CrossAmerica Partners See Q2 Sales at Pre-COVID Levels

ALLENTOWN, Pa. — Despite a challenging fuel price environment and overall economic conditions, CrossAmerica Partners LP's sales are trending above pre-COVID-19 levels, President and CEO Charles Nifong reported during the partnership's second quarter 2022 earnings call.

For CrossAmerica's retail segment, fuel volume on a same-site basis was up 2 percent for the quarter year over year. Inside sales on a same-site basis were down 3 percent relative to last year. However, inside sales excluding cigarettes were up 1 percent.

In spite of the decline in sales for the quarter, overall store sales remain at a strong level relative to pre-COVID results. "Year-to-date, our same-store sales are approximately 10 percent above 2019 results and indicate the durability of certain sales channel shifts that occurred during COVID and have remained after COVID restrictions have been eliminated," Nifong said on Aug. 9.

Speaking to economic trends, Nifong reported that out-of-stocks across CrossAmerica's stores have moderated and are better than in prior quarters, although they remain at higher levels than the company would like.

Looking at inflation, certain categories have seen product increases of 6 percent to 8 percent, and CrossAmerica generally expects to see price increases across all of its inside store merchandise at some point this year.

"We generally try to pass these increases on in our retail pricing. We have seen some consumer behavior shift as a result of higher prices," Nifong explained. "Consumers buying a 12-pack, down from a 30-pack case, for example. We are closely monitoring these trends and adjusting our product offering to ensure our product mix reflects these evolving consumer behaviors."

The retail segment's gross profit rose by $13.9 million, or 66 percent year over year, to $34.9 million in the first three months of 2022 vs. $21.1 million in the same period of 2021.

Moving to CrossAmerica's wholesale segment, fuel gross profit in the second quarter of 2022 was $40.5 million, a 33 percent increase when compared to the second quarter of 2021, driven by upticks in both fuel volume and fuel margins.

Overall wholesale segment gross profit was $55 million, an increase of 24 percent year over year.

Wholesale fuel volume was 342.8 million gallons for the quarter, an increase of 3 percent vs. the same period in 2021, largely due to the acquisition of assets from 7-Eleven Inc., Nifong pointed out.

Same-store fuel volume performance for the wholesale segment during the quarter was down 6 percent year over year due to less fuel demand.

"It was a challenging quarter overall for fuel volume. If you look at gasoline demand data from the Energy Information Administration, national gasoline demand was down year-over-year for every week in the quarter except one week. Our wholesale fuel volume was not immune from the national trend," Nifong pointed out.

"We particularly saw a decline in gasoline demand from our wholesale locations as fuel prices rose sharply in late May and into June. Fuel demand continued to remain lower than the prior year after fuel prices peaked in mid-June," he added.

According to the executive, moderating fuel prices in the period since the quarter ended has aided fuel volumes, but same-site weekly volumes remain at a lower level than the prior year.

The wholesale fuel margin per gallon increased to 11.8 cents in the latest quarter, compared to 9.2 cents per gallon for the second quarter of 2022 — a 28 percent increase. This year-over-year increase was driven by several factors, Nifong noted. 

"First, we benefited from increased volume to CrossAmerica's company-operated retail sites, which we supply on a variable margin basis. Second, we continue to benefit from better sourcing costs due to the execution of certain strategic initiatives, such as our brand consolidation. Finally, we continue to realize higher variable fuel margins than in the pre-COVID period as a multitude of market factors appear to be driving a durable shift in market conditions towards higher overall fuel margins," he said.

Other Financial Results

CrossAmerica recorded second quarter 2022 net income of $14 million vs. $4.8 million for the same period last year. Adjusted EBITDA increased 39 percent to $41.4 million for the quarter when compared to the second quarter of 2021.

While the addition of the 7-Eleven sites helped boost the quarter's results, the deal also contributed to an increase in the partnership's operating expenses. The addition of those stores increased CrossAmerica's average company-operated site count from 150 to 254, a 69 percent jump.

"Labor cost at our retail locations have increased in part due to having more labor in the stores, as staffing shortages are not as acute, which is actually a positive, but also due to the overall inflation pressures in the economy," Nifong said.

In addition to acquisitions, CrossAmerica continues to evaluate its portfolio and look for opportunities to divest non-core properties. In the second quarter of 2022, the partnership completed five property sales for $2.3 million in proceeds.

"We have a solid pipeline of identified opportunities within our portfolio to execute on in 2022 as we continue the process our recycling capital to invest in growth opportunities," Nifong said.

During the second quarter, CrossAmerica also spent $7.5 million on continued integration of the sites acquired by 7-Eleven, as well as remodeling of existing sites in the partnership's portfolio, EMV upgrades and other improvements.

"We are now more than halfway through our portfolio-wide EMV conversion efforts and nearly complete our rebranding efforts related to the 7-Eleven transaction," CrossAmerica Partners Chief Financial Officer Maura Topper said.

Allentown-based CrossAmerica Partners LP is a leading 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 1,750 locations and owns or leases approximately 1,150 sites.