CrossAmerica Partners LP is increasingly converting lessee-dealer and commission stores in its system to company-owned and -operated sites, with plans to continue the effort. The wholesale and retail company converted nearly 40 convenience stores to company-operated over the past year, including investing $4.1 million to the effort during the recent second quarter, according to President and CEO Charles Nifong and Chief Financial Officer Maura Topper.
“We have the ability to convert sites when dealers are unable or unwilling to renew a lessee contract or in some cases, when a lessee-dealer fails to perform within the terms of a contract,” Nifong said during an earnings conference call this week. “Either way, for the sites we convert to retail operations, we believe that we can generate more profitability from these locations and enhance these sites’ long-term value through operating these sites ourselves.”
That long-term outlook more than makes up for the cost of the conversions, he said. “The expense is generally minimal in comparison to the long-term, incremental EBITDA and value-creation potential,” Nifong said. “We expect to continue to expand our company-operated retail footprint through these types of class-of-trade conversions going forward.”
The retailer also divested six stores during the second quarter as part of an ongoing effort to “recycle capital” within its portfolio. “We seek to maximize the value of our locations through evaluating our sites’ long-term potential with a goal to divest sites where we determine that the capital can be better used elsewhere to either reduce leverage or to invest in compelling opportunities within our existing assets.”
CrossAmerica Partners, Allentown, Pennsylvania, is a distributor of branded and unbranded petroleum for motor vehicles in the United States. It distributes fuel to approximately 1,700 locations and owns or leases approximately 1,100 sites. It owned and operated 252 stores as of Jan. 1.
- CrossAmerica Partners ranked No. 33 on CSP’s 2023 Top 202 list of the largest U.S. convenience-store chains by company-owned store count.
For the second quarter ending June 30, CrossAmerica Partners reported net income of $14.5 million, adjusted EBITDA of $42.2 million and distributable cash flow of $30.4 million compared to 2022 income of $14.0 million, earnings of $41.4 million and cash flow of $32.4 million.
“We had another strong quarter with total fuel volume for the second quarter up over the prior year in both of our operating segments. In particular, our retail segment posted strong results with increases in operating income, store sales and fuel and store margin,” Nifong said. “Overall, our business continues to demonstrate strength across many varied economic environments, which is further reflected in our strong balance sheet and in our healthy distribution coverage levels.”
The retail segment generated a 19% increase in gross profit compared to the second quarter 2022, the company reported. The increase for the second quarter 2023 was primarily due to higher motor fuel and merchandise gross profit.
“The strong performance was driven particularly by higher sales across several categories, most notably in the packaged beverage, beer, snacks and food categories,” Nifong said.
The retail segment sold 130.8 million retail fuel gallons during the second quarter 2023, which was an increase of 2.0% when compared to the second quarter 2022. Same-store retail segment fuel volume for the second quarter 2023 declined 1.0% from 123.7 million gallons during the second quarter 2022 to 122.3 million gallons. Retail segment overall fuel gallons increased during the second quarter of 2023 compared to the prior year due to the conversion of certain lessee dealer sites to company operated sites during the quarter.
For the second quarter 2023, CrossAmerica’s merchandise gross profit and other revenue increased 20.0% when compared to the second quarter 2022. Same-store merchandise sales excluding cigarettes increased 8% for the second quarter 2023. Merchandise gross profit percentage increased to 29.0% for the second quarter 2023 from 27.3% for the second quarter 2022, primarily due to improved merchandise margins and an improving mix of merchandise sales.