SQRL Faces Financial Strain After Ambitious Expansion

Convenience store in Alpena that is among the many dormant properties in SQRL’s footprint. (George Waldon)

The initial gush of optimism when the SQRL convenience store chain announced the purchase of 210 additional stores last fall has given way to harsh financial realities.

“Our new stores will be seamlessly integrated into SQRL’s existing infrastructure, ensuring a smooth transition to service our customers,” founder and CEO Joseph Blake Smith said in an Oct. 16 press release announcing the purchase that more than doubled the Little Rock company’s portfolio.

But in the weeks since the deal closed, SQRL adopted belt-tightening measures that caused operational ripples across its 20-state footprint. The company instituted a round of cost-cutting moves that included layoffs of between 100 and 200 full- and part-time employees, closing some stores and reducing hours at others.

Former SQRL staffers indicate the headcount of layoffs is more than twice that number. Smith said he stepped away as CEO about a month ago for health reasons and wasn’t sure about the exact figure.

“It’s a significant amount of people and affects their lives, and I don’t like that,” said Smith, who remains SQRL chairman. “Unfortunately, we’ve had to lay people off — a large number — but we’re starting to rehire some next week,” referring to the week beginning Monday, March 11.
Adam Lusthaus, a SQRL partner, is now CEO. Preston Eldridge, the company’s general counsel, is now chief operating officer.

A sample of 28 SQRL locations visited in central, western and northern Arkansas in late February found that 23 were closed and only two had functioning fuel pumps.

The identity of the seller and the sales price of the October acquisition were not disclosed. However, some of the properties now listed as SQRL holdings were owned by affiliates of New York’s Blue Owl Capital.

As measured by the number of properties, the SQRL acquisition ranked among the largest among notable C-store deals in 2023.

“We took on all these stores,” Smith said. “It was quite the monumental task, and we had to temporarily reallocate capital and resources. It’s going to take us awhile to get our hands around everything.”

SQRL now identifies 315 locations on its website. However, only a fraction of the properties represented in the company’s footprint are operational convenience stores.

Exactly how many are open and fully functioning is unknown.

According to its website, SQRL has 50 properties in Arkansas, more than any other state. Rounding out the company’s top five are Louisiana, 44; Florida, 41; Texas, 24; and Oklahoma, 23.

Visits late last month to 28 SQRL locations found five stores were open for business in Conway, Vilonia, Springdale, the Gepp community in Baxter County and Melbourne.

Of these, one had no fuel, none of the pumps were working at two, and about half of the pumps weren’t working at the other two. Empty sections of merchandise shelving and refrigerated display cases reflected inventory challenges.

‘Didn’t Have a Good Feeling’

SQRL approached Douglas Cos. Inc. of Conway about supplying merchandise for its convenience stores, but Douglas — one of the largest private companies in the state — opted to pass.

“They reached out to us early on, but they weren’t very forthcoming with their financial references,” Steve Douglas, president of the convenience products distributor, said. “We just didn’t have a good feeling about it.

“We’ve been in business a long time and were familiar with a lot of the stores they bought. They were paying good money for some locations where previously no one had any success.”

Of the 23 closed stores visited recently, 13 were part of SQRL’s October acquisition of properties formerly associated with Mountain Express Oil Co. of Alpharetta, Georgia. The Vilonia and Gepp stores were also among the Mountain Express locations purchased.

That SQRL transaction was put in motion a year ago when Mountain Express filed for Chapter 11 reorganization in Texas Southern Bankruptcy Court in Houston. That bankruptcy case was converted to Chapter 7 liquidation in August when the company couldn’t rework its debt structure with its primary landlord: Blue Owl Capital.

The court-ordered move to bankruptcy liquidation washed away the leasehold interests of Mountain Express, a fuel distributor as well as a convenience store operator. That freed up the properties for sale.

Smith said that more than 100 of the 210 stores are tied up in post-bankruptcy disputes between Blue Owl and tenants who were subleasing properties from Mountain Express.
“The bankruptcy really screwed a lot of people over and screwed up the properties,” Smith said. “It’s a real pickle because you can’t run in there and force them out.”

