Convenience stores introduced GoGo Rewards loyalty program in July.
TravelCenters of America introduced its second quarter results.
“During the 2018 second quarter, we continued to produce positive results from the growth and cost savings initiatives we have been pursuing,β said Andrew Rebholz, TA’s CEO.
βIn our travel centers segment, each of nonfuel revenues and nonfuel gross margin grew at 5.5% and 6.7%, respectively, as compared to the 2017 second quarter, reflecting the continued growth in our commercial tire dealer, RoadSquad OnSite mobile maintenance, and RoadSquad roadside assistance and call center programs. On a same site basis, our consolidated site level gross margin in excess of site level operating expenses improved over the prior year quarter by 6.8% (up 7.4% in the travel center segment and slightly declined in the convenience store segment), reflecting our success in our truck service growth initiatives, the changes we are making in our restaurants and other initiatives to increase revenues and control costs.β
“In addition, we are pleased to announce that we have commenced plans to more aggressively grow our travel center network, including by acquisition, development and franchising and also through the introduction of our newly developed smaller format TA Express concept that will be rolled out in the coming months. We are also pleased to announce that in July we began implementing our convenience store loyalty program and expect to have that program, named GoGo Rewards, fully implemented during the third quarter.
“We also recognized a $51.5 million charge during the second quarter to impair goodwill in our convenience stores segment. Despite this impairment charge, we expect that our convenience stores’ operating results will improve in the second half of 2018.”
Business Commentary
Fuel sales volume for the 2018 second quarter decreased by 1.6 million gallons, or 0.3%, due to a same site fuel sales volume decline of 5.2 million gallons, or 1%, and a net increase of 3.6 million gallons in fuel sales volume at sites opened or closed since the beginning of the 2017 second quarter, each as compared to the 2017 second quarter.
TA believes the fuel sales volume decrease on a same site basis experienced during the 2018 second quarter primarily resulted from the continued effects of fuel efficiency gains and increased competition, partially offset by the effects of TA’s fuel pricing and marketing strategies.
Fuel revenues increased by $321.5 million, or 32.9%, in the 2018 second quarter as compared to the 2017 second quarter, primarily due to higher market prices for fuel during the 2018 second quarter. Fuel gross margin decreased by $3.0 million, or 3.2%, as compared to the 2017 second quarter, primarily as a result of the slight fuel sales volume decline and TA’s loyalty program having a larger impact on fuel gross margin in the 2018 second quarter than it did in the 2017 second quarter.
Nonfuel revenues increased by $20.1 million, or 3.9%, in the 2018 second quarter as compared to the 2017 second quarter, including a $15.7 million same site increase and a $4.4 million increase attributable to new sites. The increase on a same site basis was primarily due to growth in TA’s truck service program and the positive impact of certain of TA’s marketing initiatives. Nonfuel gross margin increased by $16.7 million, or 5.7%, in the 2018 second quarter as compared to the 2017 second quarter, including a $13.9 million same site increase and a $2.8 million increase attributable to recently acquired and developed sites.
The increase in nonfuel gross margin was primarily due to the increase in nonfuel revenues and an increase in the nonfuel gross margin percentage. The nonfuel gross margin percentage was 57.7% for the 2018 second quarter as compared to 56.7% for the 2017 second quarter; the increase in the nonfuel gross margin percentage was primarily due to a change in the mix of products and services sold, including the growth of TA’s truck service program.
Site level operating expenses increased by $3.3 million, or 1.3%, in the 2018 second quarter as compared to the 2017 second quarter due to a $2.6 million increase from new sites since the beginning of the 2017 second quarter and a $0.7 million same site increase. The increase on a same site basis was primarily due to increased labor costs to support the increase in nonfuel sales. Site level operating expenses as a percentage of nonfuel revenues improved to 47.6% for the 2018 second quarter as compared to 48.8% for the 2017 second quarter. The improvement in site level operating expenses as a percentage of nonfuel revenues was primarily the result of the growth in TA’s truck service program and TA’s cost saving initiatives, as well as excess transaction fees of $2.8 million charged by Comdata, Inc., or Comdata, in the 2017 second quarter, which excess transaction fees Comdata repaid to TA later in 2017 pursuant to a court order.
Selling, general and administrative expenses for the 2018 second quarter decreased by $8.3 million, or 21.8%, as compared to the 2017 second quarter, primarily attributable to $10.1 million of reimbursed litigation expenses collected from Comdata during the 2018 second quarter, partially offset by a $1.8 million increase in compensation expense due to the retirement of TA’s former CEO as well as annual salary increases and increased headcount, and a $1.4 million increase in legal fees in connection with matters unrelated to Comdata.
Real estate rent expense increased by $2.1 million, or 3.1%, in the 2018 second quarter as compared to the 2017 second quarter, primarily from TA’s sale to, and lease back from, Hospitality Properties Trust, or HPT, of one travel center in May 2017 and improvements at leased sites since the beginning of the 2017 second quarter.
Depreciation and amortization expense increased by $1.3 million, or 4.4%, in the 2018 second quarter as compared to the 2017 second quarter primarily resulting from write offs of certain assets and the growth in depreciable assets as a result of the locations acquired and other capital investments TA completed (and did not subsequently sell to HPT) since the beginning of the 2017 second quarter.
