CST Brands to Sell 100 U.S. Stores

SAN ANTONIO -- CST Brands Inc. has identified 100 underperforming U.S. Corner Store locations that it will sell, CEO Kim Bowers said during this morning's 2013 fourth-quarter earnings call.

The San Antonio-based company hired NRC Realty & Capital Advisors LLC to be its advisor for the sale process. The most likely buyer is CST's U.S. wholesale fuels business, according to Bowers. If this transaction takes place, the parent company would continue to provide fuel to the locations after the sale.

"These stores are underperforming compared to our overall portfolio," Bowers said. "All are 1,800 square feet or less, so in-store [merchandise] opportunities are limited."

The chief executive said she could not reveal where the stores are located because the company has not yet spoken to the employees at these stores about the upcoming sale. Bowers did say, though, that CST expects the sale to close by the end of this year.

"Out of respect for the employees, we want to tell them first," she stated.

The sale would be CST's first since being spun off from Valero Energy Corp. on May 1. CST will use the proceeds to reinvest in the business, including building large-format Corner Stores, Bowers said.

As of Dec. 31, CST operated 1,040 U.S. Corner Store locations and 843 Dèpanneur du Coin stores in Canada.

Regarding the company's financial performance, CST earned a companywide net profit of $34 million for the fourth quarter ended Dec. 31. Excluding one-time impairment charges, the company would have earned $36 million for the quarter, compared to $60 million during the same period in 2012.

The lower earnings were attributed to decreased fuel volume, primarily due to poor weather conditions. "Weather has had and will continue to have an impact on convenience stores specifically," Bowers said during today's earnings call. "But our fuel team did a great job maximizing [fuel] margins."

On the bright side were in-store merchandise sales. CST's U.S. Corner Store locations sold $312 million worth of merchandise in the fourth quarter, a $9 million year-over-year increase. Merchandise sales per site per day rose by $55 to $3,274, while merchandise gross margins rose an impressive 1.6 percent to 30.5 percent after credit card fees.

"Food, packaged beverages and private label products were all great sellers for us," noted Bowers.

Regarding store openings and closings, CST closed seven U.S. stores in its fourth quarter, while opening two. Thus far in 2014, CST has opened three new stores with another nine currently under construction. Hence, the company said it is on track to meet its goal of opening 30 new U.S. stores and eight Canada stores this year.

The convenience store retailer also announced that former parent company Valero has sold all the shares it previously owned in CST. Therefore, CST is now officially separated from Valero except for its information technology system, relayed Bowers.

One more piece of news shared during the call is that CST has begun a review of how the market landscape will change once CVS Caremark Corp. ceases tobacco sales in October and is "quite encouraged" by the sales and in-store traffic it could gain as a result.

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