Arkansas properties leased to Mountain Express were owned by Blue Owl Capital affiliates such as Mountain Portfolio AR LLC, Mountain Portfolio Owner AROKMS LLC and Mountain Portfolio Owner Alarms LLC.

When Mountain Express filed its Chapter 11 petition last March, CEO Turjo Wadud offered an assessment that would prove wildly off the mark: “I am confident in the strength of our business and our team and look forward to achieving a comprehensive resolution that will best position Mountain Express for long-term success.”

Credit Management

Some vendors doing business with SQRL report the company is making good on late payments as it wrestles with managing the impact of the 210 new properties on monthly cash flow.

One vendor, who requested anonymity, said he was told by an apologetic company official: “We didn’t know we were getting into this big of a mess. We didn’t do proper investigation, and most of the properties were in disarray, a lot more than we expected.”

“Other than this hiccup, it’s been great working with them,” the vendor said of delayed payment. “They’ve got an uphill battle, but they know it. They apparently went off of Realtor reports and didn’t inspect all the properties.”

SQRL was having credit issues that predated taking the Mountain Express purchase.

North Little Rock’s Coulson Oil Co. remains in a dispute totaling $518,819 for fuel deliveries to 15 SQRL stores that mostly date back to June.

Smith said a settlement was reached with Coulson. Asked about a settlement with SQRL, Coulson Oil’s attorney, Don Campbell, said, “No comment.” The case in Pulaski County Circuit Court has sat dormant since Jan. 26.

According to Coulson’s complaint, the company attempted to collect payments authorized by a credit agreement via electronic funds transfers. Coulson endured additional charges for trying to collect payments from a SQRL account with insufficient funds.

Founded on Acquisition

Built through a formula of buying and updating traditional C-stores, SQRL features a three-tone blue squirrel face logo tied to its brand name. SQRL stands for the company’s espoused values of service, quality, relationships and loyalty.

Store purchase-makeovers are accomplished through Smith’s Standard Development Co., which typically finds a sale-leaseback buyer to convert the renovated property to cash. Formed in 2020, Standard Development struck its first central Arkansas deals in 2021.

America is home to an estimated 155,000 convenience stores. “Over half of those are owned by individuals versus corporate,” said Ken Currier, partner in C-Store Investments LLC of Gilford, New Hampshire. “That’s slowly changing. There’s been a lot of consolidation, and there could be a lot more.”

The industry is trending to bigger and newer stores with the number of smaller and older stores waning.

“Food service has become a bigger source of revenue with better profit margins,” Currier said. “That’s leading to a need for more space for seating. Here in the Northeast that could translate into an $8 million store with even more shelf space for merchandise.

“A lot of people scratch their heads and say, ‘How do you make this work?’ but they’re finding that consumers love it.”

In addition to SQRL’s 210-store transaction, notable C-store deals in North America included:

► April 17: Alimentation Couche-Tard Inc. of Laval, Canada, bought 45 Big Red stores in Arkansas for $290 million from Summerwood Partners LLC of Bryant.

► May 1: Alimentation Couche-Tard bought 11 stores in the Florida Keys from Dion’s Enterprises of Key West, Florida.

► June 16: Casey’s General Stores of Ankeny, Iowa, purchased 26 Minit Marts in the Kansas City area from EG America LLC of Westborough, Massachusetts, the U.S. division of U.K. retailer EG Group.

► July 7: Global Fuels Inc. of Markham, Canada, acquired 241 stores across Canada from Greenergy International Ltd. of London.

► Aug. 15: Casey’s General Stores bought 63 Minit Mart and Certified Oil stores in Kentucky and Tennessee from EG America.

► Aug. 17: Nouria Energy Corp. of Worcester, Massachusetts, bought 13 Harry’s stores in Maine from H.A. Mapes Inc. of Springvale, Maine.

► Oct. 13: Sierra Enterprises Oregon Inc. of Mukilteo, Washington, acquired 24 stores in Oregon from Leathers Enterprises Inc. of Portland, Oregon.

► Nov. 7: Casey’s General Stores purchased 22 Lone Star Food Stores in the Sherman, Texas, area from W. Douglass Distributing Ltd. of Sherman.