CST Brands reports slight decrease in revenues

Customers may see new soda and electronic cigarette offerings at some of CST Brands Inc.'s convenience stores as the locally based company aims to increase same-store sales in the second half of the year.
During CST's first earnings call since its spinoff from Valero Energy Corp. in May, executives said ZIP code-level data will help determine which cigarette promotions it will feature at each store and which nontraditional items, such as milk and ice, draw more customers.
At about 22 stores in San Antonio, the company already has tested new soda fountains that offer 120 drink choices, Chief of Marketing Hal Adams said. Also, CST plans to expand its highly profitable private-label products to locations in Canada.
CST released details of the new marketing initiatives, some of which have been in place for months, after reporting second-quarter earnings that showed same-store sales remained flat compared to the same period last year.
At existing U.S. stores, merchandise sales per site per day hit an average of $3,492 during the three months ending June 30, down 1 percent from the second quarter of 2012. The gross margin on those items, including cigarettes, also remained flat at 30 percent.
“It's just our normal course of business,” Adams said of the marketing plan. “We are a new company, but we are not a new business.”
When Valero spun off its nearly 2,000 retail stores in the U.S. and Canada, CST instantly became one of North America's largest independent retailers of transportation fuels and convenience merchandise.
“We have the advantage of having this momentum and a team that's been together for a very long time,” Adams said. Because of the spinoff, “we now have a little bit more resource to put (behind) retail rather than just being a subset of large Valero.
“There isn't any magic to those initiatives that we're working on, but they're definitely initiatives (aimed at) growing our same-store sales business,” he added.
In its earnings report, CST reported revenues of $3.2 billion, a 4 percent year-over-year decrease that still beat analysts' expectations. However, net income in the second quarter came in at $43 million, or 57 cents per diluted share, compared with $108 million, or $1.43 per diluted share, for the same three months last year.
Chief Financial Officer Clay Killinger explained that virtually the entire 60 percent drop in net income stemmed from a decline in CST's motor fuel gross margins.
Killinger estimated that CST ended its most recent quarter with more than $300 million in cash on hand. That should fund its plan to double the number of stores built in the U.S. next year while maintaining the current level of new construction in Canada, Killinger added.
Between January and June, CST opened five new stores, including its largest, in Three Rivers in the heart of the Eagle Ford Shale boom.
During a conference call with analysts Tuesday, CEO Kim Bowers said sales in Canada had suffered from a strike among construction workers, whom she described as CST's “bread and butter” customers.
In contrast, the recovery of the U.S. housing and construction markets, especially in Texas, has led to much better sales here.
“We look at the Texas market as probably our strongest market in our network simply because it's backed by the oil workers (and) construction workers,” Bowers said. “They come in for breakfast, they come back at lunch (and) we usually see them after work when they pick up their beer and go home.”
The company's stock closed Tuesday at $33.26 on the Nasdaq, up 38 cents a share from the previous day's trading.