TravelCenters of America Reports Progress on Strategic Growth Initiatives
WESTLAKE, Ohio — As TravelCenters of America Inc. (TA) closes the chapter on the third quarter of 2019, it's apparent that growth continues to be the one key focus for the company in the form of several different initiatives.
"Our site expansion program is progressing, and we continue to attract new franchisees and potential franchisees," CEO Andrew Rebholz said during the company's third-quarter earnings call on Nov. 5. "We continued to expand our travel center network during the third quarter, signing franchise agreements for three additional travel centers, bringing the total for 2019 to 10, of which three have started operations under our brands thus far."
TA anticipates opening four franchised travel centers by the end of the year, with the remaining three slated to be added to its network by the end of third-quarter 2020.
In addition, TA entered into an agreement with one of the franchisees, whereby the company expects to add another two franchised travel centers — one within five years and the other within 10 years.
As the company expects to achieve its site expansion goals primarily through franchising, TA has a number of additional potential franchise locations in the pipeline, Rebholz pointed out. It currently has contracts in place to buy an existing travel center for $11.6 million (expected to close in January 2020), and for a parcel of land for $1.4 million (expected to close at the end of November), on which it plans to develop a TA Express for approximately $12.6 million.
FOCUSed on Foodservice
Another aspect of TA's growth plan is to learn as much as possible from each of its existing sites and continue to accelerate its restaurant rebranding program.
To that end, TA entered into franchise agreements covering six restaurants to be operated under the Quaker Steak & Lube brand name. Three of these franchised restaurants opened during the third quarter, and the remaining three are expected to open by the end of first-quarter 2020.
TA also entered into a multi-unit franchise agreement on Oct. 28 with IHOP, under which it will rebrand and convert up to 94 of its full-service restaurants to IHOP restaurants over the next five years. Of the 94, TA is obligated to complete 20 conversions, with the remaining conversions at its discretion.
Pursuant to the agreement, among other things, TA has agreed to rebrand 15 full-service restaurants by the end of 2020; 20 full-service restaurants each in 2021, 2022 and 2023; and 19 full-service restaurants in 2024. Currently, four IHOP restaurants operate in the travel center operator’s network.
TA will continue to operate these restaurants with its employees and will pay franchise fees to IHOP. The average investment per site to rebrand these restaurants is expected to be approximately $1.1 million, and TA anticipates a return on its investment of approximately 20 percent, due in part to increased gasoline sales volume and additional store sales from the anticipated increase in customers visiting the sites, according to Rebholz.
Q3 By the Numbers
TA's financial results for the third quarter of 2019 reflect continued growth in its business. Net income for the third quarter of $1.9 million was a $72.4 million improvement over the same quarter in 2018, and adjusted EBITDA was up 1.7 percent.
Additionally, fuel sales volume got a boost of 21.2 million gallons due to two key factors: a same-site fuel sales volume increase of 18.7 million gallons and an increase of 2.5 million gallons at sites opened since the beginning of Q3 2018.
Nonfuel gross margin increased by $4.4 million, or 1.5 percent.
Based in Westlake, TA's nationwide business includes travel centers located in 44 U.S. states and Canada, standalone truck service facilities in two states, and standalone restaurants in 12 states. TA's travel centers operate under the TravelCenters of America, TA, TA Express, Petro Stopping Centers and Petro brand names.
TravelCenters of America is No. 33 on the 2019 Convenience Store News Top 100 report.