TravelCenters Reveals Chainwide C-store Rebranding
WESTLAKE, Ohio — TravelCenters of America LLC continues to expand the convenience store side of its business, even bringing its Minit Mart c-store banner to its truck stop properties.
During the company's first-quarter 2015 earnings call Thursday morning, CEO Tom O'Brien said TravelCenters expects to begin rebranding its truck stop travel stores to the Minit Mart name. The move comes as TravelCenters is poised to more than triple its c-store footprint within the year.
During the first quarter, TravelCenters acquired 26 convenience stores for $38.7 million and two travel centers, including one it previously operated under a management agreement, for $8.4 million.
Additionally, to date during the second quarter of 2015, the company has acquired 19 convenience stores, primarily in Kansas and Missouri, for $27 million. As of today, the chain has other purchase agreements in place for two transactions comprising two travel centers and 35 convenience stores for an aggregate of $82 million, O'Brien detailed.
"Including the sites we currently have under contract, our standalone gas station/convenience store operations will have grown from 34 locations at the beginning of 2015 to 114, principally located in Kentucky and throughout the Midwest," he said. "We intend to brand all of the convenience stores as Minit Marts and to upgrade the gasoline, food and other customer offerings."
TravelCenters has not forgotten about its truck stop operations, however. The chief executive foresees continued growth in that area of the business as well.
"While much of our recent acquisition activity has been in convenience stores, we remain committed to continued growth of our truck stop network and a number of opportunities are currently being evaluated," O'Brien explained. "As previously discussed, we also expect to undertake a limited amount of new-build truck stop development projects. To date, we've broken ground on one new full-service travel center in Texas and we expect to break ground on three others later in 2015 or early in 2016."
Overall, TravelCenters' first-quarter financial results reflected "significant growth over the prior-year quarter," according to O'Brien.
"The strength in these results is really in their broad-based nature. By that I mean, the positive contribution from both fuel and non-fuel activities, as well as [the positive contribution from] both sites we recently acquired — or the external portion of our growth initiatives — and from sites we've operated since before we began acquiring sites in 2011," the CEO explained.
Chief Financial Officer Andrew Rebholz reported that EBITDAR for the latest quarter was $105.7 million, an increase of $30.9 million vs. its 2014 first quarter. EBITDA was $50.1 million, an increase of $29.5 million year over year; and net income was $15.7 million, an increase of $15.5 million vs. the year-ago quarter.
These increases primarily were driven by a $20-million increase in fuel gross margin for the quarter, a $6-million increase in contribution from recently acquired sites, and a $4-million increase in core operating results that largely reflected the effects of marketing and other internal growth programs, the CFO stated.
On a same-site basis, the company's first-quarter fuel gross margin increased by $17.5 million vs. the comparable 2014 quarter. Per-gallon fuel gross margin increased by 19 percent on a same-site basis, offset somewhat by a slight decline in same-site fuel sales volume.
"We continue to attribute the decline in same-site fuel sales volume to the negative effects to total fuel consumption of the fuel conservation initiatives by truckers, including the use of more energy-efficient truck engines; as well as our efforts to avoid lower-margin sales," Rebholz noted. "We believe our same-site fuel volume results indicate, in particular this quarter, that we are growing our fuel business before the effect of fuel conservation due in part to the success of our marketing and capital investment programs, as well as the continued improvement of the U.S. economy."
Non-fuel revenue on a same-site basis also increased by $18.4 million year over year. TravelCenters believes the increase in non-fuel sales reflects the continued improvement in the results for sites it acquired in 2011 and 2012, as well as the impact of various customer service and product expansion initiatives.
Non-fuel gross margin on a same-site basis grew 6.5 percent vs. the 2014 first quarter. As a percentage of non-fuel sales, non-fuel gross margin increased by 80 basis points to 55.9 percent.
In addition, site-level operating expenses on a same-site basis increased by $2.9 million. This increase reflects the higher volume of sales in the 2015 first quarter. Although the dollar amount of operating expenses increased, the ratio of operating expenses to non-fuel revenues improved, declining by 170 basis points to 51.4 percent in the 2015 first quarter, Rebholz said.
Making an Impact
For the first quarter of 2015, sites purchased since Jan. 1, 2011 contributed $16.6 million to EBITDA, up 56 percent from $10.6 million for the first quarter of 2014. Thus, the company's acquisition program was touted as a key factor in TravelCenters' positive year-over year financial results.
Another key factor, according to O'Brien, is fuel gross margin, which was $20 million higher in Q1 2015 than in the comparable 2014 quarter. About $5 million of the $20-million improvement was derived from sites purchased since the beginning of 2011. The remainder (about $15 million) was derived from sites operated before 2011, for which fuel gross margin increased 18 percent.
"Similar to last quarter, we continued our focus on making the most of opportunities presented to us by the fuel market and on avoiding lower-margin fuel sales. Fuel gross margin reflects benefits derived from fuel price declines in the second half of 2014 through the first few weeks of 2015," the chief exec said.
Lastly, O'Brien pointed to the company's internal growth projects — particularly those focused on TravelCenters' competitive advantages of larger sites and truck repair maintenance services.
"Reserve-It parking, RoadSquad Connect and RoadSquad onsite each experienced increased interest from our customers during this quarter," he said. "In total, our non-fuel gross margin net of site-level operating expenses increased $11 million with almost all of this growth attributable to sites operated since before 2011."
While internal growth projects and site acquisitions both remain significant priorities for TravelCenters, "we've executed on both fronts while simultaneously maintaining our commitment to great customer service, and providing customers with competitively priced fuel and other product and services necessary to support and enhance their travel experiences," O'Brien relayed during Thursday's earnings call.