CST Brands to Close 117-Store Sale in Q4

SAN ANTONIO -- CST Brands Inc. will accept bids through mid-June and expects to close on its sale of 117 Corner Store locations by the fourth quarter, Chairman and CEO Kim Bowers said Tuesday during the company's 2014 first-quarter earnings call.

As CSNews Online previously reported, San Antonio-based CST Brands retained NRC Realty & Capital Advisors to sell these properties, which have been identified as smaller in square footage and below the company's overall store average from an inside sales perspective. Several of the stores could be dropped down into CST Brands' U.S. wholesale distribution business.

Although Bowers did not specifically say if Energy Transfer Partners LP's (ETP) pending acquisition of Susser Holdings Corp. would increase the price for its property sale, she did note that she was pleased ETP saw the "embedded value" that retail operations can provide. "[The transaction] was certainly at a valuation we like to see and shareholders would like to see," Bowers stated during the call.

Once the deal closes, ETP, a master limited partnership (MLP), will have purchased Susser Holdings, Sunoco Inc. and Mid-Atlantic Convenience Stores in the past two years. When asked by Bonnie Herzog, managing director at Wells Fargo Securities LLC, on the earnings call if CST Brands would consider converting its company into an MLP structure, Bowers responded that the retailer's board has talked about an MLP and "it's an attractive structure." She did not elaborate further.

To be legally classified as an MLP, a partnership must derive at least 90 percent of its cash flows from real estate, natural resources and commodities. The main advantage of an MLP structure is the partnership does not pay taxes from its profits. The money earned is only taxed when unitholders receive distributions.


In regards to CST Brands' first-quarter financials, Bowers noted that foodservice was the rising star of the quarter. This segment's sales -- led by sales of Corner Store's proprietary kolaches and whoopie pies -- increased 3 percent year over year.

The company is so impressed with its foodservice operation that the segment will be expanded considerably throughout this year. Bowers is especially excited about two new offerings launching this summer intended for the late-afternoon daypart: a sriracha club puff pie and a barbecue pulled pork sandwich.

Companywide, CST Brands -- which celebrated its first anniversary on May 1 -- earned net income of $11 million for its 2014 first quarter ended March 31, vs. $23 million for the same period in 2013. Bowers stressed, however, that the figures can't be compared to one another because CST Brands was not a public company during the first quarter of 2013 and hence did not have to pay the expenses required by being a public entity.

At its U.S. Corner Store division, merchandise revenues increased to $301 million vs. $293 million in the year-ago period. Merchandise gross margins rose $1 million to $15 million. Motor fuel was a mixed bag, with revenues declining $136 million to $1.483 billion. Motor fuel gross margins increased $7 million to $44 million year over year, though.

"We delivered solid results in our first quarter, despite a challenging environment," said Bowers.

As of March 31, CST Brands operated 1,041 Corner Store locations in the United States and 469 Dépanneur du Coin convenience stores in Canada. CST Brands has opened eight new Corner Store locations and one Dépanneur du Coin store thus far in 2014, all of which are large-format locations with vast foodservice operations. The company expects to open 30 new stores in the U.S. and eight in Canada for the entirety of 2014.

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