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EL DORADO, Ark. — Organic growth is part of Murphy USA Inc.'s formula for creating shareholder value, and the retailer continues to make progress on this front.
Murphy USA opened five new sites in the first quarter of this year vs. only one store in the same period a year ago, according to President and CEO Andrew Clyde.
"Being able to load-level our construction process around new stores, in conjunction with a more aggressive raze-and-rebuild program this year, will help us control costs and timing around new store openings, which are more heavily concentrated in the spring and summer months," Clyde explained during the company's first-quarter earnings call Tuesday morning.
By comparison, the majority of its new builds in 2016 were put into service late in the third and fourth quarters, "which is not an opportune time for new store openings," he acknowledged. "With stores opening during summer when traffic is heavier, it is much easier to attract new customers."
Currently, 17 high-performing sites are down for raze-and-rebuilds, but Murphy USA expects to have them back up in time for the summer driving season. Three additional raze-and-rebuild projects should be completed in the fall.
"While this timing has a notable impact on our fuel and tobacco volumes in [the first quarter], this approach generates the best long-run performance, which is what matters the most," Clyde said.
Additionally, Murphy USA plans to install approximately 240 larger three-door super coolers this year, which will largely complete the retailer's network expansion. Opportunities to install smaller two-door super coolers will take place in 2018 and will be less in number — roughly 100 locations.
The super coolers offer 68 percent more capacity, a more diverse high-margin mix of beverages outside of the carbonated soft drinks category, and these additional facings allow Murphy USA to "better execute promotions, and qualify for better shelf allowances and rebates," Clyde said.
"The refresh program is continuing on pace," he reported, adding that this is the last year of the company's accelerated refresh program of around 300 stores. "At the end of the year, we will have touched 900 stores in the network, leaving roughly 150 that will require a full refresh in 2018. Then, a much slower-paced, less capital-intensive maintenance schedule will continue after that."
Q1 FINANCIAL NOTES
Looking at the financials, Murphy USA experienced a soft quarter as first-quarter EBITDA fell to its lowest level since 2011. Record industry refined product inventory levels led to depressed wholesale prices, regulatory and political uncertainty dampened RIN prices, and seasonally weak demand at the beginning of the year impacted retail volume, according to the company.
"To investors, the most obvious area of underperformance was in product supply and wholesale results; however, we note that first-quarter retail volumes and margins were also both soft compared to 2016," Clyde explained.
When coupled with higher operating costs, such as credit card fees — which reflect higher gasoline prices and a larger store network — year-over-year adjusted EBITDA of $30.3 million was below first-quarter 2016 results of $83.1 million, the chief executive said.
"While these results were below expectations, it is important to remember that the first quarter typically comprises the smallest contribution to our net income on an annual basis," he noted. "Moreover, our 2016 [first-quarter] results were well above the prior four-year average of $39 million."
On a relative basis, he said the first quarter of this year was still below average, "but the comparison is not as severe when looking at what was a very strong first quarter in 2016," Clyde stated.
Overall, "we are excited about the opportunities ahead and remain committed to improving the long-run earnings potential of this business," he said.
El Dorado-based Murphy USA ended the first quarter of 2017 with 1,406 stores, consisting of 1,152 Murphy USA sites and 254 Murphy Express sites. A total of 35 stores are currently under construction, including the previously mentioned 17 raze-and-rebuild locations.