New In-Store Programs Move the Needle at CST

SAN ANTONIO and ALLENTOWN, Pa. — CST Brands Inc.’s three new in-store initiatives have all been successful and will expand, Hal Adams, president of retail operations, announced Friday during the company’s 2015 fourth-quarter earnings call, jointly held with partner, CrossAmerica Partners LP.

These programs start with the foodservice best practices learned from San Antonio-based CST Brands’ acquisition of Nice N Easy Grocery Shoppes. The adoption of these best practices have been so positive at five Texas Corner Stores that the company will expand the initiative to 20 additional new-to-industry (NTI) Corner Stores during 2016, Adams revealed.

“Nice N Easy has had a big impact,” he said. “In stores [in which we have the new food program], 30 percent of in-store sales now come from higher-margin items.”

Another Nice N Easy-inspired program, CST’s grocery initiative, will also receive a big boost this year. The expanded grocery offer is now firmly entrenched, with 100 convenience stores having the program. During the 2016 calendar year, CST intends to add the more robust product mix to another 100 stores. 

The grocery program consists of 300 offerings, including a variety of produce, meats and perishable items, in an attempt to lure supermarket customers who often use the express lane for their fill-in shopping needs.

Adams also offered an update on the third in-store program, a total brand makeover of Corner Store convenience stores. To date, 11 stores have been transformed. These Corner Store locations now carry a new service promise: "Simply Fresh. Always Friendly." A new color palette and design elements are intended to be refreshing, neighborly and in-touch, and encompass the store logo, signage, interior and exterior.

All three programs are a key component of CST Chairwoman and CEO Kim Lubel’s company vision for 2020, which also includes organic growth and acquisitions.

Regarding organic growth, CST opened 31 U.S. stores in 2015, and the goal is to open an additional 45-50 stores in 2016, Lubel said during Friday's earnings call. This will include two new stores in Georgia to complement CST Brands’ recently completed acquisition of 165 Flash Foods locations from The Jones Co.

The $425-million transaction represented the largest in in the company’s history, and the integration of these 165 stores is going well thus far, with synergies well underway, Lubel shared.

“We are focused on the integration of Flash Foods,” she said.

This focus will not mean CST will shy away from any new acquisitions, however. “We continue to see acquisition opportunities for both CST and CrossAmerica,” the chief executive said.

At the end of 2015, CST Brands operated 1,049 U.S. convenience stores. 

CST Q4 EARNINGS HIGHLIGHTS

For its 2015 fiscal fourth quarter ended Dec. 31, CST Brands posted a net profit of $25 million, compared to $94 million in 2014’s fourth quarter. The company explained that many one-time charges, including acquisition expenses and legal fees, were the major cause of the year-over-year earnings decline. Flash Foods was not included in the results as the transaction did not close until February.

Breaking the earnings down, in-store merchandise and services — in part due to the initiatives described earlier — were the shining star for the company. Merchandise and service revenues increased by $20 million in 2015’s fourth quarter to $374 million. Merchandise and service sales per site per day also saw a solid increase of $91 to $3,821 per store in the most recent quarter. 

On the down side, motor fuel results declined across the board, but CST executives noted that a lot can be attributed to the fact that these results were compared to a 2014 fourth quarter that broke all records in the fuels segment.

Motor fuel operating revenues came in at $966 million vs. $1.3 billion in the year-ago period. Motor fuel sales in terms of gallons dropped on a per-site, per-day basis to 4,921 gallons from 5,043 in the year-ago period.

Looking at the first quarter of 2016, CST Brands is bullish about its potential results compared to the first quarter of 2015. The company expects to sell a range of 4,900-5,000 gallons of fuel per site per day, as well as $3,800 to $3,900 in merchandise sales per site per day. The company also expects to post a merchandise gross margin of between 33.5 percent and 34.5 percent for the first quarter. 

“In January [alone], we saw a 20-cent-per-gallon fuel margin, much better than what we had in January 2015,” said Lubel.

CROSSAMERICA EARNINGS HIGHLIGHTS 

During CrossAmerica’s portion of the conference call, President Jeremy Bergeron said he is quite pleased with the master limited partnership’s (MLP) $48.5-million acquisition of 31 franchise Holiday Stationstores in Wisconsin and Minnesota. The deal is expected to close by the end of March, he noted.

Regarding earnings, Allentown-based CrossAmerica posted net income of $3.61 million in its 2015 fiscal fourth quarter ended Dec. 31, vs. a loss of $13.75 million in its 2014 fourth quarter.

Focusing on its retail division, the MLP’s greatest strength likewise came from in-store merchandise sales. The most-telling metric was merchandise sales and services on a per-site, per-day basis, which increased by a massive $767 to $3,277 at company-operated locations.

Motor fuel sales dropped, with company-operated stores selling 2,534 gallons per day per site, vs. 2,820 gallons in the year-ago period. Motor fuel gross profit per gallon also fell by 4.6 cents to 10 cents per gallon.

CrossAmerica had 116 company-operated convenience stores and gas stations, as well as 66 commission agent locations, as of Dec. 31.