ALLENTOWN, Pa. — CrossAmerica Partners LP is growing its company-operated site network with its recent moves to convert lessee dealer sites.
Those conversions were the primary driver behind the partnership's unit count for company-operated sites, which were up approximately 40 retail sites year over year, from 253 for the second quarter of 2022 to 292 for the second quarter of 2023.
"We have also converted, to a lesser extent, some of our commission sites to company-operated side. These conversions are part of a strategy to convert certain lessee dealer locations with upside to company-operated sites," reported CrossAmerica Partners President CEO Charles Nifong during the partnership's second quarter 2023 earnings call on Aug. 8.
CrossAmerica has the ability to convert sites when dealers are unable or unwilling to renew an expiring contract or, in some cases, when the lessee dealer fails to perform in accordance with the terms of the contract. CrossAmerica believes that the company can generate more profitability from these locations and enhance the sites' long-term value by operating them, Nifong explained.
For the quarter ending June 30, operating expenses increased $7.6 million year over year. Approximately $6.8 million of that increase was attributable to company-operated locations in the retail segment. Of that increase, $4.1 million was operating expenses attributable to sites that were recently converted to company-operated retail locations that were not company-operated sites in the second quarter of 2022.
"While there is expense in converting the locations to company-operated retail, the expense is generally minimal in proportion to the long-term incremental EBITDA and value-creation potential," Nifong said. "We expect to continue to expand our company-operated retail footprint through these types of class of trade conversions going forward."
Retail Financial Results
Continuing to look at the retail segment, CrossAmerica reported that during the second quarter, gross profit increased $10.5 million to $66 million.
Same-store merchandise sales, excluding cigarettes, increased 8 percent for the second quarter of 2023 when compared to the second quarter 2022. The strong performance was driven particularly by higher sales across several categories, most notably in the packaged beverage, beer, snacks and food categories, Nifong pointed out.
Merchandise gross profit increased from 27.3 percent in Q2 2022 to 29 percent in Q2 2023. The increase was primarily due to improved merchandise margins and an improving mix of merchandise sales.
The retail segment sold 130.8 million of retail fuel gallons during the second quarter 2023, which was an increase of 2 percent when compared to the year-ago period. Same-store retail segment fuel volume for the three-month period declined 1 percent from 123.7 million gallons during the second quarter of 2022 to 122.3 million gallons.
Wholesale Financial Results
Moving to CrossAmerica's wholesale segment, gross profit was $31.7 million vs. $33.5 million during the same quarter of 2022 — a decrease of 5 percent. Wholesale fuel gross profit for Q2 2023 also declined 6 percent to $17.9 million vs. $19 million in Q2 2022.
Wholesale volume was 218.1 million gallons for the second quarter of 2023 compared to 214.4 million gallons in the second quarter of 2022. The 2 percent increase in volume was largely due to the integration of acquired assets from Community Service Stations during the fourth quarter of 2022, partially offset by the conversion of certain lessee dealer locations, Nifong said.
Other Financial Results
Overall, CrossAmerica recorded second quarter 2023 net income of $14.5 million vs. $14 million for the same period last year. Adjusted EBITDA increased 2 percent to $42.2 million for the quarter when compared to $41.4 million for the second quarter of 2022.
The partnership spent a total of $5.3 million on capital expenditures during the quarter, with $3.9 million of that total in growth-related capital expenditures. This was a decline from the second quarter of 2022 spend of $7.5 million, which included spending for rebranding efforts related to the acquisition of assets from 7-Eleven Inc. in 2021.
During this past quarter, growth-related capital spending included targeted investments in the backcourt and forecourt at certain locations that were converted to company-operated retail locations, as well as store upgrade and rebranding work, according to Chief Financial Officer Maura Topper.
As a continued strategy from 2022, CrossAmerica evaluates its portfolio and looks for opportunities to divest noncore properties. During the quarter, the company divested six properties for $7.8 million in proceeds.
"We seek to maximize the value from our locations through evaluating our sites' long-term potential with a goal to divest sites where we determined that the capital can be better used elsewhere to either reduce leverage or to invest in compelling growth opportunities within our existing assets," Nifong said.
Allentown-based CrossAmerica Partners LP is a wholesale distributor of motor fuels, convenience store operator, and owner and lessee of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is indirectly owned and controlled by entities affiliated with Joseph V. Topper Jr., the founder of CrossAmerica Partners and a member of the board of the general partner since 2012.
Formed in 2012, CrossAmerica Partners LP is a distributor of branded and unbranded petroleum for motor vehicles in the United States and distributes fuel to approximately 1,700 locations and owns or leases approximately 1,100 sites.