CST Brands Spinoff Deemed a Success

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CST Brands Spinoff Deemed a Success


SAN ANTONIO -- CST Brands Inc.'s May 1 spinoff from Valero Energy Corp. was a success and the parent company of Corner Store convenience stores and gas stations has already begun to build an excellent brand, Chairman and CEO Kim Bowers said during the company's 2013 second-quarter earnings call today -- its first as a separate public company.

"We celebrated our 100th day as a public company last Thursday [Aug. 8]," she said. "I have visited 100 stores in that time and have noticed how important our people are to our success as a company."

CST Brands has built up a $414-million cash reserve, which it plans to utilize to double new store constructions, the CEO noted. The retailer opened eight new stores in the United States in the first six months of this year, including its largest-ever 10,100-square-foot convenience store and truck stop in Three Rivers, Texas. Another seven new stores will open by the end of the year.

In 2014, CST Brands plans to open 30 new U.S. stores that will average 5,000 square feet each, Bowers said. Its store count in Canada for locations branded under the Dēpanneur du Coin name will remain flat.

"We are in a great position to grow our business," CST Brands’ Senior Vice President and Chief Financial Officer Klay Killinger commented during today’s earnings call. "Of the $414 million, $340 million is considered to be 'free cash.' We also have another $200 million in a credit facility."

Some of the budget surplus is likely to be earmarked for paying a dividend, Bowers added. "At our next board [of directors] meeting in the third quarter, they will consider management's recommendation to initiate a dividend," she said. "It would be comparable to other related companies paying dividends, if approved."

In addition, CST Brands will continue to maintain its legacy stores. "Maintaining these assets is important," Bowers said. "We have spent more than $400 million on these stores in the past few years."

Acquisitions are not in the company’s near-term plans. "We prefer internal growth because we can place stores where we want," Killinger remarked. "We are not chasing acquisitions for acquisitions sake."

As for earnings, CST Brands reported a net income of $43 million for its latest quarter ended June 30, vs. $108 million for the same period in 2012. A year-over-year decrease in cents-per-gallon fuel margin was cited for nearly the entire earnings decline, according to Killinger. The retailer achieved a record 34 cents-per-gallon fuel margin in its 2012 second quarter, with the number dropping to 21 cents per gallon in its most recent quarter.

Revenues also dipped slightly for the company’s latest quarter to $3.2 billion, and same-store merchandise sales suffered a year-over-year decline.

The CFO outlined a five-step plan intended to significantly boost same-store sales in the future:

  1. Looking at the tobacco category on a micro neighborhood basis;
  2. Drawing customers in with more energy drinks, milk and ice;
  3. Testing The Coca-Cola Co.'s Freestyle fountain machine in the San Antonio market;
  4. Becoming a much bigger player in electronic cigarettes; and
  5. Becoming a better foodservice operator during non-breakfast dayparts.

San Antonio-based CST Brands operated 1,034 U.S. stores in nine states as of June 30. It also operated or leased an additional 841 Canadian stores in six Canadian provinces as of the same date.