Prepares for merger with Circle K Stores Inc.
CST Brands Inc. has reported financial results for the first quarter ended March 31, 2017.
“As we anticipate the completion of the merger with Circle K Stores Inc., a wholly-owned subsidiary of Alimentation Couche-Tard Inc., I am proud of what our team has accomplished since becoming a public company four years ago,” said Kim Lubel, chairman and CEO of CST Brands. “Since 2013, we have opened 165 new stores in the U.S. and Canada, made several key acquisitions to further support our organic growth strategy, and amplified our proprietary fresh food and private label choices inside our stores. Above all, we grew shareholder value by increasing the stock price of CST by 60% over our four years of operations, with the pending merger with Circle K expected to close in the second quarter.”
First Quarter Results
For the three month period ended March 31, 2017, the Company reported net income of $3 million, or $0.04 per diluted share compared to net income of $19 million, or $0.24 per diluted share, for the same period in 2016.
The decline in net income was primarily attributable to a decline in motor fuel gross profit in the U.S., which was partially offset by an increase in merchandise and services gross profit in both the U.S. and Canada and an increase in motor fuel gross profit in Canada.
Impacting net income for the first quarter of 2017 is approximately $9 million, net of tax, of merger-related fees. For the three month period ended March 31, 2016, included in net income are acquisition expenses, legal expenses and professional fees of $3 million, net of tax, and a gain on the sale of assets of $1 million, net of tax. Excluding these items, net income would have been approximately $12 million, or $0.15 per diluted share, and $21 million, or $0.27 per diluted share for the three month periods ended March 31, 2017 and 2016, respectively.
Motor fuel gross profit in the U.S. for the first quarter of 2017 was $58 million versus $75 million in the same quarter of 2016. This represented a decline of 23%, as the Company experienced weaker fuel margins in the first quarter of 2017 when compared to the first quarter of 2016. The decline in motor fuel gross profit was primarily attributable to a decrease in motor fuel gross profit, on a per gallon basis (“cents per gallon” or “CPG”), decreasing from 15.4 CPG in the first quarter of 2016 to 12.1 CPG in the first quarter of 2017.
This was the result of higher wholesale motor fuel prices. The decline in fuel margins was partially offset by a 1% increase in total motor fuel gallons sold, resulting from the Company’s expanded core network. This volume increase was achieved despite the divestment of stores in California and Wyoming that was completed during the third quarter 2016. Core same store motor fuel sales, on a gallons per store per day basis, declined 3% during the first quarter of 2017, primarily as a reflection of softer demand due to economic conditions in certain areas where the Company operates and a slight increase in the average retail price of motor fuel per gallon compared to the same period of last year.
U.S. merchandise and services gross profit increased 1% when compared to the first quarter of 2016, primarily driven by an overall increase in merchandise and services sales and gross profits in the Company’s U.S. core and New-to-Industry (“NTI”) store sales, aided by acquisition and organic growth. Core same store merchandise and services sales per store per day declined 2% during the first quarter of 2017, due to a decrease in customer count comparison, primarily early in the quarter when compared to the high customer count created by a record setting lotto jackpot in early 2016.
In Canada, the Company reported a strong quarter with total gross profit of $94 million compared to $83 million for the first quarter of 2016, representing an increase of 13%. Motor fuel gross profit increased $9 million or 20% when compared to the first quarter of 2016. The improvement in motor fuel gross profit was driven by increases in motor fuel gross margin across the Company’s Canadian retail sites and in volume at the company operated and Cardlock network, which the Company believes is reflective of solid economic indicators in the Quebec and Ontario markets. On a same-store basis, motor fuel gallons, on a per site per day basis, increased 2% when compared to the first quarter of 2016.
Canadian merchandise and services gross profit increased $2 million or 11% when compared to the first quarter of 2016. The increase in merchandise and services gross profit was driven by an increase in store customer count as well as an increase in the network’s car wash business. On a same-store basis, merchandise and services sales per site per day increased 4% when compared to the first quarter of 2016.