Mergers & Acquisitions

CST’s California Shift

Launching strategic review of Golden State sites, mulling divestment

SAN ANTONIO --CST Brands Inc., in setting out to acquire Flash Foods Inc.’s 164 convenience stores and other assets--a deal that would bridge the geographic gap between its existing retail networks in the Mid-Atlantic and South--is undertaking a strategic review of its 76 retail sites in California.

Corner Store California

“An important part of our strategic plan is CST's continued focus on markets that offer long-term growth potential, including the ability to build our large new-to-industry stores. … And in keeping with the strategic focus, we are announcing today our decision to evaluate strategic options for our California network,” Kim Lubel, chairman, president and CEO of CST, said during the company’s third-quarter 2015 earnings call.

“These 76 stores included in this network have historically produced strong fuel results, but they consistently under-index on inside-store sales and gross profit dollars, given that their average square foot size is half the average size of our U.S. network,” she said. “The small store size significantly inhibits CST's ability to implement our grocery and food expansion programs, which are critical to increasing inside sales gross profits. Moreover, the much smaller average lot size effectively blocks our efforts to expand our store offering through raise-and-rebuild efforts on existing sites.”

She added that the company’s NTI strategy “is focused in those markets where there is significant new-store growth opportunity. Increasing California real-estate prices coupled with the stringent permit and regulatory environment preclude us from implementing our new-store growth program in California.”

But with fuel sales of more than 6,000 gallons per store per day at many of these sites, “the California network has been a solid contributor to CST and should provide us with the opportunity to evaluate several strategic options through our review and pursue the best course of action for our company and our shareholders,” she said.

Lubel concluded, “This transaction will effectively allow us to shift our resources from the growth-constrained California market to the Southeast, where we can expand not only through new stores, but also through expanded food and grocery offerings in the existing Flash Foods stores.”

CST Brands Inc., a Fortune 500 Company, is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, Texas, CST Brands employs 13,500 Team Members at approximately 1,900 locations throughout the United States and Eastern Canada offering a broad array of convenience merchandise, beverages, snacks and fresh food. In the U.S., CST Corner Stores proudly sell fuel and signature products such as Fresh Choices baked and packaged goods, UForce energy and sport drinks, Cibolo Mountain coffee, FC bottled sodas 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, a wholesale distributor of fuels that serves more than 1,100 locations across 23 states.

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