FRANKLIN, Tenn. -- Delek US Holdings Inc. has released financial results for the first quarter ended March 31, 2006. Net sales for the quarter increased 188% to $659.8 million compared with $229.1 million for first-quarter 2005. Net income increased to $12.9 million, or 33 cents per diluted share, from $165,000 for the first quarter last year.
Uzi Yemin, president and CEO of Delek US, said, Our strong profitable growth primarily resulted from the acquisition of our refining operations in Tyler, Texas, on April 29, 2005. In addition, we have continued [image-nocss] to expand our retail segment through both the addition of new stores and increased same-store sales. With the completion of our initial public offering in May 2006, which provided net proceeds to Delek of approximately $172 million, we believe we are well positioned to implement our growth strategies for each of our businesses.
Net sales were $362 million for the refining segment for first-quarter 2006, reflecting sales volume of 4.9 million barrels of refined petroleum products at an average sales price of $73.36. With a refining operating margin of $8.83 per barrel for the quarter and direct operating expenses of $3.61 per barrel, the refining business produced a segment contribution margin of $25.4 million for first-quarter 2006.
Delek achieved a substantial increase in throughput (average barrels processed per day), to 59,624 barrels per day (bpd) for first-quarter 2006 from 53,150 bpd for the last eight months of 2005. This improvement was driven by efficiencies gained in the major turnaround Delek undertook in December 2005 for all process units not involved in the turnaround completed early in 2005 by the refinery's prior owner. Delek does not expect that a major turnaround will be necessary prior to 2010.
Delek's first-quarter refining operating margin of $8.83 per barrel remained above the U.S. Gulf Coast 5-3-2 crack spread of $8.13 per barrel. Since acquisition, Delek has operated at a premium to the crack spread because of the strength of Delek's positioning in the Tyler-area market, and the continued high demand for light products, which contribute more than 90% of its product mix.
For the retail segment, net sales increased 30% for first-quarter 2006, to $297.6 million from $229 million for first-quarter 2005. Contributing to this growth, the average retail fuel price per gallon rose 22% to $2.31 for the quarter and retail gallons sold increased 12.7% to 90.2 million. The majority of the increase in retail gallons resulted from the acquisition of 21 convenience stores in December 2005, as well as an increase of 1.7% in comparable-store gallons sold.
Also, merchandise sales grew 10.2% for first-quarter 2006 to $72.8 million, due both to the growth in stores in operation to 349 at the end of the quarter from 329 at the same time in 2005 and to a 5.2% increase in same-store merchandise sales. Segment contribution margin for the retail business was $10.4 million for first-quarter 2006, up 7.5% from $9.7 million for first-quarter 2005.
Delek's first-quarter growth in same-store merchandise sales reflects an improving economic environment, as well as its focus on marketing and sales of food, coffee and fountain drinks, especially the introduction of its proprietary GrilleMarx branded food offerings. The sales growth in these higher margin items, combined with the double-digit growth in total gallons sold, enabled Delek to offset the impact of higher fuel prices and increased credit expense.
During the first quarter, Delek completed the re-imaging of the majority of the 21 BP stores acquired in December and launched its next-generation store concept, Mapco Mart, which is designed to add quality fresh food offerings in a modern, upscale facility. Delek expects this new concept to produce higher margins and expand its potential customer base, by attracting core c-store shoppers, as well as customers seeking freshly prepared meals. Delek opened two of these new concept stores via its raze-and-rebuild strategy during the first quarter and has already opened two additional stores thus far in the second quarter.
On a longer-term basis, we are focused on significant growth opportunities for both our refining and retail businesses, Yemin added. We have a demonstrated record of successfully completing and integrating acquisitions, and, with our strong financial position, particularly after completing the IPO, we expect to leverage our expertise in an industry environment that has produced attractive acquisition opportunities for both refining and retail assets. Our strategies are also designed to produce profitable organic growth. In refining, both the industry dynamics and our strong Tyler-area market position are compelling, and we are engaged in an array of initiatives to modernize and improve the profitability of our refining operations through operational changes and capital investments expected to improve efficiency, processing capacity and utilization. In retail, we are continuously focused on improving our store economics through branding initiatives and targeted merchandising strategies, renewal of our physical retail assets and investment in our proprietary technology infrastructure.
He concluded, In a highly fragmented industry, we expect these investments and our scale advantages to enable us to increase our market share within our existing geographic footprint and by expanding to contiguous states.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.