SAN ANTONIO -- “This is an extensive process that takes time,” CST Brands Inc. chairman and CEO Kim Lubel said during the first earnings call since the convenience-store company announced a major strategic review.
However, first-quarter 2016 brought “impressive improvements,” said Lubel.
CST reported first-quarter 2016 gross profit of $300 million compared to $269 million for first-quarter 2015, representing an increase of 12%. This was primarily a result of the $28 million, or a 25% quarter-on-quarter increase in U.S. merchandise and service gross-profit dollars and a $12 million or a 19% quarter-on-quarter increase in U.S. fuel gross profit dollars.
“We are pleased to report a great first quarter, particularly the results we realized from our ongoing efforts to improve store metrics, as well as gross-profit improvements from the fuel side of the business,” Lubel said.
Emphasizing that the review is ongoing, however, she said that “the special committee of independent directors continues to work with management and our advisors to explore and evaluate strategic alternatives.”
She continued, “From a management perspective, our job is to continue to improve the business and continue to perform. And I think our first-quarter results certainly show that, particularly as you see our gross margin increases inside the store: 25% quarter over quarter in the U.S. alone. This management team is committed to continue to look at the long-term value proposition and continue to perform.”
CST in early March launched a full exploration of strategic alternatives to further enhance stockholder value as activist shareholders questioned the company’s performance.
The company formed a special committee of independent directors to oversee the process. CST entered into agreements with shareholders JCP Investment Management (JCP) and Engine Capital LP through which the company appointed Thomas W. “Tad” Dickson, former chairman of The Pantry Inc., and Rocky B. Dewbre, former senior executive with Sunoco LP, to the CST board.
Because of these appointments, JCP and Engine agreed to withdraw plans to nominate their own candidates to the CST board.
Meanwhile, as the result of a separate strategic review that the company launched in late 2015, CST announced May 5 that it has signed a definitive agreement to sell store operations in the California and Wyoming markets to Dallas-based 7-Eleven Inc. and its subsidiary SEI Fuel Services Inc. for $408 million.
The transaction includes 76 stores in California and three stores in Wyoming.
The deal represents a decision by CST to reposition its regional convenience-store networks, essentially swapping the West Coast assets for the previously acquired Flash Foods locations in the Southeast, a market with more growth potential.
CST Brands is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, it has more than 2,000 locations throughout the southwestern United States, Georgia, Florida, New York and Eastern Canada. CST also owns the general partner of CrossAmerica Partners LP, a master limited partnership (MLP) and wholesale distributor of fuels based in Allentown, Pa.