ALLENTOWN, Pa. — CrossAmerica Partners LP's integration efforts from its 2022 acquisition of Community Service Stations Inc. (CSS) continue to pay off.
For the third quarter of 2023, CrossAmerica’s wholesale volume was 217.3 million gallons vs. 212.7 million gallons for the same quarter of 2022. The 2 percent increase in volume was largely due to the integration of assets from CSS, which the partnership acquired in November 2022, partially offset by the conversion of certain lessee dealer locations.
The $27.5 million transaction included wholesale fuel supply contracts to 38 dealer owned locations, 35 subjobber accounts and two commission locations, one fee based and one lease. The supply contracts include approximately 75 million gallons of fuel annually through fuel brands including Exxon Mobil, Shell and Gulf.
"We closed on [the CSS] transaction approximately one year ago. These assets have been great additions to the portfolio. This past year performed better than our expectations for them at the time of the acquisition," reported CrossAmerica Partners President and CEO Charles Nifong during the partnership's third quarter 2023 earnings call on Nov. 8.
Wholesale gross profit was $32.9 million vs. $34.1 million during the same quarter of 2022 — a decrease of 4 percent.
Same-store volume in the wholesale segment was down approximately 1.2 percent year over year. As Nifong reported, CrossAmerica saw declining same-store volumes in the last few weeks of the quarter, which has continued in the period since the quarter's end, with same-store wholesale volume down 2 percent to 3 percent year over year for the period.
The Retail Front
Turning to the retail segment, CrossAmerica reported that during the third quarter, gross profit was $67.6 million. Merchandise gross profit increased to 28.7 percent for the quarter from 27.1 percent during the third quarter of 2022, primarily due to improved merchandise gross margins and merchandise sales shifting toward higher-margin products.
Same-store merchandise sales, excluding cigarettes, increased 9 percent for the third quarter of 2023 when compared to the third quarter 2022. The strong performance was general across all categories, with packaged beverages and food performing particularly well, Nifong pointed out.
[Read more: CrossAmerica Partners' Retail Segment Sees Continued Lift]
The retail segment sold 132.2 million of fuel gallons during the third quarter 2023, which was an increase of 4 percent when compared to the year-ago period. Same-store retail segment fuel volume for the three-month period increased 2 percent from 119.6 million gallons during the third quarter of 2022 to 121.8 million gallons.
Other Financial Results
CrossAmerica reported third quarter 2023 net income of $12.3 million vs. $27.6 million for the year-ago period. The decline in net income was primarily due to elevated fuel margins experienced during the third quarter of 2022. Adjusted EBITDA was $44.2 million for the third quarter of 2023 when compared to $62.6 million for the third quarter of 2022.
For the quarter ending Sept. 30, operating expenses increased $3.8 million. The increase was primarily driven by incremental operating expenses in the retail segment due to the conversion of lessee dealer and commission locations to company-operated locations earlier this year.
"Adjusting for the known incremental operating expenses we add to the business when converting a store to the company operated cost of trade, the increase in our other operating expenses was below the inflation levels being experienced in the wider economy. This is a meaningfully moderated operating expense profile than we have seen for the past 18 months," said CrossAmerica Partners Chief Financial Officer Maura Topper.
"Although, we continue to monitor the impacts of inflationary cost pressures on our business. The largest driver of operating expenses are our store labor costs, which are primarily the result of the number of labor hours, our stores are staffed and wages. Year over year, our same-store labor hours are up approximately 2 percent as our team has continued their focus on ensuring our stores are open and appropriately staffed to meet customer needs," she added.
The partnership's unit count for company-operated sites is up approximately 40 retail sites from the prior year, but flat from the second quarter of 2023. The increase in site count relative to the prior year is due to the conversion of certain controlled sites from other classes of trade to company-operated sites earlier in the year.
[Read more: CrossAmerica Partners Builds Up Company-Operated Footprint]
"Although in the third quarter we did not have any significant conversion activity, we expect to continue to convert additional sites from other classes of trade to company-operated retail sites or to a lesser extent, retail commission sites going forward," Nifong reported. "For the sites we do convert to company-operated retail or commissioned locations, we believe that we can generate more profitability from these locations and enhance these sites' long-term value through operating lease sites ourselves."
As a continued strategy from 2022, CrossAmerica also evaluates its portfolio and looks for opportunities to divest noncore properties. The partnership had a quiet quarter, selling only one property after selling six properties in the second quarter of 2023. Year to date, the partnership has sold eight properties for approximately $8.3 million in proceeds.
"We continuously look at our portfolio to identify potential divestiture locations, and it remains a focus of ours to free up capital in this manner, which we will either put towards reducing leverage or investing in growth opportunities," Nifong noted.
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.