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    Retail Fuel Margins Suffer Large Decline at Tesoro

    Branded retail prices were below spot market prices, CEO cites.

    SAN ANTONIO -- A significant decline in retail fuel margins had a large impact on both total retail and companywide corporate earnings at Tesoro Corp. during its 2013 fiscal fourth quarter.

    Retail fuel margins dropped to 9 cents per gallon for the latest quarter ended Dec. 31, vs. 25 cents per gallon in the same quarter in 2012. For all of 2013, Tesoro generated a 12-cent margin per gallon, compared to 21 cents in fiscal year 2012.

    As for why its retail fuel margins dropped in the latest quarter, President and CEO Greg Goff explained that the problem occurred at Tesoro’s California gas stations for two-thirds of December.

    "Branded retail prices were below spot market prices," he said during today's earnings call. "That situation has now changed."

    Goff did not go into more detail or provide information regarding whether the situation could happen again in the future.

    The fuel-margin decline led Tesoro's retail division to earn a $24-million profit in its 2013 fourth quarter, vs. $41 million in the same quarter a year prior.

    Total fuel sales rose to $1.029 billion for Tesoro's latest quarter vs. $450 million a year prior. Much of the increase was due to Tesoro's acquisition of BP's ARCO brand and associated registered trademarks, as well as the master franchisee license for the ampm convenience store brand at 835 locations, said Goff.

    As of Dec. 31, San Antonio-based Tesoro operated 574 company-operated retail locations, as well as 1,690 branded jobber/dealer sites. At the end of 2012, the company had 568 company-operated locations and 804 branded jobber/dealer locations.

    Shifting to inside its convenience stores, Tesoro's in-store merchandise sales were essentially flat. Merchandise sales did rise $2 million to $46 million in the fourth quarter, but merchandise margins remained the same and merchandise margin percentage declined 1 percent year over year to 24 percent.

    Companywide, Tesoro lost $7 million for its latest quarter, compared to a net profit of $27 million in its 2012 fourth quarter. Approximately $12 million of the loss was attributed to one-time items, including a $3-million charge Tesoro absorbed related to its sale of 31 convenience stores and gas stations in Hawaii to Par Petroleum Corp.

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