SAN ANTONIO -- Kim Lubel, chairman, president and CEO of CST Brands Inc., expressed confidence during the third-quarter 2014 earnings call that the company will meet its goal of opening 38 new-to-industry (NTI) convenience stores this year, and she was equally optimistic that the company will build between 45 and 55 NTI sites in 2015.
"We anticipate this level of organic growth to continue in future years supported by our partnership with CrossAmerica," said Lubel. "We're not letting any grass grow beneath our feet," she said, referring to both organic growth plans and synergies from acquisitions.
"To date, we've opened 25 stores and plan to open 13 more between now and the end of the year," she continued. "By the end of 2014, we [will] have built and opened 60 new to industry stores in the last two years alone, 11 more than the total built over the previous five years. … [and] our new, larger-format stores generate on average almost twice the inside store sales and fuel sales as our core legacy stores."
Lubel also offered an update on the sale of the approximately 100 convenience stores that the company is divesting as part of its network optimization plan.
"Bids for these convenience stores have been received and evaluated by our management team, and we expect to close on the sale of 85 to 95 of these convenience stores over the next two quarters. As of today, we've already closed on 12 of those sites," she announced.
CST Brands also recently closed on the purchase of the general partner and incentive distribution rights of CrossAmerica Partners LP, the former Lehigh Gas Partners, Allentown, Pa., and on the acquisition of Canastota, N.Y.-based Nice N Easy Grocery Shoppes Inc. with CrossAmerica.
The new builds and these deals show that the company will "continue to grow in the future both organically and through acquisitions. We believe that the convenience retail market remains fragmented with many retail, wholesale and combined opportunities," she said. "We intend to focus on and prioritize those opportunities that make the most economic sense" for CST Brands and CrossAmerica.
Lubel would not provide an exact dropdown schedule for c-stores to CrossAmerica, but said, "We are looking at NTIs that are potential dropdowns as those that have been built and open since we've spun out [of Valero in May 2013]. … We would expect to drop those down here in the coming months, but we haven't set out a specific schedule for those yet, so that's how we view the NTI drop-down piece, including eventually over time, as we've said before, the fuel supply to both our NTIs and our legacy stores is another MLP [master limited partnership] asset that will over time be dropped into the partnership."
As for the current mergers-and-acquisition landscape, she said "it is certainly a market that is ripe for consolidation, and I think between CST and CrossAmerica combined, we're really at the forefront of that consolidation process. As we look at acquisition opportunities, we don't have a specific network size in mind. We really want to look at stores that fit both kind of what CST's perspective is on in-store sales opportunities, but also have decent fuel volume sales to help out with the partnership side of things."
She continued, "In terms of geography, one of the reasons that we changed the name from Lehigh Gas to CrossAmerica was really to reflect the fact that we expect to grow across the U.S. with our partnership with CrossAmerica, and I think our acquisition of Nice N Easy shows just that. We stepped out, pretty far out of our marketplace up to upstate New York for that acquisition, and with that got some terrific store operations and some strong fuel sales that will also help on the MLP side."
Minimizing that geographic leap, Lubel said, "Where those stores are located, they're actually not that far from our Canadian base and clearly driving distance from Allentown as well, so there is some scale that we're building up in that part of the country as well. … This is a national world, and CPG [consumer packaged goods] companies are national companies, and we have strong relationships with the CPG companies that we do business with. They're the same companies that are doing business in New York, so we expect that many of the synergies that we get will come fast."
CST Brands is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, it has approximately 1,900 locations throughout the Southwestern United States and Eastern Canada. In the U.S., CST Corner Stores sell fuel and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries. CST also owns the general partner of CrossAmerica Partners LP, an MLP and wholesale distributor of fuels.
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