Murphy USA’s Q1 Performance Bucks the Trend
EL DORADO, Ark. — While many convenience store retailers have struggled in the first quarter of 2016 to approach record or near-record earnings compared to the same quarter a year ago, Murphy USA Inc. is the exception. In fact, the retailer's results rose year over year in nearly every metric the company tracks.
Overall, Murphy USA reported net income of $85.9 million, nearly quadruple the $22.9 million the convenience store operator earned in its 2015 first quarter. This figure included $56 million of after-tax gain on disposition of the CAM pipeline system, which closed March 31.
Specifically inside the company's convenience stores, the most noticeable impact came from merchandise contribution dollars, which grew 16.8 percent year over year, with record average unit margins of 15.3 percent for the quarter ended March 31. The company cited tobacco sales as providing a huge boost.
The convenience store retailer’s new distribution agreement with Core-Mark Holding Co. Inc., which took effect in February, was the primary reason for the large merchandise sales jump, Murphy USA President and CEO Andrew Clyde stated during the Q1 earnings call Monday morning.
“The successful transition of our merchandise supply chain to Core-Mark in February provided a material boost to merchandise margins,” Clyde said.
On the non-tobacco side, lottery sales and better overall execution lifted in-store results, the chief executive added.
At the forecourt, retail fuel contribution increased by $2.7 million to $28 million. Retail fuel volumes rose by 45 million gallons to 1.007 billion gallons. Retail fuel margin on a cents-per-gallon basis, excluding credit card fees, improved by 1.1 cents to 11.1 cents per gallon. According to Clyde, this retail fuel margin was its highest first-quarter total since the first quarter of 2002.
The only negative that could be found on the balance sheet was retail fuel volumes on a per-site basis, which dropped by a small 0.6 percent to 252,000 gallons per site. The company cited the impact of the high number of new stores opened in Q4 2015 that are ramping up as the rationale for this decline.
Labor expenses — something beginning to negatively affect some c-store operators as pressure mounts to raise the minimum wage — were flat in Murphy USA’s most recent quarter. Clyde added that direct-store operating expenses, something also rising for some retailers, fell 1.7 percent year over year at the El Dorado-based retailer.
From a competitive standpoint, Clyde said Wal-Mart Stores Inc. has yet to open many of its own c-stores near Murphy USA locations. For the few that have opened, the CEO noted the impact has not been any different from that of any other retailer opening in the area of one of its stores.
ORGANIC GROWTH
Murphy USA opened one new convenience store in its 2016 first quarter, bringing its total to 1,336 c-stores, consisting of 1,111 Murphy USA sites and 225 Murphy Express sites.
Twenty-three stores are currently under construction, with a goal for Murphy USA to build 60 to 80 new stores this year. The c-store operator is also on track to “refresh” 300 of its stores this year.
In a further display of its confidence in the company's financial strength, Murphy USA bought 24 million of its shares in the first quarter. When questioned by a Wall Street analyst, Clyde said the company will consider initiating a dividend in the future.
“Shareholders want something meaningful, which means [the dividend should be yielding] 2 or 3 or 4 percent,” he said. “…Investors first want to see organic earnings growth.”
Investors cheered Murphy USA’s earnings results, with its shares rising more than $6 per share, or more than 10 percent, in Monday afternoon trading on the NASDAQ National Market.