SAN ANTONIO and ALLENTOWN, Pa. — CST Brands Inc. will introduce 300 new grocery offerings to 50 stores in Texas this quarter, with plans to also offer this expanded product selection as its new store builds, Chairwoman and CEO Kim Lubel said during the company’s 2015 fiscal second-quarter earnings call Friday, jointly held with its partner, CrossAmerica Partners LP.
More specifically, the San Antonio-based retailer plans to offer a variety of produce, meats and perishable items in an attempt to lure supermarket customers who often use the express lane for fill-in shopping needs.
Lubel also announced the retailer will cull knowledge it learned from its Nice N Easy acquisition to test new foodservice offerings at five new-to-industry Corner Stores in the San Antonio area. Modeled after Nice N Easy’s made-to-order and pizza programs, these five Corner Store locations will have a variety of new items including Angus burgers and breakfast sandwiches.
Grab-and-go and bakery items will continue to be offered at these locations.
These new offerings add on to an already successful CST in-store merchandise business. At its U.S. locations, CST’s merchandise sales rose $31 million year over year in its most recent quarter ended June 30. U.S. merchandise gross profit increased by 9 percent year over year, primarily driven by its Nice N Easy and Landmark acquisitions.
Packaged beverages are particularly “hot right now,” noted Chief Financial Officer Clay Killinger.
“We are bullish on packaged beverages,” he said during the conference call. “Consumers are moving away from carbonated beverages. [Packaged beverages] bring in a good basket ring and we play well in private label.”
At the forecourt, U.S. motor fuel sales dropped by more than $400 million year over year to $1.246 billion. U.S. motor fuel gross profits dipped by a penny per gallon to 13 cents per gallon.
Overall, CST achieved a net profit of $25 million vs. $32 million in its 2014 second quarter. An extremely wet May and June in Texas, when precipitation was double the normal amount, was one factor that affected earnings, Lubel relayed. However, she said weather has been much improved thus far in the third quarter.
Looking ahead, the wet weather postponed some of CST’s new store constructions, but Lubel remains comfortable with a range of 35 to 40 new store builds this year.
On the merger and acquisition front, Lubel stated the retailer has plenty of cash on hand to make any deal. But she added CST is in a great position whereby it can be patient and wait for the right opportunity to come along.
“There is a robust pipeline of M&A activity,” said Lubel. “But we need to make sure it’s also accretive to the [CrossAmerica master limited] partnership. We can afford to be choosy.”
CST operated 1,025 U.S. convenience stores as of June 30.
CROSSAMERICA RETAIL EARNINGS RISE
CST presented its earnings along with CrossAmerica Partners, for which the retailer owns 100 percent of the general partner interest. CrossAmerica’s retail division sold 57.3 million gallons of fuel at an average motor fuel gross margin of 9.5 cents per gallon in its second quarter ended June 30, which resulted in a gross profit of $5.4 million. In the same quarter in 2014, it sold 32.3 million gallons at an average gross at an average margin of 5.2 cents per gallon, resulting in a profit of $1.7 million.
Motor fuel sales per site, per day, was 3,085 gallons, vs. 2,814 gallons in the prior-year period.
CrossAmerica’s merchandise sales generated $9.9 million in gross margins in its most recent quarter, compared to $3.2 million in the year-ago period. CrossAmerica’s acquisitions of PMI and Erickson were the main drivers of the increases across the board.
Per site, per day merchandise sales came in at $3,414, nearly a $400 increase year over year. Merchandise gross profit percentage, net of credit card fees, rose 0.8 percentage points to 23.6 percent.
Companywide, CrossAmerica achieved a net profit of $38.3 million in its second quarter, an increase of 42 percent compared to its $26.9 million profit in 2014’s fiscal second quarter.
Allentown-based CrossAmerica operated 124 company-operated convenience stores as of June 30, as well as 70 commission agent sites.
As was stated with CST Brands, CrossAmerica President Jeremy Bergeron stated the master limited partnership is in strong financial position to make acquisitions.
“We are positioned very well,” he said in Friday’s call. “We are actively looking at deals.”
For much more on CST Brands and CrossAmerica Partners, check out the August issue of Convenience Store News.