1,021 U.S. stores, 955 of which are considered core stores and 76 of which are categorized as NTI locations. The retailer also had 861 Canadian stores as of the same date.
Allentown, Pa.-based CrossAmerica Partners reported adjustable EBITDA of $12.4 million and distributable cash flow of $7.9 million, but a net loss of $13.6 million for its fourth quarter ended Dec. 31. The net loss includes $3.8 million in tax expenses as a result of changes in the valuation allowance for certain assets following the completion of the general partner acquisition by CST Brands.