8-K: CrossAmerica Partners LP Reports Q1 2024 Net Loss Amidst Challenging Market Conditions

CrossAmerica Partners LP reported a net loss of $17.5 million for the first quarter of 2024, impacted by lease termination costs and a difficult operating environment.

Summary

• CrossAmerica Partners LP announced its financial results for the first quarter of 2024, revealing a net loss of $17.5 million, which includes a $15.9 million loss on lease terminations with Applegreen.
• Adjusted EBITDA for the quarter was $23.6 million, and Distributable Cash Flow was $11.7 million, both lower than the first quarter of 2023, which saw $31.7 million and $19.1 million respectively.
• The company's wholesale segment gross profit decreased to $27.0 million from $31.2 million year-over-year, while the retail segment gross profit increased to $54.4 million from $50.8 million.
• Leverage, as defined by the CAPL Credit Facility, increased to 4.49 times as of March 31, 2024, compared to 4.21 times at the end of 2023.
• The Distribution Coverage Ratio for the trailing twelve months was 1.37 times, down from 1.70 times in the comparable period of 2023.
• CrossAmerica completed the conversion of 59 Applegreen lessee dealer locations to company-operated retail locations, which is expected to positively impact future financial results.
• A quarterly distribution of $0.5250 per limited partner unit was declared for the first quarter of 2024.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the reported net loss, decreased EBITDA and distributable cash flow, and increased leverage. However, the company's strategic moves and future outlook provide some optimism.

Positives

• The retail segment saw a 7% increase in gross profit, driven by higher merchandise sales.
• Merchandise gross profit increased by 18% in the retail segment.
• The conversion of Applegreen locations to company-operated sites is expected to improve future financial performance.
• Same store merchandise sales, excluding cigarettes, increased by 2%.

Negatives

• The company experienced a net loss of $17.5 million in Q1 2024.
• Adjusted EBITDA and Distributable Cash Flow decreased compared to the same period last year.
• The wholesale segment's gross profit declined by 14%.
• The Distribution Coverage Ratio decreased significantly.
• Operating expenses increased, primarily due to the conversion of sites to company-operated locations.
• The company's leverage ratio increased to 4.49 times.

Risks

• The company faced a difficult operating environment with increasing fuel prices and lower demand.
• The conversion of lessee dealer sites to company-operated sites led to increased operating expenses.
• The decline in wholesale fuel volume and margin negatively impacted the wholesale segment.
• The company's leverage ratio has increased, which could pose a risk if financial performance does not improve.
• The company's distribution coverage ratio has decreased, which could impact future distributions.

Future Outlook

The company expects the conversion of Applegreen locations to be immediately accretive to financial results and believes its business fundamentals are strong for continued success.

Management Comments

• Charles Nifong, President and CEO of CrossAmerica, stated that the first quarter was a difficult operating environment with increasing fuel prices and lower demand.
• He also mentioned that the conversion of Applegreen locations is expected to be immediately accretive to financial results.
• Nifong believes the company is well-positioned with its operations and capital structure for continued success.

Industry Context

The results reflect a challenging quarter for the fuel distribution and convenience store industry, with lower demand and fluctuating fuel prices impacting margins. The company's strategic move to convert lessee dealer sites to company-operated locations is a common strategy to gain more control over operations and revenue.

Comparison to Industry Standards

• While specific competitor data is not provided in the document, the decrease in fuel margins and volume aligns with broader industry trends of lower demand and volatile fuel prices.
• The conversion of lessee dealer sites to company-operated sites is a strategy employed by other fuel distributors to increase profitability, such as Sunoco and Murphy USA.
• The leverage ratio of 4.49 times is relatively high compared to some peers, which may raise concerns among investors.
• The distribution coverage ratio of 1.37 times is lower than some industry benchmarks, indicating a potential risk to future distributions.

Stakeholder Impact

• Shareholders will be impacted by the net loss and decreased distribution coverage ratio.
• Employees may be affected by the ongoing operational changes and site conversions.
• Customers may experience changes in service as sites are converted to company-operated locations.
• Suppliers may see changes in demand based on the company's performance and site conversions.
• Creditors will be monitoring the company's leverage ratio and financial performance.

Next Steps

• The company will host a conference call on May 9, 2024, to discuss the first quarter 2024 earnings results.
• The company will continue to manage debt levels and leverage ratio.
• The company will focus on execution, cash flows, and maintaining a strong balance sheet.

Key Dates

Keywords

CrossAmerica Partners, CAPL, Financial Results, EBITDA, Distributable Cash Flow, Fuel Distribution, Convenience Stores, Applegreen, Retail, Wholesale