TA recognized a goodwill impairment charge of $51.5 million during the 2018 second quarter in its convenience stores segment. Prior to this impairment charge, the total amount of convenience store segment assets was approximately $466.6 million, including $69.9 million of goodwill. The impairment charge reflects the amount by which the carrying value of the segment exceeded its estimated fair value. More specifically, this charge primarily is due to the results in this segment failing to meet TA’s projections in connection with convenience store acquisitions completed in 2013 through 2016, as well as changes in certain assumptions that affect the business valuations, including an increase in the discount rate applied.
Net loss for the 2018 second quarter was $33.9 million as compared $2.9 million for the 2017 second quarter. Adjusted net loss for the 2018 second quarter was $2.4 million as compared to adjusted net income of $0.4 million for the 2017 second quarter. The change in adjusted net loss was primarily due to a slight decline in site level gross margin in excess of site level operating expenses in TA’s convenience store segment and in corporate and other of $0.2 million and $0.4 million, respectively, as well as the increase in selling, general and administrative expenses of $3.3 million and in real estate rent expense of $2.1 million, partially offset by a $7.5 million increase in site level gross margin in excess of site level operating expenses in TA’s travel center segment.
Net loss per common share attributable to common shareholders for the 2018 second quarter was $0.85 as compared to $0.08 for the 2017 second quarter. Adjusted net loss per common share attributable to common shareholders for the 2018 second quarter was $0.05 as compared to adjusted net income per common share attributable to common shareholders for the 2017 second quarter of $0.01.
Adjusted EBITDA for the 2018 second quarter decreased by $0.3 million as compared to the 2017 second quarter.
Travel Centers Segment
Fuel sales volume increased modestly for the 2018 second quarter as compared to the 2017 second quarter due to new locations. Same site fuel sales volume decreased by 4.5 million gallons, or 1.0%, due to the continued effects of fuel efficiency gains and increased competition, partially offset by TA’s fuel pricing and marketing strategies. Fuel revenues increased by $289.6 million, or 34.7%, in the 2018 second quarter as compared to the 2017 second quarter primarily due to higher market prices for fuel and from sites acquired since the beginning of the 2017 second quarter. Fuel gross margin decreased by $2.3 million, or 3.0%, to $73.9 million due to lower fuel gross margin per gallon.
Nonfuel revenues increased by $23.9 million, or 5.5%, in the 2018 second quarter as compared to the 2017 second quarter primarily due to an $18.8 million, or 4.3%, increase on a same site basis primarily as a result of growth in TA’s truck service program and the positive impact of certain of TA’s marketing initiatives. Nonfuel gross margin increased by $17.5 million, or 6.7%, in the 2018 second quarter as compared to the 2017 second quarter due to an increase in nonfuel revenues and an increase in the nonfuel gross margin percentage. Nonfuel gross margin percentage was 60.8% in the 2018 second quarter as compared to 60.1% in the 2017 second quarter; the increased nonfuel gross margin percentage was primarily the result of changes in TA’s mix of products and services sold.
Site level gross margin in excess of site level operating expenses increased by $10.3 million, or 8.4%, in the 2018 second quarter as compared to the 2017 second quarter primarily due to an increase at same sites. On a same site basis, (224 locations) site level gross margin in excess of site level operating expenses increased in the 2018 second quarter by $9.0 million, or 7.4%, as compared to the 2017 second quarter, primarily due to the following factors:
an increase in nonfuel gross margin due to the increase in nonfuel revenues and an increase in nonfuel gross margin percentage that primarily was due to the change in the mix of products and services sold; and
an improvement in site level operating expenses as a percentage of nonfuel revenues that primarily was due to growth in TA’s truck service programs, cost savings initiatives and the excess transaction fees charged by Comdata in 2017, which excess transaction fees Comdata subsequently repaid to TA pursuant to a court order.
These increases were partially offset by a decrease in fuel gross margin due to the decline in fuel sales volume and TA’s loyalty program having a larger impact on fuel gross margin in the 2018 second quarter as compared to the 2017 second quarter.
Convenience Stores Segment
Fuel sales volume decreased by 1.2 million gallons, or 1.9%, for the 2018 second quarter as compared to the 2017 second quarter. This decrease was primarily due to the continued effects of increased competition at same sites and three locations TA closed in 2018. Fuel revenues increased by $27.3 million, or 22.3%, in the 2018 second quarter as compared to the 2017 second quarter primarily due to higher market prices for fuel, partially offset by a decrease in fuel sales volume on a same site basis due to competition and three locations TA closed in 2018. Fuel gross margin decreased by $0.7 million, or 4.5%, to $14.8 million as a result of the decrease in fuel sales volume.
Nonfuel revenues decreased by $2.3 million, or 3.2%, in the 2018 second quarter as compared to the 2017 second quarter primarily due to a decrease in nonfuel revenues on a same site basis primarily due to increased competition. Nonfuel gross margin decreased by $0.2 million, or 0.7 %, in the 2018 second quarter as compared to the 2017 second quarter. Nonfuel gross margin percentage was 35.8% in the 2018 second quarter as compared to 34.9% in the 2017 second quarter. The increase in the nonfuel gross margin percentage was primarily the result of changes in TA’s mix of products sold.
Site level gross margin in excess of site level operating expenses decreased in the 2018 second quarter by $0.2 million, or 1.9%, as compared to the 2017 second quarter due to three locations TA closed in 2018 and a decrease on a same site basis. On a same site basis (226 locations) site level gross margin in excess of site level operating expenses decreased in the 2018 second quarter by 0.1% as compared to the 2017 second quarter.